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CONTRACTS

B. Object/Subject Matter
Art. 1347-1349
Existing vs. Future Things (Art. 1347)
G.R. No. 165851 February 2, 2011
MANUEL CATINDIG, represented by his legal representative EMILIANO CATINDIG-RODRIGO,
Petitioner, vs.
AURORA IRENE VDA. DE MENESES, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 168875
SILVINO ROXAS, SR., represented by FELICISIMA VILLAFUERTE ROXAS, Petitioner, vs.
COURT OF APPEALS and AURORA IRENE VDA. DE MENESES Respondents.
DECISION
PERALTA, J.:

Before this Court are two consolidated cases, namely, (1) Petition for Review on Certiorari under Rule 45
of the Rules of Court, docketed as G.R. No. 165851, filed by petitioner Manuel Catindig, represented by
Emiliano Catindig-Rodrigo, assailing the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 65697,
which affirmed the Decision of the Regional Trial Court of Malolos, Bulacan in Civil Case No. 320-M-95;
and (2) Petition for Certiorari under Rule 65 of the Rules of Court, docketed as G.R. No. 168875, filed by
petitioner Silvino Roxas, Sr., represented by Felicisima Villafuerte Roxas, seeking to set aside the
Decision2 and Resolution3 of the CA in CA-G.R. CV No. 65697, which affirmed the decision of the Regional
Trial Court of Malolos, Bulacan in Civil Case No. 320-M-95.

The property subject of this controversy pertains to a parcel of land situated in Malolos, Bulacan, with an
area of 49,139 square meters, titled in the name of the late Rosendo Meneses, Sr., under Transfer
Certificate of Title (TCT) No. T-1749 (hereinafter referred to as the Masusuwi Fishpond). Respondent
Aurora Irene C. Vda. de Meneses is the surviving spouse of the registered owner, Rosendo Meneses, Sr..
She was issued Letters of Administration over the estate of her late husband in Special Proceedings Case
No. 91498 pending before the then Court of First Instance of the City of Manila, Branch 22. On May 17,
1995, respondent, in her capacity as administratrix of her husband's estate, filed a Complaint for Recovery
of Possession, Sum of Money and Damages against petitioners Manuel Catindig and Silvino Roxas, Sr.
before the Regional Trial Court of Malolos, Bulacan, to recover possession over the Masusuwi Fishpond.

Respondent alleged that in September 1975, petitioner Catindig, the first cousin of her husband, deprived
her of the possession over the Masusuwi Fishpond, through fraud, undue influence and intimidation. Since
then, petitioner Catindig unlawfully leased the property to petitioner Roxas. Respondent verbally
demanded that petitioners vacate the Masusuwi Fishpond, but all were futile, thus, forcing respondent to
send demand letters to petitioners Roxas and Catindig. However, petitioners still ignored said demands.
Hence, respondent filed a suit against the petitioners to recover the property and demanded payment of
unearned income, damages, attorney's fees and costs of suit.

In his Answer, petitioner Catindig maintained that he bought the Masusuwi Fishpond from respondent and
her children in January 1978, as evidenced by a Deed of Absolute Sale. Catindig further argued that even
assuming that respondent was indeed divested of her possession of the Masusuwi Fishpond by fraud, her
cause of action had already prescribed considering the lapse of about 20 years from 1975, which was
allegedly the year when she was fraudulently deprived of her possession over the property.

Petitioner Roxas, on the other hand, asserted in his own Answer that respondent has no cause of action
against him, because Catindig is the lawful owner of the Masusuwi Fishpond, to whom he had paid his
rentals in advance until the year 2001.

After trial, the trial court ruled in favor of respondent, thus:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff [respondent herein],

(a) Ordering the defendants [petitioners herein] to vacate the Masusuwi Fishpond and turn over the
possession/occupancy thereof to plaintiff [respondent herein];

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(b) Ordering the defendants [petitioners herein] to pay and/or reimburse plaintiff [respondent herein] the
amount of ₱90,000.00 per year since 1985 up to the time possession of the fishpond is surrendered to
plaintiff [respondent herein];

(c) Ordering the defendants [petitioners herein] jointly and severally to pay plaintiff [respondent herein]
the amount of ₱100,000.00 as attorney's fees, and to pay the costs of suit.

The counterclaims of defendants [petitioners herein] are ordered dismissed, for lack of merit.

SO ORDERED.

The trial court found that the Deed of Absolute Sale executed between respondent and petitioner Catindig
was simulated and fictitious, and therefore, did not convey title over the Masusuwi Fishpond to petitioner
Catindig.1avvphi1 It gave due credence to the testimony of respondent that petitioner Catindig convinced
her to sign the said deed of sale, because it was intended to be a mere proposal subject to the approval of
the trial court wherein the proceedings for the settlement of the estate of Rosendo Meneses, Sr. was still
pending. The court a quo was further convinced that the Deed of Absolute Sale lacked consideration,
because respondent and her children never received the stipulated purchase price for the Masusuwi
Fishpond which was pegged at PhP150,000.00. Since ownership over the property never transferred to
Catindig, the trial court declared that he has no right to lease it to Roxas. The court also found that
petitioner Roxas cannot claim good faith in leasing the Masusuwi Fishpond, because he relied on an
incomplete and unnotarized Deed of Sale.

Aggrieved, petitioners separately challenged the trial court's Decision before the CA. The CA dismissed
both the petitioners' appeals and affirmed the RTC. The CA ruled that the trial court properly rejected
petitioners' reliance on the deed of absolute sale executed between respondent and petitioner Catindig.
The CA also found that since it is settled that a Torrens title is a constructive notice to the whole world of
a property's lawful owner, petitioner Roxas could not invoke good faith by relying on the Deed of Absolute
Sale in favor of his lessor, petitioner Catindig.

Hence, petitioner Catindig filed this Petition for Review on Certiorari under Rule 45, raising the following
issues:

1. WHETHER THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE TRIAL COURT'S DECISION
IN NOT HOLDING THAT RESPONDENT'S CAUSE OF ACTION IS IN REALITY, ONE FOR ANNULMENT OF
CONTRACT UNDER ARTICLES 1390 AND 1391 OF THE NEW CIVIL CODE.

2. WHETHER THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE TRIAL COURT'S DECISION
IN NOT HOLDING THAT RESPONDENT'S CAUSE OF ACTION IS BASED ON ALLEGED FRAUD AND/OR
INTIMIDATION, HAS NOT PRESCRIBED.

3. WHETHER THE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN DISREGARDING THE
GENUINENESS AND DUE EXECUTION OF THE DEED OF ABSOLUTE SALE.

On the other hand, petitioner Silvino Roxas, Sr. filed a Petition for Certiorari under Rule 65, raising this
lone issue:

WHETHER THE HONORABLE COURT OF APPEALS HAS ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN FINDING THAT THE PETITIONER IS JOINTLY AND
SOLIDARILY LIABLE WITH HIS CO-DEFENDANT; AND IN NOT CONSIDERING THAT HE WAS A LESSEE IN
GOOD FAITH OF THE SUBJECT PROPERTY.

The issues raised by petitioner Catindig could be reduced into whether the Deed of Sale was genuine or
simulated.

Petitioner Catindig maintains that the deed of sale was voluntarily signed by respondent and her children,
and that they received the consideration of PhP150,000.00 stipulated therein. Even on the assumption
that they were defrauded into signing the agreement, this merely makes the deed voidable, at most, due
to vitiated consent. Therefore, any cause of action respondent may have, had already prescribed, and the

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contract was already ratified by respondent's failure to file any action to annul the deed within four years
from 1978, the year when respondent discovered the fraud.

Respondent, on the other hand, insists that the deed of sale is not merely voidable, but void for being
simulated. Hence, she could not have filed an action for annulment of contract under Articles 1390 and
1391 of the Civil Code, because this remedy applies to voidable contracts. Instead, respondent filed an
action for recovery of possession of the Masusuwi Fishpond.

The issue on the genuineness of the deed of sale is essentially a question of fact. It is settled that this
Court is not duty-bound to analyze and weigh again the evidence considered in the proceedings below.
This is especially true where the trial court's factual findings are adopted and affirmed by the CA as in the
present case. Factual findings of the trial court, affirmed by the CA, are final and conclusive and may not
be reviewed on appeal.

The Court finds that there exists no reason for Us to disturb the trial court's finding that the deed of sale
was simulated. The trial court's discussion on the said issue is hereby quoted:

After evaluating the evidence, both testimonial and documentary, presented by the parties, this court is
convinced that the Deed of Absolute Sale relied upon by the defendants [petitioners herein] is simulated
and fictitious and has no consideration.

On its face, the Deed of Absolute sale (Exh. "G", Exh. "1") is not complete and is not in due form. It is a
3-page document but with several items left unfilled or left blank, like the day the document was
supposed to be entered into, the tax account numbers of the persons appearing as signatories to the
document and the names of the witnesses. In other words, it was not witnessed by any one. More
importantly, it was not notarized. While the name Ramon E. Rodrigo, appeared typed in the
Acknowledgement, it was not signed by him (Exhs. "G", "G-1", "G-4").

The questioned deed was supposedly executed in January, 1978. Defendant [petitioner herein] Catindig
testified that his brother Francisco Catindig was with him when plaintiff [respondent herein] signed the
document. The evidence, however, shows that Francisco Catindig died on January 1, 1978 as certified to
by the Office of the Municipal Civil Registrar of Malolos, Bulacan and the Parish Priest of Sta. Maria
Assumpta Parish, Bulacan, Bulacan.

The document mentions 49,130 square meters, as the area sold by plaintiff [respondent herein] and her
two (2) children to defendant [petitioner herein] Catindig. But this is the entire area of the property as
appearing in the title and they are not the only owners. The other owner is Rosendo Meneses, Jr. [stepson
of herein respondent] whose name does not appear in the document. The declaration of defendant
[petitioner herein] Catindig that Rosendo Meneses, Jr. likewise sold his share of the property to him in
another document does not inspire rational belief. This other document was not presented in evidence and
Rosendo Meneses, Jr., did not testify, if only to corroborate defendant's [petitioner herein] claim.6

The Court also finds no compelling reason to depart from the court a quo's finding that respondent never
received the consideration stipulated in the simulated deed of sale, thus:

Defendant [petitioner herein] Catindig declared that plaintiff [respondent herein] and her children signed
the instrument freely and voluntarily and that the consideration of ₱150,000.00 as so stated in the
document was paid by him to plaintiff [respondent herein]. However, it is not denied that the title to this
property is still in the name of Rosendo Meneses, Sr., and the owner's duplicate copy of the title is still in
the possession of the plaintiff [respondent herein]. If defendant [petitioner herein] Catindig was really a
legitimate buyer of the property who paid the consideration with good money, why then did he not
register the document of sale or had it annotated at the back of the title, or better still, why then did he
not have the title in the name of Rosendo Meneses, Sr. canceled so that a new title can be issued in his
name? After all, he claims that Rosendo Meneses, Jr. [stepson of herein respondent] also sold his share of
the property to him. This will make him the owner of the entire property. But the owner's duplicate copy
of the title remains in the possession of the plaintiff [respondent herein] and no evidence was presented
to show that at anytime from 1978, he ever attempted to get it from her. Equally telling is defendant's
(Catindig) failure to pay the real estate taxes for the property from 1978 up to the present. x x x

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It is a well-entrenched rule that where the deed of sale states that the purchase price has been paid but in
fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. Moreover,
Article 1471 of the Civil Code, provides that "if the price is simulated, the sale is void," which applies to
the instant case, since the price purportedly paid as indicated in the contract of sale was simulated for no
payment was actually made.

Since it was well established that the Deed of Sale is simulated and, therefore void, petitioners’ claim that
respondent's cause of action is one for annulment of contract, which already prescribed, is unavailing,
because only voidable contracts may be annulled. On the other hand, respondent's defense for the
declaration of the inexistence of the contract does not prescribe.

Besides, it must be emphasized that this case is one for recovery of possession, also known as accion
publiciana, which is a plenary action for recovery of possession in an ordinary civil proceeding, in order to
determine the better and legal right to possess, independently of title. The objective of the plaintiffs in
accion publiciana is to recover possession only, not ownership. However, where the parties raise the issue
of ownership, the courts may pass upon the issue to determine who between the parties has the right to
possess the property. This adjudication, however, is not a final and binding determination of the issue of
ownership; it is only for the purpose of resolving the issue of possession where the issue of ownership is
inseparably linked to the issue of possession. The adjudication of the issue of ownership, being
provisional, is not a bar to an action between the same parties involving title to the property.

Thus, even if we sustain petitioner Catindig's arguments and rule that the Deed of Sale is valid, this would
still not help petitioners' case. It is undisputed that the subject property is covered by TCT No. T-1749,
registered in the name of respondent's husband. On the other hand, petitioner Catindig's claim of
ownership is based on a Deed of Sale. In Pascual v. Coronel,12 the Court held that as against the
registered owners and the holder of an unregistered deed of sale, it is the former who has a better right to
possess. In that case, the court held that:

Even if we sustain the petitioner's arguments and rule that the deeds of sale are valid contracts, it would
still not bolster the petitioners’ case. In a number of cases, the Court had upheld the registered owners'
superior right to possess the property. In Co v. Militar, the Court was confronted with a similar issue of
which between the certificate of title and an unregistered deed of sale should be given more probative
weight in resolving the issue of who has the better right to possess. There, the Court held that the court a
quo correctly relied on the transfer certificate of title in the name of petitioner as opposed to the
unregistered deeds of sale of respondents. x x x

Likewise, in the recent case of Umpoc v. Mercado, the Court declared that the trial court did not err in
giving more probative weight to the TCT in the name of the decedent vis-a-vis the contested unregistered
Deed of Sale.

There is even more reason to apply this doctrine here, because the subject Deed of Sale is not only
unregistered, it is undated and unnotarized.

Further, it is a fundamental principle in land registration that the certificate of title serves as evidence of
an indefeasible and incontrovertible title to the property in favor of the person whose name appears
therein.14 It is conclusive evidence with respect to the ownership of the land described therein. Moreover,
the age-old rule is that the person who has a Torrens title over a land is entitled to possession thereof.16

In addition, as the registered owner, respondent's right to evict any person illegally occupying her
property is imprescreptible. In the recent case of Gaudencio Labrador, represented by Lulu Labrador Uson,
as Attorney-in-Fact v. Sps. Ildefonso Perlas and Pacencia Perlas and Sps. Rogelio Pobre and Melinda
Fogata Pobre, the Court held that:

As a registered owner, petitioner has a right to eject any person illegally occupying his property. This right
is imprescriptible and can never be barred by laches. In Bishop v. Court of Appeals, we held, thus:

As registered owners of the lots in question, the private respondents have a right to eject any person
illegally occupying their property. This right is imprescriptible. Even if it be supposed that they were aware
of the petitioners' occupation of the property, and regardless of the length of that possession, the lawful

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owners have a right to demand the return of their property at any time as long as the possession was
unauthorized or merely tolerated, if at all. This right is never barred by laches.

Petitioner Roxas assailed the Decision and the Resolution of the CA via Petition for Certiorari under Rule
65, when the proper remedy should have been the filing of a Petition for Review on Certiorari under Rule
45.

While petitioner Roxas claims that the CA committed grave abuse of discretion, this Court finds that the
assailed findings of the CA, that Roxas is jointly and severally liable with petitioner Catindig and in not
considering him as a lessee in good faith of the subject property, amount to nothing more than errors of
judgment, correctible by appeal. When a court, tribunal, or officer has jurisdiction over the person and the
subject matter of the dispute, the decision on all other questions arising in the case is an exercise of that
jurisdiction. Consequently, all errors committed in the exercise of said jurisdiction are merely errors of
judgment. Under prevailing procedural rules and jurisprudence, errors of judgment are not proper
subjects of a special civil action for certiorari. Where the issue or question involved affects the wisdom or
legal soundness of the decision, and not the jurisdiction of the court to render said decision, the same is
beyond the province of a special civil action for certiorari.

Settled is the rule that where appeal is available to the aggrieved party, the special civil action for
certiorari will not be entertained – remedies of appeal and certiorari are mutually exclusive, not alternative
or successive.21 Under Rule 45, decisions, final orders or resolutions of the Court of Appeals in any case,
i.e., regardless of the nature of the action or proceedings involved, may be appealed to us by filing a
petition for review, which would be but a continuation of the appellate process over the original case. On
the other hand, a special civil action under Rule 65 is an independent action based on the specific ground
therein provided and, as a general rule, cannot be availed of as a substitute for the lost remedy of an
ordinary appeal, including that to be taken under Rule 45.22 One of the requisites of certiorari is that
there be no available appeal or any plain, speedy and adequate remedy. Where an appeal is available,
certiorari will not prosper, even if the ground therefor is grave abuse of discretion. Accordingly, when a
party adopts an improper remedy, his petition may be dismissed outright.

In the present case, the CA issued its Decision and Resolution dated October 22, 2004 and May 20, 2005,
respectively, dismissing the appeal filed by petitioner Roxas. Records show that petitioner Roxas received
a copy of the May 20, 2005 Resolution of the CA denying the motion for reconsideration on May 30, 2005.
Instead of filing a petition for review on certiorari under Rule 45 within 15 days from receipt thereof,24
petitioner, in addition to his several motions for extension, waited for almost four months before filing the
instant petition on September 22, 2005. Indubitably, the Decision and the Resolution of the CA, as to
petitioner Roxas, had by then already become final and executory, and thus, beyond the purview of this
Court to act upon.

It is settled that a decision that has acquired finality becomes immutable and unalterable and may no
longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of
fact or law and whether it will be made by the court that rendered it or by the highest court of the land.26
When a decision becomes final and executory, the court loses jurisdiction over the case and not even an
appellate court will have the power to review the said judgment. Otherwise, there will be no end to
litigation and this will set to naught the main role of courts of justice to assist in the enforcement of the
rule of law and the maintenance of peace and order by settling justifiable controversies with finality.

Finally, while it is true that this Court, in accordance with the liberal spirit which pervades the Rules of
Court and in the interest of justice, may treat a Petition for Certiorari as having been filed under Rule 45,
the instant Petition cannot be treated as such, primarily because it was filed way beyond the 15-day
reglementary period within which to file the Petition for Review.28 Though there are instances when
certiorari was granted despite the availability of appeal,29 none of these recognized exceptions were
shown to be present in the case at bar.

WHEREFORE, the petition in G.R. No. 165851 is DENIED. The Decision of the Court of Appeals dated
October 22, 2004 in CA-G.R. CV No. 65697, which affirmed the decision of the Regional Trial Court of
Malolos, Bulacan in Civil Case No. 320-M-95, is AFFIRMED. The petition in G.R. No. 168875 is DISMISSED.
The Decision and the Resolution of the Court of Appeals, dated October 22, 2004 and May 20, 2005,

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respectively, in CA-G.R. CV No. 65697, which affirmed the Decision of the Regional Trial Court of Malolos,
Bulacan in Civil Case No. 320-M-95, are AFFIRMED.

SO ORDERED.
x--------------------------------------------------------------------------------------------------------------------x
G.R. No. 176841 June 29, 2010
ANTHONY ORDUÑA, DENNIS ORDUÑA, and ANTONITA ORDUÑA, Petitioners, vs.
EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G. BANTA, and
ARMANDO GABRIEL, JR., Respondents.
DECISION
VELASCO, JR., J.:

In this Petition for Review under Rule 45 of the Rules of Court, Anthony Orduña, Dennis Orduña and
Antonita Orduña assail and seek to set aside the Decision2 of the Court of Appeals (CA) dated December
4, 2006 in CA-G.R. CV No. 79680, as reiterated in its Resolution of March 6, 2007, which affirmed the May
26, 2003 Decision3 of the Regional Trial Court (RTC), Branch 3 in Baguio City, in Civil Case No. 4984-R, a
suit for annulment of title and reconveyance commenced by herein petitioners against herein respondents.

Central to the case is a residential lot with an area of 74 square meters located at Fairview Subdivision,
Baguio City, originally registered in the name of Armando Gabriel, Sr. (Gabriel Sr.) under Transfer
Certificate of Title (TCT) No. 67181 of the Registry of Deeds of Baguio City.

As gathered from the petition, with its enclosures, and the comments thereon of four of the five
respondents, the Court gathers the following relevant facts:

Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Orduña
(Antonita), but no formal deed was executed to document the sale. The contract price was apparently
payable in installments as Antonita remitted from time to time and Gabriel Sr. accepted partial payments.
One of the Orduñas would later testify that Gabriel Sr. agreed to execute a final deed of sale upon full
payment of the purchase price.

As early as 1979, however, Antonita and her sons, Dennis and Anthony Orduña, were already occupying
the subject lot on the basis of some arrangement undisclosed in the records and even constructed their
house thereon. They also paid real property taxes for the house and declared it for tax purposes, as
evidenced by Tax Declaration No. (TD) 96-04012-1110877 in which they place the assessed value of the
structure at PhP 20,090.

After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T-714998
over the subject lot and continued accepting payments from the petitioners. On December 12, 1996,
Gabriel Jr. wrote Antonita authorizing her to fence off the said lot and to construct a road in the adjacent
lot.9 On December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from
petitioners.10 Through a letter11 dated May 1, 1997, Gabriel Jr. acknowledged that petitioner had so far
made an aggregate payment of PhP 65,000, leaving an outstanding balance of PhP 60,000. A receipt
Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000 payment.

Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Banta
(Bernard) obviously without the knowledge of petitioners, as later developments would show.

As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was effected against the following
backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP 50,000, payable
in two weeks at a fixed interest rate, with the further condition that the subject lot would answer for the
loan in case of default. Gabriel Jr. failed to pay the loan and this led to the execution of a Deed of Sale12
dated June 30, 1999 and the issuance later of TCT No. T-7278213 for subject lot in the name of Bernard
upon cancellation of TCT No. 71499 in the name of Gabriel, Jr. As the RTC decision indicated, the reluctant
Bernard agreed to acquire the lot, since he had by then ready buyers in respondents Marcos Cid and
Benjamin F. Cid (Marcos and Benjamin or the Cids).

Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of Absolute Sale
of a Registered Land14 dated January 19, 2000, the Cids were able to cancel TCT No. T-72782 and secure

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TCT No. 7278315 covering the subject lot. Just like in the immediately preceding transaction, the deed of
sale between Bernard and the Cids had respondent Eduardo J. Fuentebella (Eduardo) as one of the
instrumental witnesses.

Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of Absolute Sale16 dated
May 11, 2000. Thus, the consequent cancellation of TCT No. T-72782 and issuance on May 16, 2000 of
TCT No. T-327617 over subject lot in the name of Eduardo.

As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally Eduardo, checked,
so each claimed, the title of their respective predecessors-in-interest with the Baguio Registry and
discovered said title to be free and unencumbered at the time each purchased the property. Furthermore,
respondent Eduardo, before buying the property, was said to have inspected the same and found it
unoccupied by the Orduñas.

Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer, sent
a letter addressed to the residence of Gabriel Jr. demanding that all persons residing on or physically
occupying the subject lot vacate the premises or face the prospect of being ejected.

Learning of Eduardo’s threat, petitioners went to the residence of Gabriel Jr. at No. 34 Dominican Hill,
Baguio City. There, they met Gabriel Jr.’s estranged wife, Teresita, who informed them about her having
filed an affidavit-complaint against her husband and the Cids for falsification of public documents on March
30, 2000. According to Teresita, her signature on the June 30, 1999 Gabriel Jr.–Bernard deed of sale was
a forgery. Teresita further informed the petitioners of her intent to honor the aforementioned 1996 verbal
agreement between Gabriel Sr. and Antonita and the partial payments they gave her father-in-law and her
husband for the subject lot.

On July 3, 2001, petitioners, joined by Teresita, filed a Complaint20 for Annulment of Title, Reconveyance
with Damages against the respondents before the RTC, docketed as Civil Case No. 4984-R, specifically
praying that TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be annulled. Corollary to this
prayer, petitioners pleaded that Gabriel Jr.’s title to the lot be reinstated and that petitioners be declared
as entitled to acquire ownership of the same upon payment of the remaining balance of the purchase price
therefor agreed upon by Gabriel Sr. and Antonita.

While impleaded and served with summons, Gabriel Jr. opted not to submit an answer.

Ruling of the RTC

By Decision dated May 26, 2003, the RTC ruled for the respondents, as defendants a quo, and against the
petitioners, as plaintiffs therein, the dispositive portion of which reads:

WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit. The four (4) plaintiffs are
hereby ordered by this Court to pay each defendant (except Armando Gabriel, Jr., Benjamin F. Cid, and
Eduardo J. Fuentebella who did not testify on these damages), Moral Damages of Twenty Thousand
(P20,000.00) Pesos, so that each defendant shall receive Moral Damages of Eighty Thousand
(P80,000.00) Pesos each. Plaintiffs shall also pay all defendants (except Armando Gabriel, Jr., Benjamin F.
Cid, and Eduardo J. Fuentebella who did not testify on these damages), Exemplary Damages of Ten
Thousand (P10,000.00) Pesos each so that each defendant shall receive Forty Thousand (P40,000.00)
Pesos as Exemplary Damages. Also, plaintiffs are ordered to pay each defendant (except Armando Gabriel,
Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Fifty Thousand
(P50,000.00) Pesos as Attorney’s Fees, jointly and solidarily.

Cost of suit against the plaintiffs.

On the main, the RTC predicated its dismissal action on the basis of the following grounds and/or
premises:

1. Eduardo was a purchaser in good faith and, hence, may avail himself of the provision of Article 154422
of the Civil Code, which provides that in case of double sale, the party in good faith who is able to register
the property has better right over the property;

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2. Under Arts. 135623 and 135824 of the Code, conveyance of real property must be in the proper form,
else it is unenforceable;

3. The verbal sale had no adequate consideration; and

4. Petitioners’ right of action to assail Eduardo’s title prescribes in one year from date of the issuance of
such title and the one-year period has already lapsed.

From the above decision, only petitioners appealed to the CA, their appeal docketed as CA-G.R. CV No.
79680.

The CA Ruling

On December 4, 2006, the appellate court rendered the assailed Decision affirming the RTC decision. The
fallo reads:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the 26 May 2003
Decision of the Regional Trial Court, Branch 3 of Baguio City in Civil Case No. 4989-R is hereby AFFIRMED.

SO ORDERED.

Hence, the instant petition on the submission that the appellate court committed reversible error of law:

1. xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT BY ARMANDO GABRIEL, SR. AND
RESPONDENT ARMANDO GABRIEL, JR. TO THE PETITIONERS IS UNENFORCEABLE.

2. xxx IN NOT FINDING THAT THE SALE OF THE SUBJECT LOT BY RESPONDENT ARMANDO GABRIEL, JR.
TO RESPONDENT BERNARD BANTA AND ITS SUBSEQUENT SALE BY THE LATTER TO HIS CO-
RESPONDENTS ARE NULL AND VOID.

3. xxx IN NOT FINDING THAT THE RESPONDENTS ARE BUYERS IN BAD FAITH

4. xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT BETWEEN GABRIEL, SR. AND RESPONDENT
GABRIEL, JR. AND THE PETITIONERS HAS NO ADEQUATE CONSIDERATION.

5. xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY PRESCRIBED.

6. xxx IN FINDING THAT THE PLAINTIFFS-APPELLANTS ARE LIABLE FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY’S FEES.

The Court’s Ruling

The core issues tendered in this appeal may be reduced to four and formulated as follows, to wit: first,
whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the Statute of
Frauds; second, whether or not such sale has adequate consideration; third, whether the instant action
has already prescribed; and, fourth, whether or not respondents are purchasers in good faith.

The petition is meritorious.

Statute of Frauds Inapplicable to Partially Executed Contracts

It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita, the purchase
price payable on installment basis. Gabriel Sr. appeared to have been a recipient of some partial
payments. After his death, his son duly recognized the sale by accepting payments and issuing what may
be considered as receipts therefor. Gabriel Jr., in a gesture virtually acknowledging the petitioners’
dominion of the property, authorized them to construct a fence around it. And no less than his wife,
Teresita, testified as to the fact of sale and of payments received.

Page 8 of 92
Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying the
house they earlier constructed thereon. They later declared the property for tax purposes, as evidenced by
the issuance of TD 96-04012-111087 in their or Antonita’s name, and paid the real estates due thereon,
obviously as sign that they are occupying the lot in the concept of owners.

Given the foregoing perspective, Eduardo’s assertion in his Answer that "persons appeared in the
property" only after "he initiated ejectment proceedings" is clearly baseless. If indeed petitioners entered
and took possession of the property after he (Eduardo) instituted the ejectment suit, how could they
explain the fact that he sent a demand letter to vacate sometime in May 2000?

With the foregoing factual antecedents, the question to be resolved is whether or not the Statute of
Frauds bars the enforcement of the verbal sale contract between Gabriel Sr. and Antonita.

The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with the Statute of
Frauds.

We disagree for several reasons. Foremost of these is that the Statute of Frauds expressed in Article
1403, par. (2), of the Civil Code applies only to executory contracts, i.e., those where no performance has
yet been made. Stated a bit differently, the legal consequence of non-compliance with the Statute does
not come into play where the contract in question is completed, executed, or partially consummated.

The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest
therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and
subscribed by the party or his agent. However, where the verbal contract of sale has been partially
executed through the partial payments made by one party duly received by the vendor, as in the present
case, the contract is taken out of the scope of the Statute.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for
their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be charged. The Statute requires certain
contracts to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of
Frauds" is descriptive of statutes that require certain classes of contracts to be in writing. The Statute
does not deprive the parties of the right to contract with respect to the matters therein involved, but
merely regulates the formalities of the contract necessary to render it enforceable.

Since contracts are generally obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present, the Statute simply provides the method by which the
contracts enumerated in Art. 1403 (2) may be proved but does not declare them invalid because they are
not reduced to writing. In fine, the form required under the Statute is for convenience or evidentiary
purposes only.

There can be no serious argument about the partial execution of the sale in question. The records show
that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial
payments of the purchase price. These payments were duly receipted by Gabriel Jr. To recall, in his letter
of May 1, 1997, Gabriel, Jr. acknowledged having received the aggregate payment of PhP 65,000 from
petitioners with the balance of PhP 60,000 still remaining unpaid. But on top of the partial payments thus
made, possession of the subject of the sale had been transferred to Antonita as buyer. Owing thus to its
partial execution, the subject sale is no longer within the purview of the Statute of Frauds.

Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of
benefits under the contract. Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial
payments made by the petitioners. Thus, neither Gabriel Jr. nor the other respondents—successive
purchasers of subject lots—could plausibly set up the Statute of Frauds to thwart petitioners’ efforts
towards establishing their lawful right over the subject lot and removing any cloud in their title. As it were,
petitioners need only to pay the outstanding balance of the purchase price and that would complete the
execution of the oral sale.

There was Adequate Consideration

Page 9 of 92
Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale since in
its own words: "x x x for more than a decade, [petitioners] have not paid in full Armando Gabriel, Sr. or
his estate, so that the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate
consideration."

The trial court’s posture, with which the CA effectively concurred, is patently flawed. For starters, they
equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion,
when both are different civil law concepts with differing legal consequences, the first being a ground to
rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on the other hand, is
not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is
shocking to the conscience.

The Court to be sure takes stock of the fact that the contracting parties to the 1995 or 1996 sale agreed
to a purchase price of PhP 125,000 payable on installments. But the original lot owner, Gabriel Sr., died
before full payment can be effected. Nevertheless, petitioners continued remitting payments to Gabriel,
Jr., who sold the subject lot to Bernard on June 30, 1999. Gabriel, Jr., as may be noted, parted with the
property only for PhP 50,000. On the other hand, Bernard sold it for PhP 80,000 to Marcos and Benjamin.
From the foregoing price figures, what is abundantly clear is that what Antonita agreed to pay Gabriel, Sr.,
albeit in installment, was very much more than what his son, for the same lot, received from his buyer
and the latter’s buyer later. The Court, therefore, cannot see its way clear as to how the RTC arrived at its
simplistic conclusion about the transaction between Gabriel Sr. and Antonita being without "adequate
consideration."

The Issues of Prescription and the Bona Fides of the Respondents as Purchasers
Considering the interrelation of these two issues, we will discuss them jointly.

There can be no quibbling about the fraudulent nature of the conveyance of the subject lot effected by
Gabriel Jr. in favor of Bernard. It is understandable that after his father’s death, Gabriel Jr. inherited
subject lot and for which he was issued TCT No. No. T-71499. Since the Gabriel Sr. – Antonita sales
transaction called for payment of the contract price in installments, it is also understandable why the title
to the property remained with the Gabriels. And after the demise of his father, Gabriel Jr. received
payments from the Orduñas and even authorized them to enclose the subject lot with a fence. In sum,
Gabriel Jr. knew fully well about the sale and is bound by the contract as predecessor-in-interest of
Gabriel Sr. over the property thus sold.

Yet, the other respondents (purchasers of subject lot) still maintain that they are innocent purchasers for
value whose rights are protected by law and besides which prescription has set in against petitioners’
action for annulment of title and reconveyance.

The RTC and necessarily the CA found the purchaser-respondents’ thesis on prescription correct stating in
this regard that Eduardo’s TCT No. T-3276 was issued on May 16, 2000 while petitioners filed their
complaint for annulment only on July 3, 2001. To the courts below, the one-year prescriptive period to
assail the issuance of a certificate of title had already elapsed.

We are not persuaded.

The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently registered piece of
residential land. Having possession of the subject lot, petitioners’ right to the reconveyance thereof, and
the annulment of the covering title, has not prescribed or is not time-barred. This is so for an action for
annulment of title or reconveyance based on fraud is imprescriptible where the suitor is in possession of
the property subject of the acts,36 the action partaking as it does of a suit for quieting of title which is
imprescriptible.37 Such is the case in this instance. Petitioners have possession of subject lots as owners
having purchased the same from Gabriel, Sr. subject only to the full payment of the agreed price.

The prescriptive period for the reconveyance of fraudulently registered real property is 10 years, reckoned
from the date of the issuance of the certificate of title, if the plaintiff is not in possession, but
imprescriptible if he is in possession of the property.38 Thus, one who is in actual possession of a piece of
land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked
before taking steps to vindicate his right. As it is, petitioners’ action for reconveyance is imprescriptible.

Page 10 of 92
This brings us to the question of whether or not the respondent-purchasers, i.e., Bernard, Marcos and
Benjamin, and Eduardo, have the status of innocent purchasers for value, as was the thrust of the trial
court’s disquisition and disposition.

We are unable to agree with the RTC.

It is the common defense of the respondent-purchasers that they each checked the title of the subject lot
when it was his turn to acquire the same and found it clean, meaning without annotation of any
encumbrance or adverse third party interest. And it is upon this postulate that each claims to be an
innocent purchaser for value, or one who buys the property of another without notice that some other
person has a right to or interest in it, and who pays therefor a full and fair price at the time of the
purchase or before receiving such notice.

The general rule is that one dealing with a parcel of land registered under the Torrens System may safely
rely on the correctness of the certificate of title issued therefor and is not obliged to go beyond the
certificate.41 Where, in other words, the certificate of title is in the name of the seller, the innocent
purchaser for value has the right to rely on what appears on the certificate, as he is charged with notice
only of burdens or claims on the res as noted in the certificate. Another formulation of the rule is that (a)
in the absence of anything to arouse suspicion or (b) except where the party has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such inquiry or (c) when the
purchaser has knowledge of a defect of title in his vendor or of sufficient facts to induce a reasonably
prudent man to inquire into the status of the title of the property, said purchaser is without obligation to
look beyond the certificate and investigate the title of the seller.

Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be innocent
purchasers for value or purchasers in good faith. For each knew or was at least expected to know that
somebody else other than Gabriel, Jr. has a right or interest over the lot. This is borne by the fact that the
initial seller, Gabriel Jr., was not in possession of subject property. With respect to Marcos and Benjamin,
they knew as buyers that Bernard, the seller, was not also in possession of the same property. The same
goes with Eduardo, as buyer, with respect to Marcos and Benjamin.

Basic is the rule that a buyer of a piece of land which is in the actual possession of persons other than the
seller must be wary and should investigate the rights of those in possession. Otherwise, without such
inquiry, the buyer can hardly be regarded as a buyer in good faith. When a man proposes to buy or deal
with realty, his duty is to read the public manuscript, i.e., to look and see who is there upon it and what
his rights are. A want of caution and diligence which an honest man of ordinary prudence is accustomed to
exercise in making purchases is, in contemplation of law, a want of good faith. The buyer who has failed
to know or discover that the land sold to him is in adverse possession of another is a buyer in bad faith.

Where the land sold is in the possession of a person other than the vendor, the purchaser must go beyond
the certificates of title and make inquiries concerning the rights of the actual possessor. And where, as in
the instant case, Gabriel Jr. and the subsequent vendors were not in possession of the property, the
prospective vendees are obliged to investigate the rights of the one in possession. Evidently, Bernard,
Marcos and Benjamin, and Eduardo did not investigate the rights over the subject lot of the petitioners
who, during the period material to this case, were in actual possession thereof. Bernard, et al. are, thus,
not purchasers in good faith and, as such, cannot be accorded the protection extended by the law to such
purchasers.45 Moreover, not being purchasers in good faith, their having registered the sale, will not, as
against the petitioners, carry the day for any of them under Art. 1544 of the Civil Code prescribing rules
on preference in case of double sales of immovable property. Occeña v. Esponilla46 laid down the
following rules in the application of Art. 1544: (1) knowledge by the first buyer of the second sale cannot
defeat the first buyer’s rights except when the second buyer first register in good faith the second sale;
and (2) knowledge gained by the second buyer of the first sale defeats his rights even if he is first to
register, since such knowledge taints his registration with bad faith.

Upon the facts obtaining in this case, the act of registration by any of the three respondent-purchasers
was not coupled with good faith. At the minimum, each was aware or is at least presumed to be aware of
facts which should put him upon such inquiry and investigation as might be necessary to acquaint him
with the defects in the title of his vendor.

Page 11 of 92
The award by the lower courts of damages and attorney’s fees to some of the herein respondents was
predicated on the filing by the original plaintiffs of what the RTC characterized as an unwarranted suit. The
basis of the award, needless to stress, no longer obtains and, hence, the same is set aside.

WHEREFORE, the petition is hereby GRANTED. The appealed December 4, 2006 Decision and the March 6,
2007 Resolution of the Court of Appeals in CA-G.R. CV No. 79680 affirming the May 26, 2003 Decision of
the Regional Trial Court, Branch 3 in Baguio City are hereby REVERSED and SET ASIDE. Accordingly,
petitioner Antonita Orduña is hereby recognized to have the right of ownership over subject lot covered by
TCT No. T-3276 of the Baguio Registry registered in the name of Eduardo J. Fuentebella. The Register of
Deeds of Baguio City is hereby ORDERED to cancel said TCT No. T-3276 and to issue a new one in the
name of Armando Gabriel, Jr. with the proper annotation of the conditional sale of the lot covered by said
title in favor of Antonita Orduña subject to the payment of the PhP 50,000 outstanding balance. Upon full
payment of the purchase price by Antonita Orduña, Armando Gabriel, Jr. is ORDERED to execute a Deed
of Absolute Sale for the transfer of title of subject lot to the name of Antonita Orduña, within three (3)
days from receipt of said payment.

No pronouncement as to costs.

SO ORDERED.
x------------------------------------------------------------------------------------------------------------------x
C. Cause/Consideration
True/real (Art. 1353)
G.R. No. 180705 November 27, 2012
EDUARDO M. COJUANGCO, JR., Petitioner, vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
DECISION
VELASCO, JR., J.:

The Case

Of the several coconut levy appealed cases that stemmed from certain issuances of the Sandiganbayan in
its Civil Case No. 0033, the present recourse proves to be one of the most difficult.

In particular, the instant petition for review under Rule 45 of the Rules of Court assails and seeks to annul
a portion of the Partial Summary Judgment dated July 11, 2003, as affirmed in a Resolution of December
28, 2004, both rendered by the Sandiganbayan in its Civil Case ("CC") No. 0033-A (the judgment shall
hereinafter be referred to as "PSJ-A"), entitled "Republic of the Philippines, Plaintiff, v. Eduardo M.
Cojuangco, Jr., et al., Defendants, COCOFED, et al., BALLARES, et al., Class Action Movants." CC No.
0033-A is the result of the splitting into eight (8) amended complaints of CC No. 0033 entitled, "Republic
of the Philippines v. Eduardo Cojuangco, Jr., et al.," a suit for recovery of ill-gotten wealth commenced by
the Presidential Commission on Good Government ("PCGG"), for the Republic of the Philippines
("Republic"), against Eduardo M. Cojuangco, Jr. ("Cojuangco") and several individuals, among them,
Ferdinand E. Marcos, Maria Clara Lobregat ("Lobregat"), and Danilo S. Ursua ("Ursua"). Each of the eight
(8) subdivided complaints, CC No. 0033-A to CC No. 0033-H, correspondingly impleaded as defendants
only the alleged participants in the transaction/s subject of the suit, or who are averred as owner/s of the
assets involved.

Apart from this recourse, We clarify right off that PSJ-A was challenged in two other separate but
consolidated petitions for review, one commenced by COCOFED et al., docketed as G.R. Nos. 177857-58,
and the other, interposed by Danilo S. Ursua, and docketed as G.R. No. 178193.

By Decision dated January 24, 2012, in the aforesaid G.R. Nos. 177857-58 (COCOFED et al. v. Republic)
and G.R. No. 178193 (Ursua v. Republic) consolidated cases1 (hereinafter collectively referred to as
"COCOFED v. Republic"), the Court addressed and resolved all key matters elevated to it in relation to
PSJ-A, except for the issues raised in the instant petition which have not yet been resolved therein. In the
same decision, We made clear that: (1) PSJ-A is subject of another petition for review interposed by
Eduardo Cojuangco, Jr., in G.R. No. 180705, entitled Eduardo M. Cojuangco, Jr. v. Republic of the
Philippines, which shall be decided separately by the Court, and (2) the issues raised in the instant

Page 12 of 92
petition should not be affected by the earlier decision "save for determinatively legal issues directly
addressed therein."

For a better perspective, the instant recourse seeks to reverse the Partial Summary Judgment4 of the
anti-graft court dated July 11, 2003, as reiterated in a Resolution5 of December 28, 2004, denying
COCOFED’s motion for reconsideration, and the May 11, 2007 Resolution6 denying

COCOFED’s motion to set case for trial and declaring the partial summary judgment final and appealable,
all issued in PSJ-A. In our adverted January 24, 2012 Decision in COCOFED v. Republic, we affirmed with
modification PSJ-A of the Sandiganbayan, and its Partial Summary Judgment in Civil Case No. 0033-F,
dated May 7, 2004 (hereinafter referred to as "PSJ-F’).

More specifically, We upheld the Sandiganbayan’s ruling that the coconut levy funds are special public
funds of the Government. Consequently, We affirmed the Sandiganbayan’s declaration that Sections 1 and
2 of Presidential Decree ("P.D.") 755, Section 3, Article III of P.D. 961 and Section 3, Article III of P.D.
1468, as well as the pertinent implementing regulations of the Philippine Coconut Authority ("PCA"), are
unconstitutional for allowing the use and/or the distribution of properties acquired through the coconut
levy funds to private individuals for their own direct benefit and absolute ownership. The Decision also
affirmed the Government’s ownership of the six CIIF companies, the fourteen holding companies, and the
CIIF block of San Miguel Corporation shares of stock, for having likewise been acquired using the coconut
levy funds. Accordingly, the properties subject of the January 24, 2012 Decision were declared owned by
and ordered reconveyed to the Government, to be used only for the benefit of all coconut farmers and for
the development of the coconut industry.

By Resolution of September 4, 2012, the Court affirmed the above-stated Decision promulgated on
January 24, 2012.

It bears to stress at this juncture that the only portion of the appealed Partial Summary Judgment dated
July 11, 2003 ("PSJ-A") which remains at issue revolves around the following decretal holdings of that
court relating to the "compensation" paid to petitioner for exercising his personal and exclusive option to
acquire the FUB/UCPB shares. It will be recalled that the Sandiganbayan declared the Agreement between
the PCA and Cojuangco containing the assailed "compensation" null and void for not having the required
valuable consideration. Consequently, the UCPB shares of stocks that are subject of the Agreement were
declared conclusively owned by the Government. It also held that the Agreement did not have the effect
of law as it was not published as part of P.D. 755, even if Section 1 thereof made reference to the same.

Facts

We reproduce, below, portions of the statement of facts in COCOFED v. Republic relevant to the present
case:

In 1971, Republic Act No. ("R.A.") 6260 was enacted creating the Coconut Investment Company ("CIC")
to administer the Coconut Investment Fund ("CIF"), which, under Section 8 thereof, was to be sourced
from a PhP 0.55 levy on the sale of every 100 kg. of copra. Of the PhP 0.55 levy of which the copra seller
was – or ought to be – issued COCOFUND receipts, PhP 0.02 was placed at the disposition of COCOFED,
the national association of coconut producers declared by the

Philippine Coconut Administration ("PHILCOA" now "PCA") as having the largest membership.

The declaration of martial law in September 1972 saw the issuance of several presidential decrees ("P.D.")
purportedly designed to improve the coconut industry through the collection and use of the coconut levy
fund. While coming generally from impositions on the first sale of copra, the coconut levy fund came
under various names x x x. Charged with the duty of collecting and administering the Fund was PCA. Like
COCOFED with which it had a legal linkage, the PCA, by statutory provisions scattered in different coco
levy decrees, had its share of the coco levy.

The following were some of the issuances on the coco levy, its collection and utilization, how the proceeds
of the levy will be managed and by whom and the purpose it was supposed to serve:

Page 13 of 92
1. P.D. No. 276 established the Coconut Consumers Stabilization Fund ("CCSF") and declared the proceeds
of the CCSF levy as trust fund, to be utilized to subsidize the sale of coconut-based products, thus
stabilizing the price of edible oil.

2. P.D. No. 582 created the Coconut Industry Development Fund ("CIDF") to finance the operation of a
hybrid coconut seed farm.

3. Then came P.D. No. 755 providing under its Section 1 the following:

It is hereby declared that the policy of the State is to provide readily available credit facilities to the
coconut farmers at preferential rates; that this policy can be expeditiously and efficiently realized by the
implementation of the "Agreement for the Acquisition of a Commercial Bank for the benefit of Coconut
Farmers" executed by the PCA…; and that the PCA is hereby authorized to distribute, for free, the shares
of stock of the bank it acquired to the coconut farmers….

Towards achieving the policy thus declared, P.D. No. 755, under its Section 2, authorized PCA to utilize
the CCSF and the CIDF collections to acquire a commercial bank and deposit the CCSF levy collections in
said bank interest free, the deposit withdrawable only when the bank has attained a certain level of
sufficiency in its equity capital. The same section also decreed that all levies PCA is authorized to collect
shall not be considered as special and/or fiduciary funds or form part of the general funds of the
government within the contemplation of P.D. No. 711.

4. P.D. No. 961 codified the various laws relating to the development of coconut/palm oil industries.

5. The relevant provisions of P.D. No. 961, as later amended by P.D. No. 1468 (Revised Coconut Industry
Code), read:

ARTICLE III
Levies

Section 1. Coconut Consumers Stabilization Fund Levy. — The PCA is hereby empowered to impose and
collect … the Coconut Consumers Stabilization Fund Levy, ….

Section 5. Exemption. — The CCSF and theCIDF as well as all disbursements as herein authorized, shall
not be construed … as special and/or fiduciary funds, or as part of the general funds of the national
government within the contemplation of PD 711; … the intention being that said Fund and the
disbursements thereof as herein authorized for the benefit of the coconut farmers shall be owned by them
in their private capacities: …. (Emphasis supplied)

6. Letter of Instructions No. ("LOI") 926, s. of 1979, made reference to the creation, out of other coco
levy funds, of the Coconut Industry Investment Fund ("CIIF") in P.D. No. 1468 and entrusted a portion of
the CIIF levy to UCPB for investment, on behalf of coconut farmers, in oil mills and other private
corporations, with the following equity ownership structure:

Section 2. Organization of the Cooperative Endeavor. – The UCPB, in its capacity as the investment arm of
the coconut farmers thru the CIIF … is hereby directed to invest, on behalf of the coconut farmers, such
portion of the CIIF … in private corporations … under the following guidelines:

a) The coconut farmers shall own or control at least … (50%) of the outstanding voting capital stock of the
private corporation acquired thru the CIIF and/or corporation owned or controlled by the farmers thru the
CIIF …. (Words in bracket added.)

Through the years, a part of the coconut levy funds went directly or indirectly to finance various projects
and/or was converted into various assets or investments.11 Relevant to the present petition is the
acquisition of the First United Bank ("FUB"), which was subsequently renamed as United Coconut Planters
Bank ("UCPB").

Apropos the intended acquisition of a commercial bank for the purpose stated earlier, it would appear that
FUB was the bank of choice which Pedro Cojuangco’s group (collectively, "Pedro Cojuangco") had control

Page 14 of 92
of. The plan, then, was for PCA to buy all of Pedro Cojuangco’s shares in FUB. However, as later events
unfolded, a simple direct sale from the seller (Pedro) to PCA did not ensue as it was made to appear that
Cojuangco had the exclusive option to acquire the former’s FUB controlling interests. Emerging from this
elaborate, circuitous arrangement were two deeds. The first one was simply denominated as Agreement,
dated May 1975, entered into by and between Cojuangco for and in his behalf and in behalf of "certain
other buyers", and Pedro Cojuangco in which the former was purportedly accorded the option to buy
72.2% of FUB’s outstanding capital stock, or 137,866 shares (the "option shares," for brevity), at PhP 200
per share. On its face, this agreement does not mention the word "option."

The second but related contract, dated May 25, 1975, was denominated as Agreement for the Acquisition
of a Commercial Bank for the Benefit of the Coconut Farmers of the Philippines. It had PCA, for itself and
for the benefit of the coconut farmers, purchase from Cojuangco the shares of stock subject of the First
Agreement for PhP200.00 per share. As additional consideration for PCA’s buy-out of what Cojuangco
would later claim to be his exclusive and personal option, it was stipulated that, from PCA, Cojuangco shall
receive equity in FUB amounting to 10%, or 7.22%, of the 72.2%, or fully paid shares. And so as not to
dilute Cojuangco’s equity position in FUB, later UCPB, the PCA agreed under paragraph 6 (b) of the second
agreement to cede over to the former a number of fully paid FUB shares out of the shares it (PCA)
undertakes to eventually subscribe. It was further stipulated that Cojuangco would act as bank president
for an extendible period of 5 years.

Apart from the aforementioned 72.2%, PCA purchased from other FUB shareholders 6,534 shares of which
Cojuangco, as may be gathered from the records, got 10%..

While the 64.98% portion of the option shares (72.2% – 7.22% = 64.98%) ostensibly pertained to the
farmers, the corresponding stock certificates supposedly representing the farmers’ equity were in the
name of and delivered to PCA. There were, however, shares forming part of the aforesaid 64.98% portion,
which ended up in the hands of non-farmers. The remaining 27.8% of the FUB capital stock were not
covered by any of the agreements.

Under paragraph # 8 of the second agreement, PCA agreed to expeditiously distribute the FUB shares
purchased to such "coconut farmers holding registered COCOFUND receipts" on equitable basis.

As found by the Sandiganbayan, the PCA appropriated, out of its own fund, an amount for the purchase of
the said 72.2% equity, albeit it would later reimburse itself from the coconut levy fund.

And per Cojuangco’s own admission, PCA paid, out of the CCSF, the entire acquisition price for the 72.2%
option shares.

As of June 30, 1975, the list of FUB stockholders included Cojuangco with 14,440 shares and PCA with
129,955 shares.14 It would appear later that, pursuant to the stipulation on maintaining Cojuangco’s
equity position in the bank, PCA would cede to him 10% of its subscriptions to (a) the authorized but
unissued shares of FUB and (b) the increase in FUB’s capital stock (the equivalent of 158,840 and 649,800
shares, respectively). In all, from the "mother" PCA shares, Cojuangco would receive a total of 95,304
FUB (UCPB) shares broken down as follows: 14,440 shares + 10% (158,840 shares) + 10% (649,800
shares) = 95,304.15

We further quote, from COCOFED v. Republic, facts relevant to the instant case:

Shortly after the execution of the PCA – Cojuangco Agreement, President Marcos issued, on July 29, 1975,
P.D. No. 755 directing x x x as narrated, PCA to use the CCSF and CIDF to acquire a commercial bank to
provide coco farmers with "readily available credit facilities at preferential rate" x x x.

Then came the 1986 EDSA event. One of the priorities of then President Corazon C. Aquino’s revolutionary
government was the recovery of ill-gotten wealth reportedly amassed by the Marcos family and close
relatives, their nominees and associates. Apropos thereto, she issued Executive Order Nos. (EO) 1, 2 and
14, as amended by E.O. 14-A, all series of 1986. E.O. 1 created the PCGG and provided it with the tools
and processes it may avail of in the recovery efforts;17 E.O. No. 2 asserted that the ill-gotten assets and
properties come in the form of shares of stocks, etc., while E.O. No. 14 conferred on the Sandiganbayan
exclusive and original jurisdiction over ill-gotten wealth cases, with the proviso that "technical rules of

Page 15 of 92
procedure and evidence shall not be applied strictly" to the civil cases filed under the EO. Pursuant to
these issuances, the PCGG issued numerous orders of sequestration, among which were those handed out
x x x against shares of stock in UCPB purportedly owned by or registered in the names of (a) the more
than a million coconut farmers, (b) the CIIF companies and (c) Cojuangco, Jr., including the SMC shares
held by the CIIF companies. On July 31, 1987, the PCGG instituted before the Sandiganbayan a recovery
suit docketed thereat as CC No. 0033.

3. Civil Case 0033 x x x would be subdivided into eight complaints, docketed as CC 0033-A to CC 0033-H.

5. By Decision of December 14, 2001, in G.R. Nos. 147062-64 (Republic v. COCOFED),18 the Court
declared the coco levy funds as prima facie public funds. And purchased as the sequestered UCPB shares
were by such funds, beneficial ownership thereon and the corollary voting rights prima facie pertain,
according to the Court, to the government.

Correlatively, the Republic, on the strength of the December 14, 2001 ruling in Republic v. COCOFED and
on the argument, among others, that the claim of COCOFED and Ballares et al., over the subject UCPB
shares is based solely on the supposed COCOFUND receipts issued for payment of the RA 6260 CIF levy,
filed a Motion for Partial Summary Judgment RE: COCOFED, et al. and Ballares, et al. dated April 22,
2002, praying that a summary judgment be rendered declaring:

a. That Section 2 of [PD] 755, Section 5, Article III of P.D. 961 and Section 5, Article III of P.D. No. 1468
are unconstitutional;

b. That x x x (CIF) payments under x x x (R.A.) No. 6260 are not valid and legal bases for ownership
claims over UCPB shares; and

c. That COCOFED, et al., and Ballares, et al. have not legally and validly obtained title over the subject
UCPB shares.

Right after it filed the Motion for Partial Summary Judgment RE: COCOFED, et al. and Ballares, et al., the
Republic interposed a Motion for Partial Summary Judgment Re: Eduardo M. Cojuangco, Jr., praying that a
summary judgment be rendered:

a. Declaring that Section 1 of P.D. No. 755 is unconstitutional insofar as it validates the provisions in the
"PCA-Cojuangco Agreement x x x" dated May 25, 1975 providing payment of ten percent (10%)
commission to defendant Cojuangco with respect to the FUB, now UCPB shares subject matter thereof;

b. Declaring that x x x Cojuangco, Jr. and his fronts, nominees and dummies, including x x x and Danilo S.
Ursua, have not legally and validly obtained title over the subject UCPB shares; and

c. Declaring that the government is the lawful and true owner of the subject UCPB shares registered in the
names of … Cojuangco, Jr. and the entities and persons above-enumerated, for the benefit of all coconut
farmers. x x x

Following an exchange of pleadings, the Republic filed its sur-rejoinder praying that it be conclusively
declared the true and absolute owner of the coconut levy funds and the UCPB shares acquired therefrom.

We quote from COCOFED v. Republic:

A joint hearing on the separate motions for summary judgment to determine what material facts exist
with or without controversy then ensued. By Order of March 11, 2003, the Sandiganbayan detailed, based
on this Court’s ruling in related ill-gotten cases, the parties’ manifestations made in open court and the
pleadings and evidence on record, the facts it found to be without substantial controversy, together with
the admissions and/or extent of the admission made by the parties respecting relevant facts, as follows:

As culled from the exhaustive discussions and manifestations of the parties in open court of their
respective pleadings and evidence on record, the facts which exist without any substantial controversy are
set forth hereunder, together with the admissions and/or the extent or scope of the admissions made by
the parties relating to the relevant facts:

Page 16 of 92
1. The late President Ferdinand E. Marcos was President x x x for two terms under the 1935 Constitution
and, during the second term, he declared Martial Law through Proclamation No. 1081 dated September
21, 1972.

2. On January 17, 1973, he issued Proclamation No. 1102 announcing the ratification of the 1973
Constitution.

3. From January 17, 1973 to April 7, 1981, he x x x exercised the powers and prerogative of President
under the 1935 Constitution and the powers and prerogative of President x x x the 1973 Constitution.

He x x x promulgated various P.D.s, among which were P.D. No. 232, P.D. No. 276, P.D. No. 414, P.D.
No. 755, P.D. No. 961 and P.D. No. 1468.

4. On April 17, 1981, amendments to the 1973 Constitution were effected and, on June 30, 1981, he,
after being elected President, "reassumed the title and exercised the powers of the President until 25
February 1986."

5. Defendants Maria Clara Lobregat and Jose R. Eleazar, Jr. were PCA Directors x x x during the period
1970 to 1986 x x x.

6. Plaintiff admits the existence of the following agreements which are attached as Annexes "A" and "B" to
the Opposition dated October 10, 2002 of defendant Eduardo M. Cojuangco, Jr. to the above-cited Motion
for Partial Summary Judgment:

a) "This Agreement made and entered into this ______ day of May, 1975 at Makati, Rizal, Philippines, by
and between:

PEDRO COJUANGCO, Filipino, of legal age and with residence at 1575 Princeton St., Mandaluyong, Rizal,
for and in his own behalf and in behalf of certain other stockholders of First United Bank listed in Annex
"A" attached hereto (hereinafter collectively called the SELLERS);

– and –

EDUARDO COJUANGCO, JR., Filipino, of legal age and with residence at 136 9th Street corner Balete
Drive, Quezon City, represented in this act by his duly authorized attorney-in-fact, EDGARDO J. ANGARA,
for and in his own behalf and in behalf of certain other buyers, (hereinafter collectively called the
BUYERS)";

WITNESSETH: That

WHEREAS, the SELLERS own of record and beneficially a total of 137,866 shares of stock, with a par value
of P100.00 each, of the common stock of the First United Bank (the "Bank"), a commercial banking
corporation existing under the laws of the Philippines;

WHEREAS, the BUYERS desire to purchase, and the SELLERS are willing to sell, the aforementioned shares
of stock totaling 137,866 shares (hereinafter called the "Contract Shares") owned by the SELLERS due to
their special relationship to EDUARDO COJUANGCO, JR.;

NOW, THEREFORE, for and in consideration of the premises and the mutual covenants herein contained,
the parties agree as follows:

1. Sale and Purchase of Contract Shares

Subject to the terms and conditions of this Agreement, the SELLERS hereby sell, assign, transfer and
convey unto the BUYERS, and the BUYERS hereby purchase and acquire, the Contract Shares free and
clear of all liens and encumbrances thereon.

2. Contract Price

Page 17 of 92
The purchase price per share of the Contract Shares payable by the BUYERS is P200.00 or an aggregate
price of P27,573,200.00 (the "Contract Price").

3. Delivery of, and payment for, stock certificates

Upon the execution of this Agreement, (i) the SELLERS shall deliver to the BUYERS the stock certificates
representing the Contract Shares, free and clear of all liens, encumbrances, obligations, liabilities and
other burdens in favor of the Bank or third parties, duly endorsed in blank or with stock powers sufficient
to transfer the shares to bearer; and (ii) BUYERS shall deliver to the SELLERS P27,511,295.50
representing the Contract Price less the amount of stock transfer taxes payable by the SELLERS, which the
BUYERS undertake to remit to the appropriate authorities. (Emphasis added.)

4. Representation and Warranties of Sellers

The SELLERS respectively and independently of each other represent and warrant that:

(a) The SELLERS are the lawful owners of, with good marketable title to, the Contract Shares and that (i)
the certificates to be delivered pursuant thereto have been validly issued and are fully paid and non-
assessable; (ii) the Contract Shares are free and clear of all liens, encumbrances, obligations, liabilities
and other burdens in favor of the Bank or third parties x x x.

This representation shall survive the execution and delivery of this Agreement and the consummation or
transfer hereby contemplated.

(b) The execution, delivery and performance of this Agreement by the SELLERS does not conflict with or
constitute any breach of any provision in any agreement to which they are a party or by which they may
be bound.

(c) They have complied with the condition set forth in Article X of the Amended Articles of Incorporation of
the Bank.

5. Representation of BUYERS

6. Implementation

The parties hereto hereby agree to execute or cause to be executed such documents and instruments as
may be required in order to carry out the intent and purpose of this Agreement.

7. Notices

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands at the place and on the date first
above written.

PEDRO COJUANGCO
(on his own behalf and in
behalf of the other
listed in Annex "A" hereof)
(SELLERS) EDUARDO COJUANGCO, JR.
(on his own behalf and in behalf
Sellers of the other Buyers)
(BUYERS)
By:

EDGARDO J. ANGARA
Attorney-in-Fact

b) "Agreement for the Acquisition of a Commercial Bank for the Benefit of the Coconut Farmers of the
Philippines, made and entered into this 25th day of May 1975 at Makati, Rizal, Philippines, by and
between:

Page 18 of 92
EDUARDO M. COJUANGCO, JR., Filipino, of legal age, with business address at 10th Floor, Sikatuna
Building, Ayala Avenue, Makati, Rizal, hereinafter referred to as the SELLER;

– and –

PHILIPPINE COCONUT AUTHORITY, a public corporation created by Presidential Decree No. 232, as
amended, for itself and for the benefit of the coconut farmers of the Philippines, (hereinafter called the
BUYER)"

WITNESSETH: That

WHEREAS, on May 17, 1975, the Philippine Coconut Producers Federation ("PCPF"), through its Board of
Directors, expressed the desire of the coconut farmers to own a commercial bank which will be an
effective instrument to solve the perennial credit problems and, for that purpose, passed a resolution
requesting the PCA to negotiate with the SELLER for the transfer to the coconut farmers of the SELLER’s
option to buy the First United Bank (the "Bank") under such terms and conditions as BUYER may deem to
be in the best interest of the coconut farmers and instructed Mrs. Maria Clara Lobregat to convey such
request to the BUYER;

WHEREAS, the PCPF further instructed Mrs. Maria Clara Lobregat to make representations with the BUYER
to utilize its funds to finance the purchase of the Bank;

WHEREAS, the SELLER has the exclusive and personal option to buy 144,400 shares (the "Option Shares")
of the Bank, constituting 72.2% of the present outstanding shares of stock of the Bank, at the price of
P200.00 per share, which option only the SELLER can validly exercise;

WHEREAS, in response to the representations made by the coconut farmers, the BUYER has requested the
SELLER to exercise his personal option for the benefit of the coconut farmers;

WHEREAS, the SELLER is willing to transfer the Option Shares to the BUYER at a price equal to his option
price of P200 per share;

WHEREAS, recognizing that ownership by the coconut farmers of a commercial bank is a permanent
solution to their perennial credit problems, that it will accelerate the growth and development of the
coconut industry and that the policy of the state which the BUYER is required to implement is to achieve
vertical integration thereof so that coconut farmers will become participants in, and beneficiaries of the
development and growth of the coconut industry, the BUYER approved the request of PCPF that it acquire
a commercial bank to be owned by the coconut farmers and, appropriated, for that purpose, the sum of
P150 Million to enable the farmers to buy the Bank and capitalize the Bank to such an extension as to be
in a position to adopt a credit policy for the coconut farmers at preferential rates;

WHEREAS, x x x the BUYER is willing to subscribe to additional shares ("Subscribed Shares") and place the
Bank in a more favorable financial position to extend loans and credit facilities to coconut farmers at
preferential rates;

NOW, THEREFORE, for and in consideration of the foregoing premises and the other terms and conditions
hereinafter contained, the parties hereby declare and affirm that their principal contractual intent is (1) to
ensure that the coconut farmers own at least 60% of the outstanding capital stock of the Bank; and (2)
that the SELLER shall receive compensation for exercising his personal and exclusive option to acquire the
Option Shares, for transferring such shares to the coconut farmers at the option price of P200 per share,
and for performing the management services required of him hereunder.

1. To ensure that the transfer to the coconut farmers of the Option Shares is effected with the least
possible delay and to provide for the faithful performance of the obligations of the parties hereunder, the
parties hereby appoint the Philippine National Bank as their escrow agent (the "Escrow Agent").

Upon execution of this Agreement, the BUYER shall deposit with the Escrow Agent such amount as may be
necessary to implement the terms of this Agreement x x x.

Page 19 of 92
2. As promptly as practicable after execution of this Agreement, the SELLER shall exercise his option to
acquire the Option Share and SELLER shall immediately thereafter deliver and turn over to the Escrow
Agent such stock certificates as are herein provided to be received from the existing stockholders of the
Bank by virtue of the exercise on the aforementioned option x x x.

3. To ensure the stability of the Bank and continuity of management and credit policies to be adopted for
the benefit of the coconut farmers, the parties undertake to cause the stockholders and the Board of
Directors of the Bank to authorize and approve a management contract between the Bank and the SELLER
under the following terms:

(a) The management contract shall be for a period of five (5) years, renewable for another five (5) years
by mutual agreement of the SELLER and the Bank;

(b) The SELLER shall be elected President and shall hold office at the pleasure of the Board of Directors.
While serving in such capacity, he shall be entitled to such salaries and emoluments as the Board of
Directors may determine;

(c) The SELLER shall recruit and develop a professional management team to manage and operate the
Bank under the control and supervision of the Board of Directors of the Bank;

(d) The BUYER undertakes to cause three (3) persons designated by the SELLER to be elected to the
Board of Directors of the Bank;

(e) The SELLER shall receive no compensation for managing the Bank, other than such salaries or
emoluments to which he may be entitled by virtue of the discharge of his function and duties as President,
provided x x x and

(f) The management contract may be assigned to a management company owned and controlled by the
SELLER.

4. As compensation for exercising his personal and exclusive option to acquire the Option Shares and for
transferring such shares to the coconut farmers, as well as for performing the management services
required of him, SELLER shall receive equity in the Bank amounting, in the aggregate, to 95,304 fully paid
shares in accordance with the procedure set forth in paragraph 6 below;

5. In order to comply with the Central Bank program for increased capitalization of banks and to ensure
that the Bank will be in a more favorable financial position to attain its objective to extend to the coconut
farmers loans and credit facilities, the BUYER undertakes to subscribe to shares with an aggregate par
value of P80,864,000 (the "Subscribed Shares"). The obligation of the BUYER with respect to the
Subscribed Shares shall be as follows:

(a) The BUYER undertakes to subscribe, for the benefit of the coconut farmers, to shares with an
aggregate par value of P15,884,000 from the present authorized but unissued shares of the Bank; and

(b) The BUYER undertakes to subscribe, for the benefit of the coconut farmers, to shares with an
aggregate par value of P64,980,000 from the increased capital stock of the Bank, which subscriptions shall
be deemed made upon the approval by the stockholders of the increase of the authorized capital stock of
the Bank from P50 Million to P140 Million.

The parties undertake to declare stock dividends of P8 Million out of the present authorized but unissued
capital stock of P30 Million.

6. To carry into effect the agreement of the parties that the SELLER shall receive as his compensation
95,304 shares:

(a) The Escrow Agent shall, upon receipt from the SELLER of the stock certificates representing the Option
Shares, duly endorsed in blank or with stock powers sufficient to transfer the same to bearer, present
such stock certificates to the Transfer Agent of the Bank and shall cause such Transfer Agent to issue

Page 20 of 92
stock certificates of the Bank in the following ratio: one share in the name of the SELLER for every nine
shares in the name of the BUYER.

(b) With respect to the Subscribed Shares, the BUYER undertakes, in order to prevent the dilution of
SELLER’s equity position, that it shall cede over to the SELLER 64,980 fully-paid shares out of the
Subscribed Shares. Such undertaking shall be complied with in the following manner: upon receipt of
advice that the BUYER has subscribed to the Subscribed Shares upon approval by the stockholders of the
increase of the authorized capital stock of the Bank, the Escrow Agent shall thereupon issue a check in
favor of the Bank covering the total payment for the Subscribed Shares. The Escrow Agent shall thereafter
cause the Transfer Agent to issue a stock certificates of the Bank in the following ratio: one share in the
name of the SELLER for every nine shares in the name of the BUYER.

7. The parties further undertake that the Board of Directors and management of the Bank shall establish
and implement a loan policy for the Bank of making available for loans at preferential rates of interest to
the coconut farmers x x x.

8. The BUYER shall expeditiously distribute from time to time the shares of the Bank, that shall be held by
it for the benefit of the coconut farmers of the Philippines under the provisions of this Agreement, to such,
coconut farmers holding registered COCOFUND receipts on such equitable basis as may be determine by
the BUYER in its sound discretion.

10. To ensure that not only existing but future coconut farmers shall be participants in and beneficiaries of
the credit policies, and shall be entitled to the benefit of loans and credit facilities to be extended by the
Bank to coconut farmers at preferential rates, the shares held by the coconut farmers shall not be entitled
to pre-emptive rights with respect to the unissued portion of the authorized capital stock or any increase
thereof.

11. After the parties shall have acquired two-thirds (2/3) of the outstanding shares of the Bank, the
parties shall call a special stockholders’ meeting of the Bank:

(a) To classify the present authorized capital stock of P50,000,000 divided into 500,000 shares, with a par
value of P100.00 per share into: 361,000 Class A shares, with an aggregate par value of P36,100,000 and
139,000 Class B shares, with an aggregate par value of P13,900,000. All of the Option Shares constituting
72.2% of the outstanding shares, shall be classified as Class A shares and the balance of the outstanding
shares, constituting 27.8% of the outstanding shares, as Class B shares;

(b) To amend the articles of incorporation of the Bank to effect the following changes:

(i) change of corporate name to First United Coconut Bank;

(ii) replace the present provision restricting the transferability of the shares with a limitation on ownership
by any individual or entity to not more than 10% of the outstanding shares of the Bank;

(iii) provide that the holders of Class A shares shall not be entitled to pre-emptive rights with respect to
the unissued portion of the authorized capital stock or any increase thereof; and

(iv) provide that the holders of Class B shares shall be absolutely entitled to pre-emptive rights, with
respect to the unissued portion of Class B shares comprising part of the authorized capital stock or any
increase thereof, to subscribe to Class B shares in proportion t the subscriptions of Class A shares, and to
pay for their subscriptions to Class B shares within a period of five (5) years from the call of the Board of
Directors.

(c) To increase the authorized capital stock of the Bank from P50 Million to P140 Million, divided into
1,010,800 Class A shares and 389,200 Class B shares, each with a par value of P100 per share;

(d) To declare a stock dividend of P8 Million payable to the SELLER, the BUYER and other stockholders of
the Bank out of the present authorized but unissued capital stock of P30 Million;

(e) To amend the by-laws of the Bank accordingly; and

Page 21 of 92
(f) To authorize and approve the management contract provided in paragraph 2 above.

The parties agree that they shall vote their shares and take all the necessary corporate action in order to
carry into effect the foregoing provisions of this paragraph 11, including such other amendments of the
articles of incorporation and by-laws of the Bank as are necessary in order to implement the intention of
the parties with respect thereto.

12. It is the contemplation of the parties that the Bank shall achieve a financial and equity position to be
able to lend to the coconut farmers at preferential rates.

In order to achieve such objective, the parties shall cause the Bank to adopt a policy of reinvestment, by
way of stock dividends, of such percentage of the profits of the Bank as may be necessary.

13. The parties agree to execute or cause to be executed such documents and instruments as may be
required in order to carry out the intent and purpose of this Agreement.

IN WITNESS WHEREOF x x x

PHILIPPINE COCONUT AUTHORITY


(BUYER)
By:
EDUARDO COJUANGCO, JR.
(SELLER) MARIA CLARA L. LOBREGAT

7. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the x x x (PCA) was the
"other buyers" represented by defendant Eduardo M. Cojuangco, Jr. in the May 1975 Agreement entered
into between Pedro Cojuangco (on his own behalf and in behalf of other sellers listed in Annex "A"of the
agreement) and defendant Eduardo M. Cojuangco, Jr. (on his own behalf and in behalf of the other
buyers). Defendant Cojuangco insists he was the "only buyer" under the aforesaid Agreement.

8. Defendant Eduardo M. Cojuangco, Jr. did not own any share in the x x x (FUB) prior to the execution of
the two Agreements x x x.

9. Defendants Lobregat, et al., and COCOFED, et al., and Ballares, et al. admit that in addition to the
137,866 FUB shares of Pedro Cojuangco, et al. covered by the Agreement, other FUB stockholders sold
their shares to PCA such that the total number of FUB shares purchased by PCA … increased from 137,866
shares to 144,400 shares, the OPTION SHARES referred to in the Agreement of May 25, 1975. Defendant
Cojuangco did not make said admission as to the said 6,534 shares in excess of the 137,866 shares
covered by the Agreement with Pedro Cojuangco.

10. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the Agreement,
described in Section 1 of Presidential Decree (P.D.) No. 755 dated July 29, 1975 as the "Agreement for
the Acquisition of a Commercial Bank for the Benefit of Coconut Farmers" executed by the Philippine
Coconut Authority" and incorporated in Section 1 of P.D. No. 755 by reference, refers to the "AGREEMENT
FOR THE ACQUISITION OF A COMMERCIAL BANK FOR THE BENEFIT OF THE COCONUT FARMERS OF THE
PHILIPPINES" dated May 25, 1975 between defendant Eduardo M. Cojuangco, Jr. and the PCA (Annex "B"
for defendant Cojuangco’s OPPOSITION TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT RE:
EDUARDO M. COJUANGCO, JR. dated September 18, 2002).

Plaintiff refused to make the same admission.

11. As to whether P.D. No. 755 and the text of the agreement described therein was published, the Court
takes judicial notice that P.D. No. 755 was published in x x x volume 71 of the Official Gazette but the text
of the agreement x x x was not so published with P.D. No. 755.

12. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the PCA used public
funds x x x in the total amount of P150 million, to purchase the FUB shares amounting to 72.2% of the
authorized capital stock of the FUB, although the PCA was later reimbursed from the coconut levy funds

Page 22 of 92
and that the PCA subscription in the increased capitalization of the FUB, which was later renamed the x x
x (UCPB), came from the said coconut levy funds x x x.

13. Pursuant to the May 25, 1975 Agreement, out of the 72.2% shares of the authorized and the
increased capital stock of the FUB (later UCPB), entirely paid for by PCA, 64.98% of the shares were
placed in the name of the "PCA for the benefit of the coconut farmers" and 7,22% were given to
defendant Cojuangco. The remaining 27.8% shares of stock in the FUB which later became the UCPB were
not covered by the two (2) agreements referred to in item no. 6, par. (a) and (b) above. "There were
shares forming part of the aforementioned 64.98% which were later sold or transferred to non-coconut
farmers.

14. Under the May 27, 1975 Agreement, defendant Cojuangco’s equity in the FUB (now UCPB) was ten
percent (10%) of the shares of stock acquired by the PCA for the benefit of the coconut farmers.

15. That the fully paid 95.304 shares of the FUB, later the UCPB, acquired by defendant x x x Cojuangco,
Jr. pursuant to the May 25, 1975 Agreement were paid for by the PCA in accordance with the terms and
conditions provided in the said Agreement. 16. Defendants Lobregat, et al. and COCOFED, et al. and
Ballares, et al. admit that the affidavits of the coconut farmers (specifically, Exhibit "1-Farmer" to "70-
Farmer") uniformly state that:

a. they are coconut farmers who sold coconut products;


b. in the sale thereof, they received COCOFUND receipts pursuant to R.A. No. 6260;
c. they registered the said COCOFUND receipts; and
d. by virtue thereof, and under R.A. No. 6260, P.D. Nos. 755, 961 and 1468, they are allegedly entitled to
the subject UCPB shares.
but subject to the following qualifications:

a. there were other coconut farmers who received UCPB shares although they did not present said
COCOFUND receipt because the PCA distributed the unclaimed UCPB shares not only to those who already
received their UCPB shares in exchange for their COCOFUND receipts but also to the coconut farmers
determined by a national census conducted pursuant to PCA administrative issuances;

b. there were other affidavits executed by Lobregat, Eleazar, Ballares and Aldeguer relative to the said
distribution of the unclaimed UCPB shares; and

c. the coconut farmers claim the UCPB shares by virtue of their compliance not only with the laws
mentioned in item (d) above but also with the relevant issuances of the PCA such as, PCA Administrative
Order No. 1, dated August 20, 1975 (Exh. "298-Farmer"); PCA Resolution No. 033-78 dated February 16,
1978….

The plaintiff did not make any admission as to the foregoing qualifications.

17. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. claim that the UCPB shares in
question have legitimately become the private properties of the 1,405,366 coconut farmers solely on the
basis of their having acquired said shares in compliance with R.A. No. 6260, P.D. Nos. 755, 961 and 1468
and the administrative issuances of the PCA cited above.

18. On the other hand, defendant … Cojuangco, Jr. claims ownership of the UCPB shares, which he holds,
solely on the basis of the two Agreements…. (Emphasis and words in brackets added.)

On July 11, 2003, the Sandiganbayan issued the assailed PSJ-A, ruling in favor of the Republic, disposing
insofar as pertinent as follows:21

WHEREFORE, in view of the foregoing, we rule as follows:

C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO, JR.) dated
September 18, 2002 filed by plaintiff.

Page 23 of 92
1. Sec. 1 of P.D. No. 755 did not validate the Agreement between PCA and defendant Eduardo M.
Cojuangco, Jr. dated May 25, 1975 nor did it give the Agreement the binding force of a law because of the
non-publication of the said Agreement.

2. Regarding the questioned transfer of the shares of stock of FUB (later UCPB) by PCA to defendant
Cojuangco or the so-called "Cojuangco UCPB shares" which cost the PCA more than Ten Million Pesos in
CCSF in 1975, we declare, that the transfer of the following FUB/UCPB shares to defendant Eduardo M.
Cojuangco, Jr. was not supported by valuable consideration, and therefore null and void:

a. The 14,400 shares from the "Option Shares";

b. Additional Bank Shares Subscribed and Paid by PCA, consisting of:

1. Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of the authorized but unissued shares
of the bank, subscribed and paid by PCA;

2. Sixty Four Thousand Nine Hundred Eighty (64,980) shares of the increased capital stock subscribed and
paid by PCA; and

3. Stock dividends declared pursuant to paragraph 5 and paragraph 11 (iv) (d) of the Agreement.

3. The above-mentioned shares of stock of the FUB/UCPB transferred to defendant Cojuangco are hereby
declared conclusively owned by the plaintiff Republic of the Philippines.

4. The UCPB shares of stock of the alleged fronts, nominees and dummies of defendant Eduardo M.
Cojuangco, Jr. which form part of the 72.2% shares of the FUB/UCPB paid for by the

PCA with public funds later charged to the coconut levy funds, particularly the CCSF, belong to the plaintiff
Republic of the Philippines as their true and beneficial owner.

Let trial of this Civil Case proceed with respect to the issues which have not been disposed of in this Partial
Summary Judgment. For this purpose, the plaintiff’s Motion Ad Cautelam to Present

Additional Evidence dated March 28, 2001 is hereby GRANTED.22 (Emphasis and underlining added.)

As earlier explained, the core issue in this instant petition is Part C of the dispositive portion in PSJ-A
declaring the 7.22% FUB (now UCPB) shares transferred to Cojuangco, plus the other shares paid by the
PCA as "conclusively" owned by the Republic. Parts A and B of the same dispositive portion have already
been finally resolved and adjudicated by this Court in COCOFED v. Republic on January 24, 2012.23

From PSJ-A, Cojuangco moved for partial reconsideration but the Sandiganbayan, by Resolution24 of
December 28, 2004, denied the motion.

Hence, the instant petition.

The Issues

Cojuangco’s petition formulates the issues in question form, as follows:25

a. Is the acquisition of the so-called Cojuangco, Jr. UCPB shares by petitioner Cojuangco x x x "not
supported by valuable consideration and, therefore, null and void"?

b. Did the Sandiganbayan have jurisdiction, in Civil Case No. 0033-A, an "ill-gotten wealth" case brought
under EO Nos. 1 and 2, to declare the Cojuangco UCPB shares acquired by virtue of the Pedro Cojuangco,
et al. Agreement and/or the PCA Agreement null and void because "not supported by valuable
consideration"?

c. Was the claim that the acquisition by petitioner Cojuangco of shares representing 7.2% of the
outstanding capital stock of FUB (later UCPB) "not supported by valuable consideration", a "claim" pleaded

Page 24 of 92
in the complaint and may therefore be the basis of a "summary judgment" under Section 1, Rule 35 of the
Rules of Court?

d. By declaring the Cojuangco UCPB shares as "not supported by valuable consideration, and therefore,
null and void", did the Sandiganbayan effectively nullify the PCA Agreement? May the Sandiganbayan
nullify the PCA Agreement when the parties to the Agreement, namely: x x x concede its validity? If the
PCA Agreement be deemed "null and void", should not the FUB (later UCPB) shares revert to petitioner
Cojuangco (under the PCA Agreement) or to Pedro Cojuangco, et al. x x x? Would there be a basis then,
even assuming the absence of consideration x x x, to declare 7.2% UCPB shares of petitioner Cojuangco
as "conclusively owned by the plaintiff Republic of the Philippines"?26

The Court’s Ruling

I
THE SANDIGANBAYAN HAS JURISDICTION OVER THE SUBJECT MATTER OF THE SUBDIVIDED AMENDED
COMPLAINTS, INCLUDING THE SHARES ALLEGEDLY ACQUIRED BY COJUANGCO BY VIRTUE OF THE PCA
AGREEMENTS.

The issue of jurisdiction over the subject matter of the subdivided amended complaints has peremptorily
been put to rest by the Court in its January 24, 2012 Decision in COCOFED v. Republic. There, the Court,
citing Regalado27 and settled jurisprudence, stressed the following interlocking precepts: Subject matter
jurisdiction is conferred by law, not by the consent or acquiescence of any or all of the parties. In turn, the
issue on whether a suit comes within the penumbra of a statutory conferment is determined by the
allegations in the complaint, regardless of whether or not the suitor will be entitled to recover upon all or
part of the claims asserted.

The Republic’s material averments in its complaint subdivided in CC No. 0033-A included the following:

CC No. 0033-A

12. Defendant Eduardo M. Cojuangco, Jr. served as a public officer during the Marcos administration.
During the period of his incumbency as a public officer, he acquired assets, funds and other property
grossly and manifestly disproportionate to his salaries, lawful income and income from legitimately
acquired property.

13. Defendant Eduardo M. Cojuangco, Jr., taking undue advantage of his association, influence,
connection, and acting in unlawful concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos,
AND THE INDIVIDUAL DEFENDANTS, embarked upon devices, schemes and stratagems, to unjustly enrich
themselves at the expense of Plaintiff and the Filipino people, such as when he –

a) manipulated, beginning the year 1975 with the active collaboration of Defendants x x x Maria Clara
Lobregat, Danilo Ursua etc., the purchase by . . . (PCA) of 72.2% of the outstanding capital stock of the x
x x (FUB) which was subsequently converted into a universal bank named x x x (UCPB) through the use of
the Coconut Consumers Stabilization Fund (CCSF) being initially in the amount of P85,773,100.00 in a
manner contrary to law and to the specific purposes for which said coconut levy funds were imposed and
collected under P.D. 276, and with sinister designs and under anomalous circumstances, to wit:

(i) Defendant Eduardo Cojuangco, Jr. coveted the coconut levy funds as a cheap, lucrative and risk-free
source of funds with which to exercise his private option to buy the controlling interest in FUB; thus,
claiming that the 72.2% of the outstanding capital stock of FUB could only be purchased and transferred
through the exercise of his "personal and exclusive action option to acquire the 144,000 shares" of the
bank, Defendant Eduardo M. Cojuangco, Jr. and PCA, x x x executed on May 26, 1975 a purchase
agreement which provides, among others, for the payment to him in fully paid shares as compensation
thereof 95,384 shares worth P1,444,000.00 with the further condition that he shall manage and control
the bank as Director and President for a term of five (5) years renewable for another five (5) years and to
designate three (3) persons of his choice who shall be elected as members of the Board of Directors of the
Bank;

Page 25 of 92
(ii) to legitimize a posteriori his highly anomalous and irregular use and diversion of government funds to
advance his own private and commercial interests, Defendant Eduardo Cojuangco, Jr. caused the issuance
by Defendant Ferdinand E. Marcos of PD 755 (a) declaring that the coconut levy funds shall not be
considered special and fiduciary and trust funds and do not form part of the general funds of the National
Government, conveniently repealing for that purpose a series of previous decrees, PDs 276 and 414,
establishing the character of the coconut levy funds as special, fiduciary, trust and governmental funds;
(b) confirming the agreement between Defendant Eduardo Cojuangco, Jr. and PCA on the purchase of FUB
by incorporating by reference said private commercial agreement in PD 755;

(iii)To further consolidate his hold on UCPB, Defendant Eduardo Cojuangco, Jr. imposed as consideration
and conditions for the purchase that (a) he gets one out of every nine shares given to PCA, and (b) he
gets to manage and control UCPB as president for a term of five (5) years renewable for another five (5)
years;

(iv) To perpetuate his opportunity to deal with and make use of the coconut levy funds x x x Cojuangco,
Jr. caused the issuance by Defendant Ferdinand E. Marcos of an unconstitutional decree (PD 1468)
requiring the deposit of all coconut levy funds with UCPB, interest free to the prejudice of the government.

(v) In gross violation of their fiduciary positions and in contravention of the goal to create a bank for the
coconut farmers of the country, the capital stock of UCPB as of February 25, 1986 was actually held by the
defendants, their lawyers, factotum and business associates, thereby finally gaining control of the UCPB
by misusing the names and identities of the so-called "more than one million coconut farmers."

14. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute
gross abuse of official position and authority, flagrant breach of public trust and fiduciary obligations,
brazen abuse of right and power, and unjust enrichment, violation of the constitution and laws of the
Republic of the Philippines, to the grave and irreparable damage of Plaintiff and the Filipino people.28

In no uncertain terms, the Court has upheld the Sandiganbayan’s assumption of jurisdiction over the
subject matter of Civil Case Nos. 0033-A and 0033-F.29 The Court wrote:

Judging from the allegations of the defendants’ illegal acts thereat made, it is fairly obvious that both CC
Nos. 0033-A and CC 0033-F partake, in the context of EO Nos. 1, 2 and 14, series of 1986, the nature of
ill-gotten wealth suits. Both deal with the recovery of sequestered shares, property or business enterprises
claimed, as alleged in the corresponding basic complaints, to be ill-gotten assets of President Marcos, his
cronies and nominees and acquired by taking undue advantage of relationships or influence and/or
through or as a result of improper use, conversion or diversion of government funds or property. Recovery
of these assets––determined as shall hereinafter be discussed as prima facie ill-gotten––falls within the
unquestionable jurisdiction of the Sandiganbayan.30

P.D. No. 1606, as amended by R.A. 7975 and E.O. No. 14, Series of 1986, vests the Sandiganbayan with,
among others, original jurisdiction over civil and criminal cases instituted pursuant to and in connection
with E.O. Nos. 1, 2, 14 and 14-A. Correlatively, the PCGG Rules and Regulations defines the term "Ill-
Gotten Wealth" as "any asset, property, business enterprise or material possession of persons within the
purview of E.O. Nos. 1 and 2, acquired by them directly, or indirectly thru dummies, nominees, agents,
subordinates and/or business associates by any of the following means or similar schemes":

(1) Through misappropriation, conversion, misuse or malversation of public funds or raids on the public
treasury;

(3) By the illegal or fraudulent conveyance or disposition of assets belonging to the government or any of
its subdivisions, agencies or instrumentalities or government-owned or controlled corporations;

(4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity or any other form
of interest or participation in any business enterprise or undertaking;

(5) Through the establishment of agricultural, industrial or commercial monopolies or other combination
and/or by the issuance, promulgation and/or implementation of decrees and orders intended to benefit
particular persons or special interests; and

Page 26 of 92
(6) By taking undue advantage of official position, authority, relationship or influence for personal gain or
benefit. (Emphasis supplied)

Section 2(a) of E.O. No. 1 charged the PCGG with the task of assisting the President in "The recovery of all
ill-gotten wealth accumulated by former … President Marcos, his immediate family, relatives, subordinates
and close associates … including the takeover or sequestration of all business enterprises and entities
owned or controlled by them, during his administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority, influence, connections or
relationship." Complementing the aforesaid Section 2(a) is Section 1 of E.O. No. 2 decreeing the freezing
of all assets "in which the Marcoses their close relatives, subordinates, business associates, dummies,
agents or nominees have any interest or participation."

The Republic’s averments in the amended complaints, particularly those detailing the alleged wrongful
acts of the defendants, sufficiently reveal that the subject matter thereof comprises the recovery by the
Government of ill-gotten wealth acquired by then President Marcos, his cronies or their associates and
dummies through the unlawful, improper utilization or diversion of coconut levy funds aided by P.D. No.
755 and other sister decrees. President Marcos himself issued these decrees in a brazen bid to legalize
what amounts to private taking of the said public funds.

There was no actual need for Republic, as plaintiff a quo, to adduce evidence to show that the
Sandiganbayan has jurisdiction over the subject matter of the complaints as it leaned on the averments in
the initiatory pleadings to make visible the jurisdiction of the Sandiganbayan over the ill-gotten wealth
complaints. As previously discussed, a perusal of the allegations easily reveals the sufficiency of the
statement of matters disclosing the claim of the government against the coco levy funds and the assets
acquired directly or indirectly through said funds as ill-gotten wealth. Moreover, the Court finds no rule
that directs the plaintiff to first prove the subject matter jurisdiction of the court before which the
complaint is filed. Rather, such burden falls on the shoulders of defendant in the hearing of a motion to
dismiss anchored on said ground or a preliminary hearing thereon when such ground is alleged in the
answer.

Lest it be overlooked, this Court has already decided that the sequestered shares are prima facie ill-gotten
wealth rendering the issue of the validity of their sequestration and of the jurisdiction of the
Sandiganbayan over the case beyond doubt. In the case of COCOFED v. PCGG, We stated that:

It is of course not for this Court to pass upon the factual issues thus raised. That function pertains to the
Sandiganbayan in the first instance. For purposes of this proceeding, all that the Court needs to determine
is whether or not there is prima facie justification for the sequestration ordered by the PCGG. The Court is
satisfied that there is. The cited incidents, given the public character of the coconut levy funds, place
petitioners COCOFED and its leaders and officials, at least prima facie, squarely within the purview of
Executive Orders Nos. 1, 2 and 14, as construed and applied in BASECO, to wit:

"1. that ill-gotten properties (were) amassed by the leaders and supporters of the previous regime;

"a. more particularly, that ‘(i) Ill-gotten wealth was accumulated by x x x Marcos, his immediate family,
relatives, subordinates and close associates, x x x (and) business enterprises and entities (came to be)
owned or controlled by them, during x x x (the Marcos) administration, directly or through nominees, by
taking undue advantage of their public office and using their powers, authority, influence, connections or
relationships’;

"b. otherwise stated, that ‘there are assets and properties purportedly pertaining to the Marcoses, their
close relatives, subordinates, business associates, dummies, agents or nominees which had been or were
acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or
properties owned by the Government x x x or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of their office, authority, influence, connections or
relationship, resulting in their unjust enrichment x x x;

Page 27 of 92
2. The petitioners’ claim that the assets acquired with the coconut levy funds are privately owned by the
coconut farmers is founded on certain provisions of law, to wit Sec. 7, RA 6260 and Sec. 5, Art. III, PD
1468… (Words in bracket added; italics in the original).

E.O. 1, 2, 14 and 14-A, it bears to stress, were issued precisely to effect the recovery of ill-gotten assets
amassed by the Marcoses, their associates, subordinates and cronies, or through their nominees. Be that
as it may, it stands to reason that persons listed as associated with the Marcoses refer to those in
possession of such ill-gotten wealth but holding the same in behalf of the actual, albeit undisclosed owner,
to prevent discovery and consequently recovery. Certainly, it is well-nigh inconceivable that ill-gotten
assets would be distributed to and left in the hands of individuals or entities with obvious traceable
connections to Mr. Marcos and his cronies. The Court can take, as it has in fact taken, judicial notice of
schemes and machinations that have been put in place to keep ill-gotten assets under wraps. These would
include the setting up of layers after layers of shell or dummy, but controlled, corporations31 or
manipulated instruments calculated to confuse if not altogether mislead would-be investigators from
recovering wealth deceitfully amassed at the expense of the people or simply the fruits thereof.
Transferring the illegal assets to third parties not readily perceived as Marcos cronies would be another.
So it was that in PCGG v. Pena, the Court, describing the rule of Marcos as a "well entrenched plundering
regime of twenty years," noted the magnitude of the past regime’s organized pillage and the ingenuity of
the plunderers and pillagers with the assistance of experts and the best legal minds in the market.32

Prescinding from the foregoing premises, there can no longer be any serious challenge as to the
Sandiganbayan’s subject matter jurisdiction. And in connection therewith, the Court wrote in COCOFED v.
Republic, that the instant petition shall be decided separately and should not be affected by the January
24, 2012 Decision, "save for determinatively legal issues directly addressed" therein.33 Thus:

We clarify that PSJ-A is subject of another petition for review interposed by Eduardo Cojuangco, Jr., in
G.R. No. 180705 entitled, Eduardo M. Cojuangco, Jr. v. Republic of the Philippines, which shall be decided
separately by this Court. Said petition should accordingly not be affected by this Decision save for
determinatively legal issues directly addressed herein.34 (Emphasis Ours.)

We, therefore, reiterate our holding in COCOFED v. Republic respecting the Sandiganbayan’s jurisdiction
over the subject matter of Civil Case No. 0033-A, including those matters whose adjudication We shall
resolve in the present case.

II. PRELIMINARILY, THE AGREEMENT BETWEEN THE PCA AND EDUARDO M. COJUANGCO, JR. DATED MAY
25, 1975 CANNOT BE ACCORDED THE STATUS OF A LAW FOR THE LACK OF THE REQUISITE
PUBLICATION.

It will be recalled that Cojuangco’s claim of ownership over the UCPB shares is hinged on two contract
documents the respective contents of which formed part of and reproduced in their entirety in the
aforecited Order35 of the Sandiganbayan dated March 11, 2003. The first contract refers to the agreement
entered into by and between Pedro Cojuangco and his group, on one hand, and Eduardo M. Cojuangco,
Jr., on the other, bearing date "May 1975"36 (hereinafter referred to as "PC-ECJ Agreement"), while the
second relates to the accord between the PCA and Eduardo M. Cojuangco, Jr. dated May 25, 1975
(hereinafter referred to as "PCA-Cojuangco Agreement"). The PC-ECJ Agreement allegedly contains, inter
alia, Cojuangco’s personal and exclusive option to acquire the FUB ("UCPB") shares from Pedro and his
group. The PCA-Cojuangco Agreement shows PCA’s acquisition of the said option from Eduardo M.
Cojuangco, Jr.

Section 1 of P.D. No. 755 incorporated, by reference, the "Agreement for the Acquisition of a Commercial
Bank for the Benefit of the Coconut Farmers" executed by the PCA. Particularly, Section 1 states:

Section 1. Declaration of National Policy. It is hereby declared that the policy of the State is to provide
readily available credit facilities to the coconut farmers at preferential rates; that this policy can be
expeditiously and efficiently realized by the implementation of the "Agreement for the Acquisition of a
Commercial Bank for the benefit of the Coconut Farmers" executed by the Philippine Coconut Authority,
the terms of which "Agreement" are hereby incorporated by reference; and that the Philippine Coconut
Authority is hereby authorized to distribute, for free, the shares of stock of the bank it acquired to the
coconut farmers under such rules and regulations it may promulgate. (Emphasis Ours.)

Page 28 of 92
It bears to stress at this point that the PCA-Cojuangco Agreement referred to above in Section 1 of P.D.
755 was not reproduced or attached as an annex to the same law. And it is well-settled that laws must be
published to be valid. In fact, publication is an indispensable condition for the effectivity of a law. Tañada
v. Tuvera said as much:

Publication of the law is indispensable in every case x x x.

We note at this point the conclusive presumption that every person knows the law, which of course
presupposes that the law has been published if the presumption is to have any legal justification at all. It
is no less important to remember that Section 6 of the Bill of Rights recognizes "the right of the people to
information on matters of public concern," and this certainly applies to, among others, and indeed
especially, the legislative enactments of the government.

We hold therefore that all statutes, including those of local application and private laws, shall be published
as a condition for their effectivity, which shall begin fifteen days after publication unless a different
effectivity date is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by the President in the
exercise of legislative powers whenever the same are validly delegated by the legislature, or, at present,
directly conferred by the Constitution. Administrative rules and regulations must also be published if their
purpose is to enforce or implement existing law pursuant also to a valid delegation.38

We even went further in Tañada to say that:

Laws must come out in the open in the clear light of the sun instead of skulking in the shadows with their
dark, deep secrets. Mysterious pronouncements and rumored rules cannot be recognized as binding unless
their existence and contents are confirmed by a valid publication intended to make full disclosure and give
proper notice to the people. The furtive law is like a scabbarded saber that cannot feint, parry or cut
unless the naked blade is drawn.39

The publication, as further held in Tañada, must be of the full text of the law since the purpose of
publication is to inform the public of the contents of the law. Mere referencing the number of the
presidential decree, its title or whereabouts and its supposed date of effectivity would not satisfy the
publication requirement.40

In this case, while it incorporated the PCA-Cojuangco Agreement by reference, Section 1 of P.D. 755 did
not in any way reproduce the exact terms of the contract in the decree. Neither was acopy thereof
attached to the decree when published. We cannot, therefore, extend to the said

Agreement the status of a law. Consequently, We join the Sandiganbayan in its holding that the PCA-
Cojuangco Agreement shall be treated as an ordinary transaction between agreeing minds to be governed
by contract law under the Civil Code.

III. THE PCA-COJUANGCO AGREEMENT IS A VALID CONTRACT FOR HAVING THE REQUISITE
CONSIDERATION.

In PSJ-A, the Sandiganbayan struck down the PCA-Cojuangco Agreement as void for lack of
consideration/cause as required under Article 1318, paragraph 3 in relation to Article 1409, paragraph 3 of
the Civil Code. The Sandiganbayan stated:

In sum, the evidence on record relied upon by defendant Cojuangco negates the presence of: (1) his
claimed personal and exclusive option to buy the 137,866 FUB shares; and (2) any pecuniary advantage
to the government of the said option, which could compensate for generous payment to him by PCA of
valuable shares of stock, as stipulated in the May 25, 1975 Agreement between him and the PCA.41

On the other hand, the aforementioned provisions of the Civil Code state:

Art. 1318. There is no contract unless the following requisites concur:

Page 29 of 92
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract
(3) Cause of the obligation which is established. (Emphasis supplied)

Art. 1409. The following contracts are inexistent and void from the beginning:
(3) Those whose cause or object did not exist at the time of the transaction;

The Sandiganbayan found and so tagged the alleged cause for the agreement in question, i.e.,
Cojuangco’s "personal and exclusive option to acquire the Option Shares," as fictitious. A reading of the
purchase agreement between Cojuangco and PCA, so the Sandiganbayan ruled, would show that
Cojuangco was not the only seller; thus, the option was, as to him, neither personal nor exclusive as he
claimed it to be. Moreover, as the Sandiganbayan deduced, that option was inexistent on the day of
execution of the PCA-Cojuangco Agreement as the Special Power of Attorney executed by Cojuangco in
favor of now Senator Edgardo J. Angara, for the latter to sign the PC-ECJ Agreement, was dated May 25,
1975 while the PCA-Cojuangco Agreement was also signed on May 25, 1975. Thus, the Sandiganbayan
believed that when the parties affixed their signatures on the second Agreement, Cojuangco’s option to
purchase the FUB shares of stock did not yet exist. The Sandiganbayan further ruled that there was no
justification in the second Agreement for the compensation of Cojuangco of 14,400 shares, which it
viewed as exorbitant. Additionally, the Sandiganbayan ruled that PCA could not validly enter, in behalf of
FUB/UCPB, into a veritable bank management contract with Cojuangco, PCA having a personality separate
and distinct from that of FUB. As such, the Sandiganbayan concluded that the PCA-Cojuangco Agreement
was null and void. Correspondingly, the Sandiganbayan also ruled that the sequestered FUB (UCPB)
shares of stock in the name of Cojuangco are conclusively owned by the Republic.

After a circumspect study, the Court finds as inconclusive the evidence relied upon by Sandiganbayan to
support its ruling that the PCA-Cojuangco Agreement is devoid of sufficient consideration. We shall
explain.

Rule 131, Section 3(r) of the Rules of Court states:

Sec. 3. Disputable presumptions.—The following presumptions are satisfactory if uncontradicted, but may
be contradicted and overcome by other evidence:

(r) That there was a sufficient consideration for a contract;

The Court had the occasion to explain the reach of the above provision in Surtida v. Rural Bank of Malinao
(Albay), Inc.,44 to wit:

Under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1) private
transactions have been fair and regular; (2) the ordinary course of business has been followed; and (3)
there was sufficient consideration for a contract. A presumption may operate against an adversary who
has not introduced proof to rebut it. The effect of a legal presumption upon a burden of proof is to create
the necessity of presenting evidence to meet the legal presumption or the prima facie case created
thereby, and which if no proof to the contrary is presented and offered, will prevail. The burden of proof
remains where it is, but by the presumption, the one who has that burden is relieved for the time being
from introducing evidence in support of the averment, because the presumption stands in the place of
evidence unless rebutted.

The presumption that a contract has sufficient consideration cannot be overthrown by the bare
uncorroborated and self-serving assertion of petitioners that it has no consideration. To overcome the
presumption of consideration, the alleged lack of consideration must be shown by preponderance of
evidence. Petitioners failed to discharge this burden x x x. (Emphasis Ours.)

The assumption that ample consideration is present in a contract is further elucidated in Pentacapital
Investment Corporation v. Mahinay:45

Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful unless the
debtor proves the contrary. Moreover, under Section 3, Rule 131 of the Rules of Court, the following are

Page 30 of 92
disputable presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of
business has been followed; and (3) there was sufficient consideration for a contract. A presumption may
operate against an adversary who has not introduced proof to rebut it. The effect of a legal presumption
upon a burden of proof is to create the necessity of presenting evidence to meet the legal presumption or
the prima facie case created thereby, and which, if no proof to the contrary is presented and offered, will
prevail. The burden of proof remains where it is, but by the presumption, the one who has that burden is
relieved for the time being from introducing evidence in support of the averment, because the
presumption stands in the place of evidence unless rebutted.46 (Emphasis supplied.)

The rule then is that the party who stands to profit from a declaration of the nullity of a contract on the
ground of insufficiency of consideration––which would necessarily refer to one who asserts such nullity––
has the burden of overthrowing the presumption offered by the aforequoted Section 3(r). Obviously then,
the presumption contextually operates in favor of Cojuangco and against the Republic, as plaintiff a quo,
which then had the burden to prove that indeed there was no sufficient consideration for the Second
Agreement. The Sandiganbayan’s stated observation, therefore, that based on the wordings of the Second
Agreement, Cojuangco had no personal and exclusive option to purchase the FUB shares from Pedro
Cojuangco had really little to commend itself for acceptance. This, as opposed to the fact that such sale
and purchase agreement is memorialized in a notarized document whereby both Eduardo Cojuangco, Jr.
and Pedro Cojuangco attested to the correctness of the provisions thereof, among which was that Eduardo
had such option to purchase. A notarized document, Lazaro v. Agustin47 teaches, "generally carries the
evidentiary weight conferred upon it with respect to its due execution, and documents acknowledged
before a notary public have in their favor the disputable presumption of regularity."

In Samanilla v. Cajucom,48 the Court clarified that the presumption of a valid consideration cannot be
discarded on a simple claim of absence of consideration, especially when the contract itself states that
consideration was given:

x x x This presumption appellants cannot overcome by a simple assertion of lack of consideration.


Especially may not the presumption be so lightly set aside when the contract itself states that
consideration was given, and the same has been reduced into a public instrument will all due formalities
and solemnities as in this case. (Emphasis ours.)

A perusal of the PCA-Cojuangco Agreement disclosed an express statement of consideration for the
transaction:

NOW, THEREFORE, for and in consideration of the foregoing premises and the other terms and conditions
hereinafter contained, the parties hereby declare and affirm that their principal contractual intent is (1) to
ensure that the coconut farmers own at least 60% of the outstanding capital stock of the Bank, and (2)
that the SELLER shall receive compensation for exercising his personal and exclusive option to acquire the
Option Shares, for transferring such shares to the coconut farmers at the option price of P200 per share,
and for performing the management services required of him hereunder.

4. As compensation for exercising his personal and exclusive option to acquire the Option ShareApplying
Samanilla to the case at bar, the express and positive declaration by the parties of the presence of
adequate consideration in the contract makes conclusive the presumption of sufficient consideration in the
PCA Agreement. Moreover, the option to purchase shares and management services for UCPB was already
availed of by petitioner Cojuangco for the benefit of the PCA. The exercise of such right resulted in the
execution of the PC-ECJ Agreement, which fact is not disputed. The document itself is incontrovertible
proof and hard evidence that petitioner Cojuangco had the right to purchase the subject FUB (now UCPB)
shares. Res ipsa loquitur.

The Sandiganbayan, however, pointed to the perceived "lack of any pecuniary value or advantage to the
government of the said option, which could compensate for the generous payment to him by PCA of
valuable shares of stock, as stipulated in the May 25, 1975 Agreement between him and the PCA."49

Inadequacy of the consideration, however, does not render a contract void under Article 1355 of the Civil
Code:

Page 31 of 92
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.)

Alsua-Betts v. Court of Appeals50 is instructive that lack of ample consideration does not nullify the
contract:

Inadequacy of consideration does not vitiate a contract unless it is proven which in the case at bar was
not, that there was fraud, mistake or undue influence. (Article 1355, New Civil Code). We do not find the
stipulated price as so inadequate to shock the court’s conscience, considering that the price paid was
much higher than the assessed value of the subject properties and considering that the sales were
effected by a father to her daughter in which case filial love must be taken into account. (Emphasis
supplied.)s and for transferring such shares to the coconut farmers, as well as for performing the
management services required of him, SELLER shall receive equity in the Bank amounting, in the
aggregate, to 95,304 fully paid shares in accordance with the procedure set forth in paragraph 6 below.
(Emphasis supplied.)

Vales v. Villa elucidates why a bad transaction cannot serve as basis for voiding a contract:

x x x 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. x x x 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 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 ours.)

While one may posit that the PCA-Cojuangco Agreement puts PCA and the coconut farmers at a
disadvantage, the facts do not make out a clear case of violation of any law that will necessitate the recall
of said contract. Indeed, the anti-graft court has not put forward any specific stipulation therein that is at
war with any law, or the Constitution, for that matter. It is even clear as day that none of the parties who
entered into the two agreements with petitioner Cojuangco contested nor sought the nullification of said
agreements, more particularly the PCA who is always provided legal advice in said transactions by the
Government corporate counsel, and a battery of lawyers and presumably the COA auditor assigned to said
agency. A government agency, like the PCA, stoops down to level of an ordinary citizen when it enters into
a private transaction with private individuals. In this setting, PCA is bound by the law on contracts and is
bound to comply with the terms of the PCA-Cojuangco Agreement which is the law between the parties.
With the silence of PCA not to challenge the validity of the PCA-Cojuangco Agreement and the inability of
government to demonstrate the lack of ample consideration in the transaction, the Court is left with no
other choice but to uphold the validity of said agreements.

While consideration is usually in the form of money or property, it need not be monetary. This is clear
from Article 1350 which reads:

Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation
or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere liability of the benefactor. (Emphasis
supplied.)

Gabriel v. Monte de Piedad y Caja de Ahorros52 tells us of the meaning of consideration:

x x x A consideration, in the legal sense of the word, is some right, interest, benefit, or advantage
conferred upon the promisor, to which he is otherwise not lawfully entitled, or any detriment, prejudice,
loss, or disadvantage suffered or undertaken by the promisee other than to such as he is at the time of
consent bound to suffer. (Emphasis Ours.)

The Court rules that the transfer of the subject UCPB shares is clearly supported by valuable
consideration.

To justify the nullification of the PCA-Cojuangco Agreement, the Sandiganbayan centered on the alleged
imaginary option claimed by petitioner to buy the FUB shares from the Pedro Cojuangco group. It relied on

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the phrase "in behalf of certain other buyers" mentioned in the PC-ECJ Agreement as basis for the finding
that petitioner’s option is neither personal nor exclusive. The pertinent portion of said agreement reads:

EDUARDO COJUANGCO, JR., Filipino, of legal age and with residence at 136 9th Street corner Balete
Drive, Quezon City, represented in this act by his duly authorized attorney-in-fact, EDGARDO J. ANGARA,
for and in his own behalf and in behalf of certain other buyers, (hereinafter collectively called the
"BUYERS"); x x x.

A plain reading of the aforequoted description of petitioner as a party to the PC-ECJ Agreement reveals
that petitioner is not only the buyer. He is the named buyer and there are other buyers who were
unnamed. This is clear from the word "BUYERS." If petitioner is the only buyer, then his description as a
party to the sale would only be "BUYER." It may be true that petitioner intended to include other buyers.
The fact remains, however, that the identities of the unnamed buyers were not revealed up to the present
day. While one can conjure or speculate that PCA may be one of the buyers, the fact that PCA entered into
an agreement to purchase the FUB shares with petitioner militates against such conjecture since there
would be no need at all to enter into the second agreement if PCA was already a buyer of the shares in the
first contract. It is only the parties to the PC-ECJ Agreement that can plausibly shed light on the import of
the phrase "certain other buyers" but, unfortunately, petitioner was no longer allowed to testify on the
matter and was precluded from explaining the transactions because of the motion for partial summary
judgment and the eventual promulgation of the July 11, 2003 Partial Summary Judgment.

Even if conceding for the sake of argument that PCA is one of the buyers of the FUB shares in the PC-ECJ
Agreement, still it does not necessarily follow that petitioner had no option to buy said shares from the
group of Pedro Cojuangco. In fact, the very execution of the first agreement undeniably shows that he had
the rights or option to buy said shares from the Pedro Cojuangco group. Otherwise, the PC-ECJ Agreement
could not have been consummated and enforced. The conclusion is incontestable that petitioner indeed
had the right or option to buy the FUB shares as buttressed by the execution and enforcement of the very
document itself.

We can opt to treat the PC-ECJ Agreement as a totally separate agreement from the PCA-Cojuangco
Agreement but it will not detract from the fact that petitioner actually acquired the rights to the ownership
of the FUB shares from the Pedro Cojuangco group. The consequence is he can legally sell the shares to
PCA. In this scenario, he would resell the shares to PCA for a profit and PCA would still end up paying a
higher price for the FUB shares. The "profit" that will accrue to petitioner may just be equal to the value of
the shares that were given to petitioner as commission. Still we can only speculate as to the true
intentions of the parties. Without any evidence adduced on this issue, the Court will not venture on any
unproven conclusion or finding which should be avoided in judicial adjudication.

The anti-graft court also inferred from the date of execution of the special power of attorney in favor of
now Senator Edgardo J. Angara, which is May 25, 1975, that the PC-ECJ Agreement appears to have been
executed on the same day as the PCA-Cojuangco Agreement (dated May 25, 1975). The coincidence on
the dates casts "doubts as to the existence of defendant Cojuangco’s prior ‘personal and exclusive’ option
to the FUB shares."

The fact that the execution of the SPA and the PCA-Cojuangco Agreement occurred sequentially on the
same day cannot, without more, be the basis for the conclusion as to the non-existence of the option of
petitioner. Such conjecture cannot prevail over the fact that without petitioner Cojuangco, none of the two
agreements in question would have been executed and implemented and the FUB shares could not have
been successfully conveyed to PCA.

Again, only the parties can explain the reasons behind the execution of the two agreements and the SPA
on the same day. They were, however, precluded from elucidating the reasons behind such occurrence. In
the absence of such illuminating proof, the proposition that the option does not exist has no leg to stand
on.

More importantly, the fact that the PC-ECJ Agreement was executed not earlier than May 25, 1975 proves
that petitioner Cojuangco had an option to buy the FUB shares prior to that date. Again, it must be
emphasized that from its terms, the first Agreement did not create the option.It, however, proved the
exercise of the option by petitioner.

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The execution of the PC-ECJ Agreement on the same day as the PCA-Cojuangco Agreement more than
satisfies paragraph 2 thereof which requires petitioner to exercise his option to purchase the FUB shares
as promptly as practicable after, and not before, the execution of the second agreement, thus:

2. As promptly as practicable after execution of this Agreement, the SELLER shall exercise his option to
acquire the Option Shares and SELLER shall immediately thereafter deliver and turn over to the Escrow
Agent such stock certificates as are herein provided to be received from the existing stockholders of the
bank by virtue of the exercise on the aforementioned option. The Escrow Agent shall thereupon issue its
check in favor of the SELLER covering the purchase price for the shares delivered. (Emphasis supplied.)

The Sandiganbayan viewed the compensation of petitioner of 14,400 FUB shares as exorbitant. In the
absence of proof to the contrary and considering the absence of any complaint of illegality or fraud from
any of the contracting parties, then the presumption that "private transactions have been fair and
regular"53 must apply.

Lastly, respondent interjects the thesis that PCA could not validly enter into a bank management
agreement with petitioner since PCA has a personality separate and distinct from that of FUB. Evidently, it
is PCA which has the right to challenge the stipulations on the management contract as unenforceable.
However, PCA chose not to assail said stipulations and instead even complied with and implemented its
prestations contained in said stipulations by installing petitioner as Chairman of UCPB. Thus, PCA has
waived and forfeited its right to nullify said stipulations and is now estopped from questioning the same.

In view of the foregoing, the Court is left with no option but to uphold the validity of the two agreements
in question.

IV. COJUANGCO IS NOT ENTITLED TO THE UCPB SHARES WHICH WERE BOUGHT WITH PUBLIC FUNDS
AND HENCE, ARE PUBLIC PROPERTY.

The coconut levy funds were exacted for a special public purpose. Consequently, any use or transfer of the
funds that directly benefits private individuals should be invalidated.

The issue of whether or not taxpayers’ money, or funds and property acquired through the imposition of
taxes may be used to benefit a private individual is once again posed. Preliminarily, the instant case
inquires whether the coconut levy funds, and accordingly, the UCPB shares acquired using the coconut
levy funds are public funds. Indeed, the very same issue took center stage, discussed and was directly
addressed in COCOFED v. Republic. And there is hardly any question about the subject funds’ public and
special character. The following excerpts from COCOFED v. Republic,54 citing Republic v. COCOFED and
related cases, settle once and for all this core, determinative issue:

Indeed, We have hitherto discussed, the coconut levy was imposed in the exercise of the State’s inherent
power of taxation. As We wrote in Republic v. COCOFED:

Indeed, coconut levy funds partake of the nature of taxes, which, in general, are enforced proportional
contributions from persons and properties, exacted by the State by virtue of its sovereignty for the
support of government and for all public needs.

Based on its definition, a tax has three elements, namely: a) it is an enforced proportional contribution
from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied
for the support of the government. The coconut levy funds fall squarely into these elements for the
following reasons:

(a) They were generated by virtue of statutory enactments imposed on the coconut farmers requiring the
payment of prescribed amounts. Thus, PD No. 276, which created the … (CCSF), mandated the following:

"a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other coconut
products, shall be imposed on every first sale, in accordance with the mechanics established under RA
6260, effective at the start of business hours on August 10, 1973.

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"The proceeds from the levy shall be deposited with the Philippine National Bank or any other government
bank to the account of the Coconut Consumers Stabilization Fund, as a separate trust fund which shall not
form part of the general fund of the government."

The coco levies were further clarified in amendatory laws, specifically PD No. 961 and PD No. 1468 – in
this wise:

"The Authority (PCA) is hereby empowered to impose and collect a levy, to be known as the Coconut
Consumers Stabilization Fund Levy, on every one hundred kilos of copra resecada, or its equivalent …
delivered to, and/or purchased by, copra exporters, oil millers, desiccators and other end-users of copra
or its equivalent in other coconut products. The levy shall be paid by such copra exporters, oil millers,
desiccators and other end-users of copra or its equivalent in other coconut products under such rules and
regulations as the Authority may prescribe. Until otherwise prescribed by the Authority, the current levy
being collected shall be continued."

Like other tax measures, they were not voluntary payments or donations by the people. They were
enforced contributions exacted on pain of penal sanctions, as provided under PD No. 276:

"3. Any person or firm who violates any provision of this Decree or the rules and regulations promulgated
thereunder, shall, in addition to penalties already prescribed under existing administrative and special law,
pay a fine of not less than P2, 500 or more than P10,000, or suffer cancellation of licenses to operate, or
both, at the discretion of the Court."

Such penalties were later amended thus: ….

(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative authorities of
the State. Indeed, the CCSF was collected under PD No. 276, …."
(c) They were clearly imposed for a public purpose. There is absolutely no question that they were
collected to advance the government’s avowed policy of protecting the coconut industry.

This Court takes judicial notice of the fact that the coconut industry is one of the great economic pillars of
our nation, and coconuts and their byproducts occupy a leading position among the country’s export
products; ….

Taxation is done not merely to raise revenues to support the government, but also to provide means for
the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as
to be within the police power of the State ….

Even if the money is allocated for a special purpose and raised by special means, it is still public in
character…. In Cocofed v. PCGG, the Court observed that certain agencies or enterprises "were organized
and financed with revenues derived from coconut levies imposed under a succession of law of the late
dictatorship … with deposed Ferdinand Marcos and his cronies as the suspected authors and chief
beneficiaries of the resulting coconut industry monopoly." The Court continued: "…. It cannot be denied
that the coconut industry is one of the major industries supporting the national economy. It is, therefore,
the State’s concern to make it a strong and secure source not only of the livelihood of a significant
segment of the population, but also of export earnings the sustained growth of which is one of the
imperatives of economic stability. (Emphasis Ours.)

The following parallel doctrinal lines from Pambansang Koalisyon ng mga Samahang Magsasaka at
Manggagawa sa Niyugan (PKSMMN) v. Executive Secretary55 came next:

The Court was satisfied that the coco-levy funds were raised pursuant to law to support a proper
governmental purpose. They were raised with the use of the police and taxing powers of the State for the
benefit of the coconut industry and its farmers in general. The COA reviewed the use of the funds. The
Bureau of Internal Revenue (BIR) treated them as public funds and the very laws governing coconut levies
recognize their public character.

The Court has also recently declared that the coco-levy funds are in the nature of taxes and can only be
used for public purpose. Taxes are enforced proportional contributions from persons and property, levied

Page 35 of 92
by the State by virtue of its sovereignty for the support of the government and for all its public needs.
Here, the coco-levy funds were imposed pursuant to law, namely, R.A. 6260 and P.D. 276. The funds were
collected and managed by the PCA, an independent government corporation directly under the President.
And, as the respondent public officials pointed out, the pertinent laws used the term levy, which means to
tax, in describing the exaction.

Of course, unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to boost the
government’s general funds but to provide means for the rehabilitation and stabilization of a threatened
industry, the coconut industry, which is so affected with public interest as to be within the police power of
the State. The funds sought to support the coconut industry, one of the main economic backbones of the
country, and to secure economic benefits for the coconut farmers and far workers. The subject laws are
akin to the sugar liens imposed by Sec. 7(b) of P.D. 388, and the oil price stabilization funds under P.D.
1956, as amended by E.O. 137.

From the foregoing, it is at once apparent that any property acquired by means of the coconut levy funds,
such as the subject UCPB shares, should be treated as public funds or public property, subject to the
burdens and restrictions attached by law to such property. COCOFED v. Republic, delved into such
limitations, thusly:

We have ruled time and again that taxes are imposed only for a public purpose. "They cannot be used for
purely private purposes or for the exclusive benefit of private persons." When a law imposes taxes or
levies from the public, with the intent to give undue benefit or advantage to private persons, or the
promotion of private enterprises, that law cannot be said to satisfy the requirement of public purpose. In
Gaston v. Republic Planters Bank, the petitioning sugar producers, sugarcane planters and millers sought
the distribution of the shares of stock of the Republic Planters Bank (RPB), alleging that they are the true
beneficial owners thereof. In that case, the investment, i.e., the purchase of RPB, was funded by the
deduction of PhP 1.00 per picul from the sugar proceeds of the sugar producers pursuant to P.D. No. 388.
In ruling against the petitioners, the Court held that to rule in their favor would contravene the general
principle that revenues received from the imposition of taxes or levies "cannot be used for purely private
purposes or for the exclusive benefit of private persons." The Court amply reasoned that the sugar
stabilization fund is to "be utilized for the benefit of the entire sugar industry, and all its components,
stabilization of the domestic market including foreign market, the industry being of vital importance to the
country’s economy and to national interest."

Similarly in this case, the coconut levy funds were sourced from forced exactions decreed under P.D. Nos.
232, 276 and 582, among others, with the end-goal of developing the entire coconut industry. Clearly, to
hold therefore, even by law, that the revenues received from the imposition of the coconut levies be used
purely for private purposes to be owned by private individuals in their private capacity and for their
benefit, would contravene the rationale behind the imposition of taxes or levies.

Needless to stress, courts do not, as they cannot, allow by judicial fiat the conversion of special funds into
a private fund for the benefit of private individuals. In the same vein, We cannot subscribe to the idea of
what appears to be an indirect – if not exactly direct – conversion of special funds into private funds, i.e.,
by using special funds to purchase shares of stocks, which in turn would be distributed for free to private
individuals. Even if these private individuals belong to, or are a part of the coconut industry, the free
distribution of shares of stocks purchased with special public funds to them, nevertheless cannot be
justified. The ratio in Gaston, as articulated below, applies mutatis mutandis to this case:

The stabilization fees in question are levied by the State … for a special purpose – that of "financing the
growth and development of the sugar industry and all its components, stabilization of the domestic market
including the foreign market." The fact that the State has taken possession of moneys pursuant to law is
sufficient to constitute them as state funds even though they are held for a special purpose….

That the fees were collected from sugar producers etc., and that the funds were channeled to the
purchase of shares of stock in respondent Bank do not convert the funds into a trust fund for their benefit
nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be
collected from them since it is also they who are benefited from the expenditure of the funds derived from
it. ….

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In this case, the coconut levy funds were being exacted from copra exporters, oil millers, desiccators and
other end-users of copra or its equivalent in other coconut products.57 Likewise so, the funds here were
channeled to the purchase of the shares of stock in UCPB. Drawing a clear parallelism between Gaston and
this case, the fact that the coconut levy funds were collected from the persons or entities in the coconut
industry, among others, does not and cannot entitle them to be beneficial owners of the subject funds – or
more bluntly, owners thereof in their private capacity. Parenthetically, the said private individuals cannot
own the UCPB shares of stocks so purchased using the said special funds of the government.58 (Emphasis
Ours.)

As the coconut levy funds partake of the nature of taxes and can only be used for public purpose, and
importantly, for the purpose for which it was exacted, i.e., the development, rehabilitation and
stabilization of the coconut industry, they cannot be used to benefit––whether directly or indirectly––
private individuals, be it by way of a commission, or as the subject Agreement interestingly words it,
compensation. Consequently, Cojuangco cannot stand to benefit by receiving, in his private capacity,
7.22% of the FUB shares without violating the constitutional caveat that public funds can only be used for
public purpose. Accordingly, the 7.22% FUB (UCPB) shares that were given to Cojuangco shall be returned
to the Government, to be used "only for the benefit of all coconut farmers and for the development of the
coconut industry."59

The ensuing are the underlying rationale for declaring, as unconstitutional, provisions that convert public
property into private funds to be used ultimately for personal benefit:

… not only were the laws unconstitutional for decreeing the distribution of the shares of stock for free to
the coconut farmers and therefore negating the public purposed declared by P.D. No. 276, i.e., to stabilize
the price of edible oil and to protect the coconut industry. They likewise reclassified the coconut levy fund
as private fund, to be owned by private individuals in their private capacities, contrary to the original
purpose for the creation of such fund. To compound the situation, the offending provisions effectively
removed the coconut levy fund away from the cavil of public funds which normally can be paid out only
pursuant to an appropriation made by law. The conversion of public funds into private assets was illegally
allowed, in fact mandated, by these provisions. Clearly therefore, the pertinent provisions of P.D. Nos.
755, 961 and 1468 are unconstitutional for violating Article VI, Section 29 (3) of the Constitution. In this
context, the distribution by PCA of the UCPB shares purchased by means of the coconut levy fund – a
special fund of the government – to the coconut farmers is, therefore, void.60

It is precisely for the foregoing that impels the Court to strike down as unconstitutional the provisions of
the PCA-Cojuangco Agreement that allow petitioner Cojuangco to personally and exclusively own public
funds or property, the disbursement of which We so greatly protect if only to give light and meaning to
the mandates of the Constitution.

As heretofore amply discussed, taxes are imposed only for a public purpose.61 They must, therefore, be
used for the benefit of the public and not for the exclusive profit or gain of private persons.62 Otherwise,
grave injustice is inflicted not only upon the Government but most especially upon the citizenry––the
taxpayers––to whom We owe a great deal of accountability.

In this case, out of the 72.2% FUB (now UCPB) shares of stocks PCA purchased using the coconut levy
funds, the May 25, 1975 Agreement between the PCA and Cojuangco provided for the transfer to the
latter, by way of compensation, of 10% of the shares subject of the agreement, or a total of 7.22% fully
paid shares. In sum, Cojuangco received public assets – in the form of FUB (UCPB) shares with a value
then of ten million eight hundred eighty-six thousand pesos (PhP 10,886,000) in 1975, paid by coconut
levy funds. In effect, Cojuangco received the aforementioned asset as a result of the PCA-Cojuangco
Agreement, and exclusively benefited himself by owning property acquired using solely public funds.
Cojuangco, no less, admitted that the PCA paid, out of the CCSF, the entire acquisition price for the 72.2%
option shares. This is in clear violation of the prohibition, which the Court seeks to uphold.1âwphi1

We, therefore, affirm, on this ground, the decision of the Sandiganbayan nullifying the shares of stock
transfer to Cojuangco. Accordingly, the UCPB shares of stock representing the 7.22% fully paid shares
subject of the instant petition, with all dividends declared, paid or issued thereon, as well as any
increments thereto arising from, but not limited to, the exercise of pre-emptive rights, shall be

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reconveyed to the Government of the Republic of the Philippines, which as We previously clarified, shall
"be used only for the benefit of all coconut farmers and for the development of the coconut industry."64

But apart from the stipulation in the PCA-Cojuangco Agreement, more specifically paragraph 4 in relation
to paragraph 6 thereof, providing for the transfer to Cojuangco for the UCPB shares adverted to
immediately above, other provisions are valid and shall be enforced, or shall be respected, if the
corresponding prestation had already been performed. Invalid stipulations that are independent of, and
divisible from, the rest of the agreement and which can easily be separated therefrom without doing
violence to the manifest intention of the contracting minds do not nullify the entire contract.65

WHEREFORE, Part C of the appealed Partial Summary Judgment in Sandiganbayan Civil Case No. 0033-A
is AFFIRMED with modification. As MODIFIED, the dispositive portion in Part C of the Sandiganbayan’s
Partial Summary Judgment in Civil Case No. 0033-A, shall read as follows:

C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO, JR.) dated
September 18, 2002 filed by Plaintiff.

1. Sec. 1 of P.D. No. 755 did not validate the Agreement between PCA and defendant Eduardo M.
Cojuangco, Jr. dated May 25, 1975 nor did it give the Agreement the binding force of a law because of the
non-publication of the said Agreement.

2. The Agreement between PCA and defendant Eduardo M. Cojuangco, Jr. dated May 25, 1975 is a valid
contract for having the requisite consideration under Article 1318 of the Civil Code.

3. The transfer by PCA to defendant Eduardo M. Cojuangco, Jr. of 14,400 shares of stock of FUB (later
UCPB) from the "Option Shares" and the additional FUB shares subscribed and paid by PCA, consisting of

a. Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of the authorized but unissued shares
of the bank, subscribed and paid by PCA;

b. Sixty Four Thousand Nine Hundred Eighty (64,980) shares of the increased capital stock subscribed and
paid by PCA; and

c. Stock dividends declared pursuant to paragraph 5 and paragraph 11 (iv) (d) of the PCA-Cojuangco
Agreement dated May 25, 1975. or the so-called "Cojuangco-UCPB shares" is declared unconstitutional,
hence null and void.1âwphi1

4. The above-mentioned shares of stock of the FUB/UCPB transferred to defendant Cojuangco are hereby
declared conclusively owned by the Republic of the Philippines to be used only for the benefit of all
coconut farmers and for the development of the coconut industry, and ordered reconveyed to the
Government.

5. The UCPB shares of stock of the alleged fronts, nominees and dummies of defendant Eduardo M.
Cojuangco, Jr. which form part of the 72.2% shares of the FUB/UCPB paid for by the PCA with public funds
later charged to the coconut levy funds, particularly the CCSF, belong to the plaintiff Republic of the
Philippines as their true and beneficial owner.

Accordingly, the instant petition is hereby DENIED.

Costs against petitioner Cojuangco.

SO ORDERED.
x-----------------------------------------------------------------------------------------------------------------x

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G.R. No. 183852 October 20, 2010
CARMELA BROBIO MANGAHAS, Petitioner, vs.
EUFROCINA A. BROBIO, Respondent.
RESOLUTION
NACHURA, J.:

This petition for review on certiorari seeks to set aside the Court of Appeals (CA) Decision1 dated February
21, 2008, which dismissed petitioner’s action to enforce payment of a promissory note issued by
respondent, and Resolution2 dated July 9, 2008, which denied petitioner’s motion for reconsideration.

The case arose from the following facts:

On January 10, 2002, Pacifico S. Brobio (Pacifico) died intestate, leaving three parcels of land. He was
survived by his wife, respondent Eufrocina A. Brobio, and four legitimate and three illegitimate children;
petitioner Carmela Brobio Mangahas is one of the illegitimate children.

On May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial Settlement of Estate of the
Late Pacifico Brobio with Waiver. In the Deed, petitioner and Pacifico’s other children, in consideration of
their love and affection for respondent and the sum of ₱150,000.00, waived and ceded their respective
shares over the three parcels of land in favor of respondent. According to petitioner, respondent promised
to give her an additional amount for her share in her father’s estate. Thus, after the signing of the Deed,
petitioner demanded from respondent the promised additional amount, but respondent refused to pay,
claiming that she had no more money.

A year later, while processing her tax obligations with the Bureau of Internal Revenue (BIR), respondent
was required to submit an original copy of the Deed. Left with no more original copy of the Deed,
respondent summoned petitioner to her office on May 31, 2003 and asked her to countersign a copy of the
Deed. Petitioner refused to countersign the document, demanding that respondent first give her the
additional amount that she promised. Considering the value of the three parcels of land (which she
claimed to be worth ₱20M), petitioner asked for ₱1M, but respondent begged her to lower the amount.
Petitioner agreed to lower it to ₱600,000.00. Because respondent did not have the money at that time and
petitioner refused to countersign the Deed without any assurance that the amount would be paid,
respondent executed a promissory note. Petitioner agreed to sign the Deed when respondent signed the
promissory note which read —

31 May 2003

This is to promise that I will give a Financial Assistance to CARMELA B. MANGAHAS the amount of
₱600,000.00 Six Hundred Thousand only on June 15, 2003.

(SGD)
EUFROCINA A. BROBIO4

When the promissory note fell due, respondent failed and refused to pay despite demand. Petitioner made
several more demands upon respondent but the latter kept on insisting that she had no money.

On January 28, 2004, petitioner filed a Complaint for Specific Performance with Damages5 against
respondent, alleging in part—

2. That plaintiff and defendant are legal heirs of the deceased, Pacifico S. Brobio[,] who died intestate and
leaving without a will, on January 10, 2002, but leaving several real and personal properties (bank
deposits), and some of which were the subject of the extra-judicial settlement among them, compulsory
heirs of the deceased, Pacifico Brobio. x x x.

3. That in consideration of the said waiver of the plaintiff over the listed properties in the extra-judicial
settlement, plaintiff received the sum of ₱150,000.00, and the defendant executed a "Promissory Note" on
June 15, 2003, further committing herself to give plaintiff a financial assistance in the amount of
₱600,000.00. x x x.

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4. That on its due date, June 15, 2003, defendant failed to make good of her promise of delivering to the
plaintiff the sum of ₱600,000.00 pursuant to her "Promissory Note" dated May 31, 2003, and despite
repeated demands, defendant had maliciously and capriciously refused to deliver to the plaintiff the
amount [of] ₱600,000.00, and the last of which demands was on October 29, 2003. x x x.6

In her Answer with Compulsory Counterclaim,7 respondent admitted that she signed the promissory note
but claimed that she was forced to do so. She also claimed that the undertaking was not supported by any
consideration. More specifically, she contended that —

10. Defendant was practically held "hostage" by the demand of the plaintiff. At that time, defendant was
so much pressured and was in [a] hurry to submit the documents to the Bureau of Internal Revenue
because of the deadline set and for fear of possible penalty if not complied with. Defendant pleaded
understanding but plaintiff was adamant. Her hand could only move in exchange for 1 million pesos.

11. Defendant, out of pressure and confused disposition, was constrained to make a promissory note in a
reduced amount in favor of the plaintiff. The circumstances in the execution of the promissory note were
obviously attended by involuntariness and the same was issued without consideration at all or for illegal
consideration.8

On May 15, 2006, the Regional Trial Court (RTC) rendered a decision in favor of petitioner. The RTC found
that the alleged "pressure and confused disposition" experienced by respondent and the circumstances
that led to the execution of the promissory note do not constitute undue influence as would vitiate
respondent’s consent thereto. On the contrary, the RTC observed that —

It is clear from all the foregoing that it is the defendant who took improper advantage of the plaintiff’s
trust and confidence in her by resorting to a worthless written promise, which she was intent on reneging.
On the other hand, plaintiff did not perform an unlawful conduct when she insisted on a written
commitment from the defendant, as embodied in the promissory note in question, before affixing her
signature that was asked of her by the defendant because, as already mentioned, that was the only
opportunity available to her or which suddenly and unexpectedly presented itself to her in order to press
her demand upon the defendant to satisfy the correct amount of consideration due to her. In other words,
as the defendant had repeatedly rebuffed her plea for additional consideration by claiming lack of money,
it is only natural for the plaintiff to seize the unexpected opportunity that suddenly presented itself in
order to compel the defendant to give to her [what is] due [her]. And by executing the promissory note
which the defendant had no intention of honoring, as testified to by her, the defendant clearly acted in bad
faith and took advantage of the trust and confidence that plaintiff had reposed in her.9

The RTC also brushed aside respondent’s claim that the promissory note was not supported by valuable
consideration. The court maintained that the promissory note was an additional consideration for the
waiver of petitioner’s share in the three properties in favor of respondent. Its conclusion was bolstered by
the fact that the promissory note was executed after negotiation and haggling between the parties. The
dispositive portion of the RTC decision reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering the defendant to pay to plaintiff the sum of Six Hundred Thousand Pesos (₱600,000.00) which
she committed to pay to plaintiff under the promissory note in question, plus interest thereon at the rate
of 12% per annum computed from the date of the filing of the complaint;
2. Ordering the defendant to pay to plaintiff the sum of ₱50,000.00 as attorney’s fees; and
3. Ordering the defendant to pay to plaintiff the costs of this suit.

SO ORDERED.

On February 21, 2008, the CA reversed the RTC decision and dismissed the complaint.11 The CA found
that there was a complete absence of consideration in the execution of the promissory note, which made it
inexistent and without any legal force and effect. The court noted that "financial assistance" was not the
real reason why respondent executed the promissory note, but only to secure petitioner’s signature. The
CA held that the waiver of petitioner’s share in the three properties, as expressed in the deed of
extrajudicial settlement, may not be considered as the consideration of the promissory note, considering

Page 40 of 92
that petitioner signed the Deed way back in 2002 and she had already received the consideration of
₱150,000.00 for signing the same. The CA went on to hold that if petitioner disagreed with the amount
she received, then she should have filed an action for partition.

Further, the CA found that intimidation attended the signing of the promissory note. Respondent needed
the Deed countersigned by petitioner in order to comply with a BIR requirement; and, with petitioner’s
refusal to sign the said document, respondent was forced to sign the promissory note to assure petitioner
that the money promised to her would be paid.

Petitioner moved for the reconsideration of the CA Decision. In a Resolution dated July 9, 2008, the CA
denied petitioner’s motion.

In this petition for review, petitioner raises the following issues:

1. The Honorable Court of Appeals erred in the appreciation of the facts of this case when it found that
intimidation attended the execution of the promissory note subject of this case.

2. The Honorable Court of Appeals erred when it found that the promissory note was without
consideration.

3. The Honorable Court of Appeals erred when it stated that petitioner should have filed [an action] for
partition instead of a case for specific performance.

The petition is meritorious.

Contracts are voidable where consent thereto is given through mistake, violence, intimidation, undue
influence, or fraud. In determining whether consent is vitiated by any of these circumstances, courts are
given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of
what they believe actually occurred, considering the age, physical infirmity, intelligence, relationship, and
conduct of the parties at the time of the execution of the contract and subsequent thereto, irrespective of
whether the contract is in a public or private writing.

Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the execution of the
promissory note. Still, respondent insists that she was "forced" into signing the promissory note because
petitioner would not sign the document required by the BIR. In one case, the Court – in characterizing a
similar argument by respondents therein – held that such allegation is tantamount to saying that the other
party exerted undue influence upon them. However, the Court said that the fact that respondents were
"forced" to sign the documents does not amount to vitiated consent.

There is undue influence when a person takes improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice.16 For undue influence to be present, the influence
exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free
agency, making him express the will of another rather than his own.

Respondent may have desperately needed petitioner’s signature on the Deed, but there is no showing that
she was deprived of free agency when she signed the promissory note. Being forced into a situation does
not amount to vitiated consent where it is not shown that the party is deprived of free will and choice.
Respondent still had a choice: she could have refused to execute the promissory note and resorted to
judicial means to obtain petitioner’s signature. Instead, respondent chose to execute the promissory note
to obtain petitioner’s signature, thereby agreeing to pay the amount demanded by petitioner.

The fact that respondent may have felt compelled, under the circumstances, to execute the promissory
note will not negate the voluntariness of the act. As rightly observed by the trial court, the execution of
the promissory note in the amount of ₱600,000.00 was, in fact, the product of a negotiation between the
parties. Respondent herself testified that she bargained with petitioner to lower the amount:

ATTY. VILLEGAS:
Q And is it not that there was even a bargaining from ₱1-M to ₱600,000.00 before you prepare[d] and
[sign[ed] that promissory note marked as Exhibit "C"?

Page 41 of 92
A Yes, sir.

Q And in fact, you were the one [who] personally wrote the amount of ₱600,000.00 only as indicated in
the said promissory note?
A Yes, sir.

COURT:
Q So, just to clarify. Carmela was asking an additional amount of ₱1-M for her to sign this document but
you negotiated with her and asked that it be lowered to ₱600,000.00 to which she agreed, is that correct?
A Yes, Your Honor. Napilitan na po ako.

Q But you negotiated and asked for its reduction from ₱1-M to ₱600,000.00?
A Yes, Your Honor.

Contrary to the CA’s findings, the situation did not amount to intimidation that vitiated consent.1awphil
There is intimidation when one of the contracting parties is compelled to give his consent by a reasonable
and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants, or ascendants.19 Certainly, the payment of penalties for delayed
payment of taxes would not qualify as a "reasonable and well-grounded fear of an imminent and grave
evil."

We join the RTC in holding that courts will not set aside contracts merely because solicitation, importunity,
argument, persuasion, or appeal to affection was used to obtain the consent of the other party. Influence
obtained by persuasion or argument or by appeal to affection is not prohibited either in law or morals and
is not obnoxious even in courts of equity.20

On the issue that the promissory note is void for not being supported by a consideration, we likewise
disagree with the CA.

A contract is presumed to be supported by cause or consideration.21 The presumption that a contract has
sufficient consideration cannot be overthrown by a mere assertion that it has no consideration. To
overcome the presumption, the alleged lack of consideration must be shown by preponderance of
evidence.22 The burden to prove lack of consideration rests upon whoever alleges it, which, in the present
case, is respondent.

Respondent failed to prove that the promissory note was not supported by any consideration. From her
testimony and her assertions in the pleadings, it is clear that the promissory note was issued for a cause
or consideration, which, at the very least, was petitioner’s signature on the document.1avvphi1

It may very well be argued that if such was the consideration, it was inadequate. Nonetheless, even if the
consideration is inadequate, the contract would not be invalidated, unless there has been fraud, mistake,
or undue influence. As previously stated, none of these grounds had been proven present in this case.

The foregoing discussion renders the final issue insignificant. Be that as it may, we would like to state that
the remedy suggested by the CA is not the proper one under the circumstances. An action for partition
implies that the property is still owned in common.24 Considering that the heirs had already executed a
deed of extrajudicial settlement and waived their shares in favor of respondent, the properties are no
longer under a state of co-ownership; there is nothing more to be partitioned, as ownership had already
been merged in one person.

WHEREFORE, premises considered, the CA Decision dated February 21, 2008 and its Resolution dated July
9, 2008 are REVERSED and SET ASIDE. The RTC decision dated May 15, 2006 is REINSTATED.

SO ORDERED.
x-------------------------------------------------------------------------------------------------------------------x

Page 42 of 92
G.R. No. 171736 July 5, 2010
PENTACAPITAL INVESTMENT CORPORATION, Petitioner, vs.
MAKILITO B. MAHINAY, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 181482
PENTACAPITAL INVESTMENT CORPORATION, Petitioner, vs.
MAKILITO B. MAHINAY, Respondent.
DECISION
NACHURA, J.:

Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court filed
by petitioner Pentacapital Investment Corporation. In G.R. No. 171736, petitioner assails the Court of
Appeals (CA) Decision1 dated December 20, 2005 and Resolution2 dated March 1, 2006 in CA-G.R. SP No.
74851; while in G.R. No. 181482, it assails the CA Decision3 dated October 4, 2007 and Resolution4 dated
January 21, 2008 in CA-G.R. CV No. 86939.

The Facts

Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based on two
separate loans obtained by the latter, amounting to ₱1,520,000.00 and ₱416,800.00, or a total amount of
₱1,936,800.00. These loans were evidenced by two promissory notes5 dated February 23, 1996. Despite
repeated demands, respondent failed to pay the loans, hence, the complaint.

In his Answer with Compulsory Counterclaim,7 respondent claimed that petitioner had no cause of action
because the promissory notes on which its complaint was based were subject to a condition that did not
occur. While admitting that he indeed signed the promissory notes, he insisted that he never took out a
loan and that the notes were not intended to be evidences of indebtedness.9 By way of counterclaim,
respondent prayed for the payment of moral and exemplary damages plus attorney’s fees.

Respondent explained that he was the counsel of Ciudad Real Development Inc. (CRDI). In 1994,
Pentacapital Realty Corporation (Pentacapital Realty) offered to buy parcels of land known as the Molino
Properties, owned by CRDI, located in Molino, Bacoor, Cavite. The Molino Properties, with a total area of
127,708 square meters, were sold at ₱400.00 per sq m. As the Molino Properties were the subject of a
pending case, Pentacapital Realty paid only the down payment amounting to ₱12,000,000.00. CRDI
allegedly instructed Pentacapital Realty to pay the former’s creditors, including respondent who thus
received a check worth ₱1,715,156.90.11 It was further agreed that the balance would be payable upon
the submission of an Entry of Judgment showing that the case involving the Molino Properties had been
decided in favor of CRDI.

Respondent, Pentacapital Realty and CRDI allegedly agreed that respondent had a charging lien equivalent
to 20% of the total consideration of the sale in the amount of ₱10,277,040.00. Pending the submission of
the Entry of Judgment and as a sign of good faith, respondent purportedly returned the ₱1,715,156.90
check to Pentacapital Realty. However, the Molino Properties continued to be haunted by the seemingly
interminable court actions initiated by different parties which thus prevented respondent from collecting
his commission.

On motion13 of respondent, the Regional Trial Court (RTC) allowed him to file a Third Party Complaint
against CRDI, subject to the payment of docket fees.

Admittedly, respondent earlier instituted an action for Specific Performance against Pentacapital Realty
before the RTC of Cebu City, Branch 57, praying for the payment of his commission on the sale of the
Molino Properties.16 In an Amended Complaint,17 respondent referred to the action he instituted as one
of Preliminary Mandatory Injunction instead of Specific Performance. Acting on Pentacapital Realty’s
Motion to Dismiss, the RTC dismissed the case for lack of cause of action.18 The dismissal became final
and executory.

With the dismissal of the aforesaid case, respondent filed a Motion to Permit Supplemental Compulsory
Counterclaim. In addition to the damages that respondent prayed for in his compulsory counterclaim, he
sought the payment of his commission amounting to ₱10,316,640.00, plus interest at the rate of 16% per

Page 43 of 92
annum, as well as attorney’s fees equivalent to 12% of his principal claim.20 Respondent claimed that
Pentacapital Realty is a 100% subsidiary of petitioner. Thus, although petitioner did not directly participate
in the transaction between Pentacapital Realty, CRDI and respondent, the latter’s claim against petitioner
was based on the doctrine of piercing the veil of corporate fiction. Simply stated, respondent alleged that
petitioner and Pentacapital Realty are one and the same entity belonging to the Pentacapital Group of
Companies.

Over the opposition of petitioner, the RTC, in an Order22 dated August 22, 2002, allowed the filing of the
supplemental counterclaim. Aggrieved, petitioner sought recourse in the CA through a special civil action
for certiorari, seeking to reverse and set aside the RTC Order. The case was docketed as CA-G.R. SP No.
74851. On December 20, 2005, the CA rendered the assailed Decision dismissing the petition. The
appellate court sustained the allowance of the supplemental compulsory counterclaim based on the
allegations in respondent’s pleading. The CA further concluded that there was a logical relationship
between the claims of petitioner in its complaint and those of respondent in his supplemental compulsory
counterclaim. The CA declared that it was inconsequential that respondent did not clearly allege the facts
required to pierce the corporate separateness of petitioner and its subsidiary, the Pentacapital Realty.

Petitioner now comes before us in G.R. No. 171736, raising the following issues:

A. WHETHER RESPONDENT MAHINAY IS BARRED FROM ASSERTING THE CLAIM CONTAINED IN HIS
"SUPPLEMENTAL COMPULSORY COUNTERCLAIM" ON THE GROUNDS OF (1) RES JUDICATA, (2) WILLFUL
AND DELIBERATE FORUM SHOPPING, AND (3) FAILURE TO INTERPOSE SUCH CLAIM ON TIME PURSUANT
TO SECTION 2 OF RULE 9 OF THE RULES OF COURT;

B. WHETHER RESPONDENT MAHINAY’S SUPPLEMENTAL COMPULSORY COUNTERCLAIM IS ACTUALLY A


THIRD-PARTY COMPLAINT AGAINST PENTACAPITAL REALTY, THE INTRODUCTION OF WHICH REQUIRES
THE PAYMENT OF THE NECESSARY DOCKET FEES;

C. ASSUMING FOR THE SAKE OF PURE ARGUMENT THAT IT IS PROPER TO PIERCE THE CORPORATE VEIL
AND TO ALLOW RESPONDENT MAHINAY TO LODGE A "SUPPLEMENTAL COMPULSORY COUNTERCLAIM"
AGAINST HEREIN PETITIONER PENTACAPITAL INVESTMENT FOR AN ALLEGED OBLIGATION OF ITS
SUBSIDIARY, PENTACAPITAL REALTY, ON THE THEORY THAT THEY ARE "ONE AND THE SAME COMPANY,"
WHETHER PENTACAPITAL REALTY SHOULD HAVE AT LEAST BEEN MADE A PARTY TO THE CASE AS RULED
BY THIS HONORABLE COURT IN FILMERCO COMMERCIAL CO., INC. VS. INTERMEDIATE APPELLATE
COURT;

D. WHETHER RESPONDENT MAHINAY SHOULD BE ALLOWED TO PRESENT EVIDENCE ON HIS SO-CALLED


"SUPPLEMENTAL COMPULSORY COUNTERCLAIM" INASMUCH AS (1) RESPONDENT MAHINAY’S PLEADINGS
ARE BEREFT OF ANY ALLEGATIONS TO BUTTRESS THE MERGING OF PENTACAPITAL REALTY AND
PENTACAPITAL INVESTMENT INTO ONE ENTITY AND THE CONSEQUENT IMPUTATION ON THE LATTER OF
THE FORMER’S SUPPOSED LIABILITY ON RESPONDENT MAHINAY’S SUPPLEMENTAL COMPULSORY
COUNTERCLAIM, AND (2) THE INCIDENTS ALLEGEDLY PERTAINING TO, AND WHICH WOULD THEREBY
SUPPORT, THE PIERCING OF CORPORATE VEIL ARE NOT EVIDENTIARY MATTERS MATERIAL TO THE
PROCEEDINGS BEFORE THE COURT A QUO CONSIDERING THAT THE SAME ARE BEYOND THE SCOPE OF
THE PLEADINGS;

E. WHETHER THE DOCTRINE OF PIERCING THE CORPORATE VEIL MAY BE INVOKED AND APPLIED IN
ORDER TO EVADE AN OBLIGATION AND FACILITATE PROCEDURAL WRONGDOING; AND

F. WHETHER PETITIONER PENTACAPITAL INVESTMENT COMMITTED FORUM SHOPPING WHEN IT FILED


THE PRESENT PETITION DURING THE PENDENCY OF THE MOTION FOR RECONSIDERATION IT FILED
BEFORE THE COURT A QUO AND, SUBSEQUENTLY, OF THE APPEAL BEFORE THE COURT OF APPEALS TO
QUESTION THE JUDGMENT OF THE COURT A QUO.

There being no writ of injunction or Temporary Restraining Order (TRO), the proceedings before the RTC
continued and respondent was allowed to present his evidence on his supplemental compulsory
counterclaim. After trial on the merits, the RTC rendered a decision26 dated March 20, 2006, the
dispositive portion of which reads:

Page 44 of 92
WHEREFORE, PREMISES CONSIDERED, plaintiff’s complaint is hereby ordered dismissed for lack of merit.
This court, instead, finds that defendant was able to prove by a clear preponderance of evidence his cause
of action against plaintiff as to defendant’s compulsory and supplemental counterclaims. That, therefore,
this court hereby orders the plaintiff to pay unto defendant the following sums, to wit:

1. ₱1,715,156.90 representing the amount plaintiff is obligated to pay defendant as provided for in the
deed of sale and the supplemental agreement, plus interest at the rate of 16% per annum, to be
computed from September 23, 1998 until the said amount shall have been fully paid;

2. Php 10,316,640.00 representing defendant’s share of the proceeds of the sale of the Molino property
(defendant’s charging lien) plus interest at the rate of 16% per annum, to be computed from September
23, 1998 until the said amount shall have been fully paid;

3. Php 50,000.00 as attorney’s fees based on quantum meruit;

4. Php 50,000.00 litigation expenses, plus costs of suit.

This court finds it unnecessary to rule on the third party complaint, the relief prayed for therein being
dependent on the possible award by this court of the relief of plaintiff’s complaint.

On appeal, the CA, in CA-G.R. CV No. 86939, affirmed in toto the above decision. The CA found no basis
for petitioner to collect the amount demanded, there being no perfected contract of loan for lack of
consideration. As to respondent’s supplemental compulsory counterclaim, quoting the findings of the RTC,
the appellate court held that respondent was able to prove by preponderance of evidence that it was the
intent of Pentacapital Group of Companies and CRDI to give him ₱10,316,640.00 and ₱1,715,156.90.29
The CA likewise affirmed the award of interest at the rate of 16% per annum, plus damages.

Unsatisfied, petitioner moved for reconsideration of the aforesaid Decision, but it was denied in a
Resolution dated January 21, 2008. Hence, the present petition in G.R. No. 181482, anchored on the
following arguments:

A. Considering that the inferences made in the present case are manifestly absurd, mistaken or
impossible, and are even contrary to the admissions of respondent Mahinay, and inasmuch as the
judgment is premised on a misapprehension of facts, this Honorable Court may validly take cognizance of
the errors relative to the findings of fact of both the Honorable Court of Appeals and the court a quo.

B. Respondent Mahinay is liable to petitioner PentaCapital Investment for the PhP1,936,800.00 loaned to
him as well as for damages and attorney’s fees.

1. The Honorable Court of Appeals erred in concluding that respondent Mahinay failed to receive the
money he borrowed when there is not even any dispute as to the fact that respondent Mahinay did indeed
receive the PhP1,936,800.00 from petitioner PentaCapital Investment.

2. The Promissory Notes executed by respondent Mahinay are valid instruments and are binding upon
him.

C. Petitioner PentaCapital Investment cannot be held liable on the supposed "supplemental compulsory
counterclaim" of respondent Mahinay.

1. The findings of fact as well as the conclusions arrived at by the Court of Appeals in its decision were
based on mistaken assumptions and on erroneous appreciation of the evidence on record.

2. There is no evidence on record to support the merging of PentaCapital Realty and petitioner
PentaCapital Investment into one entity and the consequent imputation on the latter of the former’s
supposed liability on respondent Mahinay’s supplemental compulsory counterclaim.

3. Inasmuch as the claim of respondent Mahinay is supposedly against PentaCapital Realty, and
considering that petitioner PentaCapital Investment is a separate, distinct entity from PentaCapital Realty,
the latter should have been impleaded as it is an indispensable party.

Page 45 of 92
D. Assuming for the sake of pure argument that it is proper to disregard the corporate fiction and to
consider herein petitioner PentaCapital Investment and its subsidiary, PentaCapital Realty, as one and the
same entity, respondent Mahinay’s "supplemental compulsory counterclaim" must still necessarily fail.

1. The cause of action of respondent Mahinay, as contained in his "supplemental compulsory


counterclaim," is already barred by a prior judgment (res judicata).

2. Considering that the dismissal on the merits by the RTC Cebu of respondent Mahinay’s complaint
against PentaCapital Realty for attorney’s fees has attained finality, respondent Mahinay committed a
willful act of forum shopping when he interposed the exact same claim in the proceedings a quo as a
supposed supplemental compulsory counterclaim against what he claims to be "one and the same"
company.

3. Respondent Mahinay’s supplemental compulsory counterclaim is actually a third party complaint against
PentaCapital Realty; the filing thereof therefore requires the payment of the necessary docket fees.

E. The doctrine of piercing the corporate veil is an equitable remedy which cannot and should not be
invoked, much less applied, in order to evade an obligation and facilitate procedural wrongdoing.32

Simply put, the issues for resolution are: 1) whether the admission of respondent’s supplemental
compulsory counterclaim is proper; 2) whether respondent’s counterclaim is barred by res judicata; and
(3) whether petitioner is guilty of forum-shopping.

The Court’s Ruling


Admission of Respondent’s
Supplemental Compulsory Counterclaim

The pertinent provision of the Rules of Court is Section 6 of Rule 10, which reads:

Sec. 6. Supplemental pleadings. – Upon motion of a party, the court may, upon reasonable notice and
upon such terms as are just, permit him to serve a supplemental pleading setting forth transactions,
occurrences or events which have happened since the date of the pleading sought to be supplemented.
The adverse party may plead thereto within ten (10) days from notice of the order admitting the
supplemental pleading.

As a general rule, leave will be granted to a party who desires to file a supplemental pleading that alleges
any material fact which happened or came within the party’s knowledge after the original pleading was
filed, such being the office of a supplemental pleading. The application of the rule would ensure that the
entire controversy might be settled in one action, avoid unnecessary repetition of effort and unwarranted
expense of litigants, broaden the scope of the issues in an action owing to the light thrown on it by facts,
events and occurrences which have accrued after the filing of the original pleading, and bring into record
the facts enlarging or charging the kind of relief to which plaintiff is entitled. It is the policy of the law to
grant relief as far as possible for wrongs complained of, growing out of the same transaction and thus put
an end to litigation.

In his Motion to Permit Supplemental Compulsory Counterclaim, respondent admitted that, in his Answer
with Compulsory Counterclaim, he claimed that, as one of the corporations composing the Pentacapital
Group of Companies, petitioner is liable to him for ₱10,316,640.00, representing 20% attorney’s fees and
share in the proceeds of the sale transaction between Pentacapital Realty and CRDI. In the same pleading,
he further admitted that he did not include this amount in his compulsory counterclaim because he had
earlier commenced another action for the collection of the same amount against Pentacapital Realty
before the RTC of Cebu. With the dismissal of the RTC-Cebu case, there was no more legal impediment for
respondent to file the supplemental counterclaim.

Moreover, in his Answer with Compulsory Counterclaim, respondent already alleged that he demanded
from Pentacapital Group of Companies to which petitioner supposedly belongs, the payment of his 20%
commission. This, in fact, was what prompted respondent to file a complaint before the RTC-Cebu for
preliminary mandatory injunction for the release of the said amount.

Page 46 of 92
Given these premises, it is obvious that the alleged obligation of petitioner already existed and was known
to respondent at the time of the filing of his Answer with Counterclaim. He should have demanded
payment of his commission and share in the proceeds of the sale in that Answer with Compulsory
Counterclaim, but he did not. He is, therefore, proscribed from incorporating the same and making such
demand via a supplemental pleading. The supplemental pleading must be based on matters arising
subsequent to the filing of the original pleading related to the claim or defense presented therein, and
founded on the same cause of action.34 Supplemental pleadings must state transactions, occurrences or
events which took place since the time the pleading sought to be supplemented was filed.35

Even on the merits of the case, for reasons that will be discussed below, respondent’s counterclaim is
doomed to fail.

Petitioner’s Complaint

In its complaint for sum of money, petitioner prayed that respondent be ordered to pay his obligation
amounting to ₱1,936,800.00 plus interest and penalty charges, and attorney’s fees. This obligation was
evidenced by two promissory notes executed by respondent. Respondent, however, denied liability on the
ground that his obligation was subject to a condition that did not occur. He explained that the promissory
notes were dependent upon the happening of a remote event that the parties tried to anticipate at the
time they transacted with each other, and the event did not happen.36 He further insisted that he did not
receive the proceeds of the loan.

To ascertain whether or not respondent is bound by the promissory notes, it must be established that all
the elements of a contract of loan are present. Like any other contract, a contract of loan is subject to the
rules governing the requisites and validity of contracts in general. It is elementary in this jurisdiction that
what determines the validity of a contract, in general, is the presence of the following elements: (1)
consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3)
cause of the obligation which is established.

In this case, respondent denied liability on the ground that the promissory notes lacked consideration as
he did not receive the proceeds of the loan.

We cannot sustain his contention.

Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful unless the
debtor proves the contrary.38 Moreover, under Section 3, Rule 131 of the Rules of Court, the following are
disputable presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of
business has been followed; and (3) there was sufficient consideration for a contract.39 A presumption
may operate against an adversary who has not introduced proof to rebut it. The effect of a legal
presumption upon a burden of proof is to create the necessity of presenting evidence to meet the legal
presumption or the prima facie case created thereby, and which, if no proof to the contrary is presented
and offered, will prevail. The burden of proof remains where it is, but by the presumption, the one who
has that burden is relieved for the time being from introducing evidence in support of the averment,
because the presumption stands in the place of evidence unless rebutted.40

In the present case, as proof of his claim of lack of consideration, respondent denied under oath that he
owed petitioner a single centavo. He added that he did not apply for a loan and that when he signed the
promissory notes, they were all blank forms and all the blank spaces were to be filled up only if the sale
transaction over the subject properties would not push through because of a possible adverse decision in
the civil cases involving them (the properties). He thus posits that since the sale pushed through, the
promissory notes did not become effective.

Contrary to the conclusions of the RTC and the CA, we find such proof insufficient to overcome the
presumption of consideration. The presumption that a contract has sufficient consideration cannot be
overthrown by the bare, uncorroborated and self-serving assertion of respondent that it has no
consideration. The alleged lack of consideration must be shown by preponderance of evidence.42

As it now appears, the promissory notes clearly stated that respondent promised to pay petitioner
₱1,520,000.00 and ₱416,800.00, plus interests and penalty charges, a year after their execution.

Page 47 of 92
Nowhere in the notes was it stated that they were subject to a condition. As correctly observed by
petitioner, respondent is not only a lawyer but a law professor as well. He is, therefore, legally presumed
not only to exercise vigilance over his concerns but, more importantly, to know the legal and binding
effects of promissory notes and the intricacies involving the execution of negotiable instruments including
the need to execute an agreement to document extraneous collateral conditions and/or agreements, if
truly there were such. This militates against respondent’s claim that there was indeed such an agreement.
Thus, the promissory notes should be accepted as they appear on their face.

Respondent’s liability is not negated by the fact that he has uncollected commissions from the sale of the
Molino properties. As the records of the case show, at the time of the execution of the promissory notes,
the Molino properties were subject of various court actions commenced by different parties. Thus, the sale
of the properties and, consequently, the payment of respondent’s commissions were put on hold. The
non-payment of his commissions could very well be the reason why he obtained a loan from petitioner.

In Sierra v. Court of Appeals, we held that:

A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the
date and under the conditions agreed upon by the borrower and the lender. A person who signs such an
instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he
affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits the
sympathy and assistance of this Court and deserves instead its sharp repudiation.

Aside from the payment of the principal obligation of ₱1,936,800.00, the parties agreed that respondent
pay interest at the rate of 25% from February 17, 1997 until fully paid. Such rate, however, is excessive
and thus, void. Since the stipulation on the interest rate is void, it is as if there was no express contract
thereon. To be sure, courts may reduce the interest rate as reason and equity demand.45 In this case,
12% interest is reasonable.

The promissory notes likewise required the payment of a penalty charge of 3% per month or 36% per
annum. We find such rates unconscionable. This Court has recognized a penalty clause as an accessory
obligation which the parties attach to a principal obligation for the purpose of ensuring the performance
thereof by imposing on the debtor a special prestation (generally consisting of the payment of a sum of
money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.46 However, a
penalty charge of 3% per month is unconscionable;47 hence, we reduce it to 1% per month or 12% per
annum, pursuant to Article 1229 of the Civil Code which states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.48

Lastly, respondent promised to pay 25% of his outstanding obligations as attorney’s fees in case of non-
payment thereof. Attorney’s fees here are in the nature of liquidated damages. As long as said stipulation
does not contravene law, morals, or public order, it is strictly binding upon respondent. Nonetheless,
courts are empowered to reduce such rate if the same is iniquitous or unconscionable pursuant to the
above-quoted provision.49 This sentiment is echoed in Article 2227 of the Civil Code, to wit:

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced
if they are iniquitous or unconscionable.

Hence, we reduce the stipulated attorney’s fees from 25% to 10%.50

Respondent’s Counterclaim and Supplemental Counterclaim

The RTC, affirmed by the CA, granted respondent’s counterclaims as it applied the doctrine of piercing the
veil of corporate fiction. It is undisputed that the parties to the contract of sale of the subject properties
are Pentacapital Realty as the buyer, CRDI as the seller, and respondent as the agent of CRDI.
Respondent insisted, and the RTC and the CA agreed, that petitioner, as the parent company of
Pentacapital Realty, was aware of the sale transaction, and that it was the former who paid the

Page 48 of 92
consideration of the sale. Hence, they concluded that the two corporations should be treated as one
entity.

Petitioner assails the CA Decision sustaining the grant of respondent’s counterclaim and supplemental
counterclaim on the following grounds: first, respondent’s claims are barred by res judicata, the same
having been adjudicated with finality by the RTC-Cebu in Civil Case No. CEB-25032; second, piercing the
veil of corporate fiction is without basis; third, the case is dismissible for failure to implead Pentacapital
Realty as indispensable party; and last, respondent’s supplemental counterclaim is actually a third party
complaint against Pentacapital Realty, the filing thereof requires the payment of the necessary docket
fees.

Petitioner’s contentions are meritorious.

Res judicata means "a matter adjudged; a thing judicially acted upon or decided; a thing or matter settled
by judgment." It lays the rule that an existing final judgment or decree rendered on the merits, without
fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is
conclusive of the rights of the parties or their privies, in all other actions or suits in the same or any other
judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first suit.51

The requisites of res judicata are:


(1) The former judgment or order must be final;
(2) It must be a judgment on the merits;
(3) It must have been rendered by a court having jurisdiction over the subject matter and the parties; and
(4) There must be between the first and second actions, identity of parties, subject matter, and cause of
action.

These requisites are present in the instant case. It is undisputed that respondent instituted an action for
Preliminary Mandatory Injunction against Pentacapital Realty, before the RTC of Cebu City, docketed as
Civil Case No. CEB-25032. On motion of Pentacapital Realty, in an Order dated August 15, 2001, the court
dismissed the complaint on two grounds: 1) non-payment of the correct filing fee considering that the
complaint was actually a collection of sum of money although denominated as Preliminary Mandatory
Injunction; and 2) lack of cause of action. The court treated the complaint as a collection suit because
respondent was seeking the payment of his unpaid commission or share in the proceeds of the sale of the
Molino Properties. Additionally, the RTC found that respondent had no cause of action against Pentacapital
Realty, there being no privity of contract between them. Lastly, the court held that it was CRDI which
agreed that 20% of the total consideration of the sale be paid and delivered to respondent.53 Instead of
assailing the said Order, respondent filed his supplemental compulsory counterclaim, demanding again the
payment of his commission, this time, against petitioner in the instant case. The Order, therefore, became
final and executory.

Respondent’s supplemental counterclaim against petitioner is anchored on the doctrine of piercing the veil
of corporate fiction. Obviously, after the dismissal of his complaint before the RTC-Cebu, he now proceeds

against petitioner, through a counterclaim, on the basis of the same cause of action. Thus, if we follow
respondent’s contention that petitioner and Pentacapital Realty are one and the same entity, the latter
being a subsidiary of the former, respondent is barred from instituting the present case based on the
principle of bar by prior judgment. The RTC-Cebu already made a definitive conclusion that Pentacapital
Realty is not a privy to the contract between respondent and CRDI. It also categorically stated that it was
CRDI which agreed to pay respondent’s commission equivalent to 20% of the proceeds of the sale. With
these findings, and considering that petitioner’s alleged liability stems from its supposed relation with
Pentacapital Realty, logic dictates that the findings of the RTC-Cebu, which had become final and
executory, should bind petitioner.

It is well-settled that when material facts or questions in issue in a former action were conclusively settled
by a judgment rendered therein, such facts or questions constitute res judicata and may not again be
litigated in a subsequent action between the same parties or their privies regardless of the form of the
latter.54 Absolute identity of parties is not required, and where a shared identity of interest is shown by
the identity of the relief sought by one person in a prior case and the second person in a subsequent case,

Page 49 of 92
such was deemed sufficient. There is identity of parties not only when the parties in the cases are the
same, but also between those in privity with them.

No other procedural law principle is indeed more settled than that once a judgment becomes final, it is no
longer subject to change, revision, amendment, or reversal, except only for correction of clerical errors, or
the making of nunc pro tunc entries which cause no prejudice to any party, or where the judgment itself is
void. The underlying reason for the rule is two-fold: (1) to avoid delay in the administration of justice and
thus make orderly the discharge of judicial business; and (2) to put judicial controversies to an end, at the
risk of occasional errors, inasmuch as controversies cannot be allowed to drag on indefinitely and the
rights and obligations of every litigant must not hang in suspense for an indefinite period of time.56

In view of the foregoing disquisitions, we find no necessity to discuss the other issues raised by petitioner.

Forum Shopping

For his part, respondent adopts the conclusions made by the RTC and the CA in granting his
counterclaims. He adds that the petition should be dismissed on the ground of forum-shopping. He argues
that petitioner is guilty of forum-shopping by filing the petition for review (G.R. No. 181482), assailing the
CA Decision dated October 4, 2007, despite the pendency of G.R. No. 171736 assailing the CA Decision
dated December 20, 2005.

We do not agree with respondent.

Forum-shopping is the act of a litigant who repetitively availed of several judicial remedies in different
courts, simultaneously or successively, all substantially founded on the same transactions and the same
essential facts and circumstances, and all raising substantially the same issues, either pending in or
already resolved adversely by some other court, to increase his chances of obtaining a favorable decision
if not in one court, then in another.57

What is important in determining whether forum-shopping exists is the vexation caused the courts and
parties-litigants by a party who asks different courts and/or administrative agencies to rule on the same or
related causes and/or grant the same or substantially the same reliefs, in the process creating the
possibility of conflicting decisions being rendered by the different fora upon the same issues.58

Forum-shopping can be committed in three ways: (1) by filing multiple cases based on the same cause of
action and with the same prayer, the previous case not having been resolved yet (where the ground for
dismissal is litis pendentia); (2) by filing multiple cases based on the same cause of action and with the
same prayer, the previous case having been finally resolved (where the ground for dismissal is res
judicata); and (3) by filing multiple cases based on the same cause of action but with different prayers
(splitting of causes of action, where the ground for dismissal is also either litis pendentia or res
judicata).591avvphi1

More particularly, the elements of forum-shopping are: (a) identity of parties or at least such parties that
represent the same interests in both actions; (b) identity of rights asserted and reliefs prayed for, the
relief being founded on the same facts; (c) identity of the two preceding particulars, such that any
judgment rendered in the other action will, regardless of which party is successful, amount to res judicata
in the action under consideration.

These elements are not present in this case. In G.R. No. 171736, petitioner assails the propriety of the
admission of respondent’s supplemental compulsory counterclaim; while in G.R. No. 181482, petitioner
assails the grant of respondent’s supplemental compulsory counterclaim. In other words, the first case
originated from an interlocutory order of the RTC, while the second case is an appeal from the decision of
the court on the merits of the case. There is, therefore, no forum-shopping for the simple reason that the
petition and the appeal involve two different and distinct issues.

WHEREFORE, premises considered, the petitions are hereby GRANTED. The Decisions and Resolutions of
the Court of Appeals dated December 20, 2005 and March 1, 2006, in CA-G.R. SP No. 74851, and October
4, 2007 and January 21, 2008, in CA-G.R. CV No. 86939, are REVERSED and SET ASIDE.

Page 50 of 92
Respondent Makilito B. Mahinay is ordered to pay petitioner Pentacapital Investment Corporation
₱1,936,800.00 plus 12% interest per annum, and 12% per annum penalty charge, starting February 17,
1997. He is likewise ordered to pay 10% of his outstanding obligation as attorney’s fees. No
pronouncement as to costs.

SO ORDERED.
x--------------------------------------------------------------------------------------------------------------------x
D. Simulation of Contracts (Art. 1345-1346)
G.R. No. 173211 October 11, 2012
HEIRS OF DR. MARIO S. INTAC and ANGELINA MENDOZA-INTAC, Petitioners, vs.
COURT OF APPEALS and SPOUSES MARCELO ROY, JR. and JOSEFINA MENDOZA-ROY and
SPOUSES DOMINADOR LOZADA and MARTINA MENDOZA-LOZADA, Respondents.
DECISION
MENDOZA, J.:

This is a Petition for Review on Certiorari under Rule 45 assailing the February 16, 2006 Decision1 of the
Court of Appeals (CA), in CA G.R. CV No. 75982, which modified the April 30, 2002 Decision2 of the
Regional Trial Court, Branch 220, Quezon City ( RTC), in Civil Case No. Q-94-19452, an action for
cancellation of transfer certificate of title and reconveyance of property.

The Facts

From the records, it appears that Ireneo Mendoza (Ireneo), married to Salvacion Fermin (Salvacion), was
the owner of the subject property, presently covered by TCT No. 242655 of the Registry of Deeds of
Quezon City and situated at No. 36, Road 8, Bagong Pag-asa, Quezon City, which he purchased in 1954.
Ireneo had two children: respondents Josefina and Martina (respondents), Salvacion being their
stepmother. When he was still alive, Ireneo, also took care of his niece, Angelina, since she was three
years old until she got married. The property was then covered by TCT No. 106530 of the Registry of
Deeds of Quezon City. On October 25, 1977, Ireneo, with the consent of Salvacion, executed a deed of
absolute sale of the property in favor of Angelina and her husband, Mario (Spouses Intac). Despite the
sale, Ireneo and his family, including the respondents, continued staying in the premises and paying the
realty taxes. After Ireneo died intestate in 1982, his widow and the respondents remained in the
premises.3 After Salvacion died, respondents still maintained their residence there. Up to the present,
they are in the premises, paying the real estate taxes thereon, leasing out portions of the property, and
collecting the rentals.

The Dispute

The controversy arose when respondents sought the cancellation of TCT No. 242655, claiming that the
sale was only simulated and, therefore, void. Spouses Intac resisted, claiming that it was a valid sale for a
consideration.

On February 22, 1994, respondents filed the Complaint for Cancellation of Transfer Certificate of Title
(TCT) No. 2426555 against Spouses Intac before the RTC. The complaint prayed not only for the
cancellation of the title, but also for its reconveyance to them. Pending litigation, Mario died on May 20,
1995 and was substituted by his heirs, his surviving spouse, Angelina, and their children, namely, Rafael,
Kristina, Ma. Tricia Margarita, Mario, and Pocholo, all surnamed Intac (petitioners).

Averments of the Parties

In their Complaint, respondents alleged, among others, that when Ireneo was still alive, Spouses Intac
borrowed the title of the property (TCT No. 106530) from him to be used as collateral for a loan from a
financing institution; that when Ireneo informed respondents about the request of Spouses Intac, they
objected because the title would be placed in the names of said spouses and it would then appear that the
couple owned the property; that Ireneo, however, tried to appease them, telling them not to worry
because Angelina would not take advantage of the situation considering that he took care of her for a very
long time; that during his lifetime, he informed them that the subject property would be equally divided
among them after his death; and that respondents were the ones paying the real estate taxes over said
property.

Page 51 of 92
It was further alleged that after the death of Ireneo in 1982, a conference among relatives was held
wherein both parties were present including the widow of Ireneo, Salvacion; his nephew, Marietto
Mendoza (Marietto); and his brother, Aurelio Mendoza (Aurelio). In the said conference, it was said that
Aurelio informed all of them that it was Ireneo’s wish to have the property divided among his heirs; that
Spouses Intac never raised any objection; and that neither did they inform all those present on that
occasion that the property was already sold to them in 1977.

Respondents further alleged that sometime in 1993, after the death of Salvacion, rumors spread in the
neighborhood that the subject property had been registered in the names of Spouses Intac; that upon
verification with the Office of the Register of Deeds of Quezon City, respondents were surprised to find out
that TCT No. 106530 had indeed been cancelled by virtue of the deed of absolute sale executed by Ireneo
in favor of Spouses Intac, and as a result, TCT No. 242655 was issued in their names; that the
cancellation of TCT No. 106530 and the subsequent issuance of TCT No. 242655 were null and void and
had no legal effect whatsoever because the deed of absolute sale was a fictitious or simulated document;
that the Spouses Intac were guilty of fraud and bad faith when said document was executed; that Spouses
Intac never informed respondents that they were already the registered owners of the subject property
although they had never taken possession thereof; and that the respondents had been in possession of
the subject property in the concept of an owner during Ireneo’s lifetime up to the present.

In their Answer,7 Spouses Intac countered, among others, that the subject property had been transferred
to them based on a valid deed of absolute sale and for a valuable consideration; that the action to annul
the deed of absolute sale had already prescribed; that the stay of respondents in the subject premises
was only by tolerance during Ireneo’s lifetime because they were not yet in need of it at that time; and
that despite respondents’ knowledge about the sale that took place on October 25, 1977, respondents still
filed an action against them.

Ruling of the RTC

On April 30, 2002, the RTC rendered judgment in favor of respondents and against Spouses Intac. The
dispositive portion of its Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered:

(1) Declaring the Deed of Absolute Sale executed by Ireneo Mendoza in favor of Mario and Angelina Intac
dated October 25, 1977 as an equitable mortgage;

(2) Ordering the Register of Deeds of Quezon City to cancel Transfer Certificate Title No. 242655 and, in
lieu thereof, issue a new Transfer Certificate of Title in the name of Ireneo Mendoza; and

(3) Ordering defendants to pay plaintiffs the amount of Thirty Thousand Pesos (Php30,000.00) as and for
attorney’s fees.

The other claims for damages are hereby denied for lack of merit.

SO ORDERED.

The RTC ruled, among others, that the sale between Ireneo and Salvacion, on one hand, and Spouses
Intac was null and void for being a simulated one considering that the said parties had no intention of
binding themselves at all. It explained that the questioned deed did not reflect the true intention of the
parties and construed the said document to be an equitable mortgage on the following grounds: 1 the
signed document did not express the real intention of the contracting parties because Ireneo signed the
said document only because he was in urgent need of funds; 2 the amount of ₱60,000.00 in 1977 was too
inadequate for a purchase price of a 240-square meter lot located in Quezon City; 3 Josefina and Martina
continued to be in possession of the subject property from 1954 and even after the alleged sale took place
in 1977 until this case was filed in 1994; and 4 the Spouses Intac started paying real estate taxes only in
1999. The RTC added that the Spouses Intac were guilty of fraud because they effected the registration of
the subject property even though the execution of the deed was not really intended to transfer the
ownership of the subject property.

Page 52 of 92
Ruling of the CA

On appeal, the CA modified the decision of the RTC. The CA ruled that the RTC erred in first declaring the
deed of absolute sale as null and void and then interpreting it to be an equitable mortgage. The CA
believed that Ireneo agreed to have the title transferred in the name of the Spouses Intac to enable them
to facilitate the processing of the mortgage and to obtain a loan. This was the exact reason why the deed
of absolute sale was executed. Marietto testified that Ireneo never intended to sell the subject property to
the Spouses Intac and that the deed of sale was executed to enable them to borrow from a bank. This fact
was confirmed by Angelina herself when she testified that she and her husband mortgaged the subject
property sometime in July 1978 to finance the construction of a small hospital in Sta. Cruz, Laguna.

The CA further observed that the conduct of Spouses Intac belied their claim of ownership. When the deed
of absolute sale was executed, Spouses Intac never asserted their ownership over the subject property,
either by collecting rents, by informing respondents of their ownership or by demanding possession of the
land from its occupants. It was not disputed that it was respondents who were in possession of the subject
property, leasing the same and collecting rentals. Spouses Intac waited until Ireneo and Salvacion passed
away before they disclosed the transfer of the title to respondents. Hence, the CA was of the view that the
veracity of their claim of ownership was suspicious.

Moreover, wrote the CA, although Spouses Intac claimed that the purchase of the subject property was for
a valuable consideration (P60,000.00), they admitted that they did not have any proof of payment.
Marietto, whose testimony was assessed by the RTC to be credible, testified that there was no such
payment because Ireneo never sold the subject property as he had no intention of conveying its
ownership and that his only purpose in lending the title was to help Spouses Intac secure a loan. Thus, the
CA concluded that the deed of absolute sale was a simulated document and had no legal effect.

Finally, the CA stated that even assuming that there was consent, the sale was still null and void because
of lack of consideration. The decretal portion of the CA Decision reads:

WHEREFORE, in view of the foregoing premises, the decision of the Regional Trial Court of Quezon City,
Branch 220, is AFFIRMED with modifications, as follows:

1. The Deed of Absolute Sale dated October 25, 1977 executed by Ireneo Mendoza and Salvacion Fermen
in favor of Spouses Mario and Angelina Intac is hereby declared NULL AND VOID;

2. the Register of Deed[s] of Quezon City is ordered to cancel TCT No. 242655 and, in lieu thereof, issue a
new one and reinstate Ireneo Mendoza as the registered owner;

3. The defendant appellants are hereby ordered to pay the plaintiff appellees the amount of thirty
thousand pesos (Php30,000.00) as and for attorney’s fees; and

4. The other claims for damages are denied for lack of merit.

SO ORDERED.

Not in conformity, petitioners filed this petition for review anchored on the following

ASSIGNMENT OF ERRORS

I THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT AFFIRMED THE DECISION OF THE
REGIONAL TRIAL COURT DATED FEBRUARY 16, 2006 WHICH WAS CONTRARY TO THE APPLICABLE LAWS
AND EXISTING JURISPRUDENCE.

II THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT CLEARLY OVERLOOKED,


MISUNDERSTOOD AND/OR MISAPPLIED THE EVIDENCE PRESENTED IN THE COURT A QUO.10

Petitioners’ position

Page 53 of 92
Petitioners primarily argue that the subject deed of sale was a valid and binding contract between the
parties. They claim that all the elements of a valid contract of sale were present, to wit: [a] consent or
meeting of the minds, that is, consent to transfer ownership in exchange of price; [b] determinate subject
matter; and [c] price certain in money or its equivalent.

Petitioners claim that respondents have validly gave their consent to the questioned sale of the subject
property. In fact, it was Ireneo and Salvacion who approached them regarding their intention to sell the
subject property. Ireneo and Salvacion affixed their signatures on the questioned deed and never brought
any action to invalidate it during their lifetime. They had all the right to sell the subject property without
having to inform their children of their intention to sell the same. Ordinary human experience dictates that
a party would not affix his or her signature on any written instrument which would result in deprivation of
one’s property right if there was really no intention to be bound by it. A party would not keep silent for
several years regarding the validity and due execution of a document if there was an issue on the real
intention of the vendors. The signatures of Ireneo and Salvacion meant that they had knowingly and
willfully entered into such agreement and that they were prepared for the consequences of their act.

Respondents’ Position

Respondents are of the position that the RTC and the CA were correct in ruling that the questioned deed
of absolute sale was a simulated one considering that Ireneo and Salvacion had no intention of selling the
subject property. The true intention rather was that Spouses Intac would just borrow the title of the
subject property and offer it as a collateral to secure a loan. No money actually changed hands.

According to respondents, there were several circumstances which put in doubt the validity of the deed of
absolute sale. First, the parties were not on equal footing because Angelina was a doctor by profession
while Ireneo and Salvacion were less educated people who were just motivated by their trust, love and
affection for her whom they considered as their own child. Second, if there was really a valid sale, it was
just and proper for Spouses Intac to divulge the conveyance to respondents, being compulsory heirs, but
they did not. Third, Ireneo and Salvacion did nothing to protect their interest because they banked on the
representation of Spouses Intac that the title would only be used to facilitate a loan with a bank. Fourth,
Ireneo and Salvacion remained in possession of the subject property without being disturbed by Spouses
Intac. Fifth, the price of the sale was inadequate and inequitable for a prime property located in Pag-asa,
Quezon City. Sixth, Ireneo and Salvacion had no intention of selling the subject property because they had
heirs who would inherit the same. Seventh, the Spouses Intac abused the trust and affection of Ireneo
and Salvacion by arrogating unto themselves the ownership of the subject property to the prejudice of his
own children, Josefina and Martina.

Finally, petitioners could not present a witness to rebut Marietto’s testimony which was straightforward
and truthful.

The Court’s Ruling

Basically, the Court is being asked to resolve the issue of whether the Deed of Absolute Sale,11 dated
October 25, 1977, executed by and between Ireneo Mendoza and Salvacion Fermin, as vendors, and Mario
Intac and Angelina Intac, as vendees, involving the subject real property in Pagasa, Quezon City, was a
simulated contract or a valid agreement.

The Court finds no merit in the petition.

A contract, as defined in the Civil Code, is a meeting of minds, with respect to the other, to give
something or to render some service. Article 1318 provides:

Art. 1318. There is no contract unless the following requisites concur:


(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Page 54 of 92
Accordingly, for a contract to be valid, it must have three essential elements: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the
obligation which is established.

All these elements must be present to constitute a valid contract. Consent is essential to the existence of a
contract; and where it is wanting, the contract is non-existent. In a contract of sale, its perfection is
consummated at the moment there is a meeting of the minds upon the thing that is the object of the
contract and upon the price. Consent is manifested by the meeting of the offer and the acceptance of the
thing and the cause, which are to constitute the contract.

In this case, the CA ruled that the deed of sale executed by Ireneo and Salvacion was absolutely
simulated for lack of consideration and cause and, therefore, void. Articles 1345 and 1346 of the Civil
Code provide:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties
do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement.

If the parties state a false cause in the contract to conceal their real agreement, the contract is only
relatively simulated and the parties are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the content or terms of the contract,
the agreement is absolutely binding and enforceable between the parties and their successors in interest.

In absolute simulation, there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. "The main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any way alter the juridical situation
of the parties."14 "As a result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract."

In the case at bench, the Court is one with the courts below that no valid sale of the subject property
actually took place between the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses
Intac. There was simply no consideration and no intent to sell it.

Critical is the testimony of Marietto, a witness to the execution of the subject absolute deed of sale. He
testified that Ireneo personally told him that he was going to execute a document of sale because Spouses
Intac needed to borrow the title to the property and use it as collateral for their loan application. Ireneo
and Salvacion never intended to sell or permanently transfer the full ownership of the subject property to
Spouses Intac. Marietto was characterized by the RTC as a credible witness.

Aside from their plain denial, petitioners failed to present any concrete evidence to disprove Marietto’s
testimony. They claimed that they actually paid P150,000.00 for the subject property. They, however,
failed to adduce proof, even by circumstantial evidence, that they did, in fact, pay it. Even for the
consideration of P60,000.00 as stated in the contract, petitioners could not show any tangible evidence of
any payment therefor. Their failure to prove their payment only strengthened Marietto’s story that there
was no payment made because Ireneo had no intention to sell the subject property.

Angelina’s story, except on the consideration, was consistent with that of Marietto. Angelina testified that
she and her husband mortgaged the subject property sometime in July 1978 to finance the construction of
a small hospital in Sta. Cruz, Laguna. Angelina claimed that Ireneo offered the property as he was in deep
financial need.

Granting that Ireneo was in financial straits, it does not prove that he intended to sell the property to
Angelina. Petitioners could not adduce any proof that they lent money to Ireneo or that he shared in the
proceeds of the loan they had obtained. And, if their intention was to build a hospital, could they still
afford to lend money to Ireneo? And if Ireneo needed money, why would he lend the title to Spouses Intac
when he himself could use it to borrow money for his needs? If Spouses Intac took care of him when he

Page 55 of 92
was terminally ill, it was not surprising for Angelina to reciprocate as he took care of her since she was
three (3) years old until she got married. Their caring acts for him, while they are deemed services of
value, cannot be considered as consideration for the subject property for lack of quantification and the
Filipino culture of taking care of their elders.

Thus, the Court agrees with the courts below that the questioned contract of sale was only for the purpose
of lending the title of the property to Spouses Intac to enable them to secure a loan. Their arrangement
was only temporary and could not give rise to a valid sale. Where there is no consideration, the sale is null
and void ab initio. In the case of Lequin v. Vizconde,16 the Court wrote:

There can be no doubt that the contract of sale or Kasulatan lacked the essential element of consideration.
It is a well-entrenched rule that where the deed of sale states that the purchase price has been paid but in
fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. Moreover,
Art. 1471 of the Civil Code, which provides that "if the price is simulated, the sale is void," also applies to
the instant case, since the price purportedly paid as indicated in the contract of sale was simulated for no
payment was actually made.

Consideration and consent are essential elements in a contract of sale. Where a party’s consent to a
contract of sale is vitiated or where there is lack of consideration due to a simulated price, the contract is
null and void ab initio. [Emphases supplied]

More importantly, Ireneo and his family continued to be in physical possession of the subject property
after the sale in 1977 and up to the present. They even went as far as leasing the same and collecting
rentals. If Spouses Intac really purchased the subject property and claimed to be its true owners, why did
they not assert their ownership immediately after the alleged sale took place? Why did they have to assert
their ownership of it only after the death of Ireneo and Salvacion? One of the most striking badges of
absolute simulation is the complete absence of any attempt on the part of a vendee to assert his right of
dominion over the property.

On another aspect, Spouses Intac failed to show that they had been paying the real estate taxes of the
subject property. They admitted that they started paying the real estate taxes on the property for the
years 1996 and 1997 only in 1999. They could only show two (2) tax receipts (Real Property Tax Receipt
No. 361105, dated April 21, 1999, and Real Property Tax Receipt No. 361101, dated April 21, 1999).18
Noticeably, petitioners’ tax payment was just an afterthought. The non-payment of taxes was also taken
against the alleged vendees in the case of Lucia Carlos Aliño v. Heirs of Angelica A. Lorenzo.19 Thus,

Furthermore, Lucia religiously paid the realty taxes on the subject lot from 1980 to 1987.While tax
receipts and declarations of ownership for taxation purposes are not, in themselves, incontrovertible
evidence of ownership, they constitute at least proof that the holder has a claim of title over the property,
particularly when accompanied by proof of actual possession. They are good indicia of the possession in
the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his
actual or at least constructive possession. The voluntary declaration of a piece of property for taxation
purposes manifests not only one's sincere and honest desire to obtain title to the property and announces
his adverse claim against the State and all other interested parties, but also the intention to contribute
needed revenues to the Government. Such an act strengthens one's bona fide claim of acquisition of
ownership.

On the other hand, respondent heirs failed to present evidence that Angelica, during her lifetime, paid the
realty taxes on the subject lot. They presented only two tax receipts showing that Servillano, Sr. belatedly
paid taxes due on the subject lot for the years 1980-1981 and part of year 1982 on September 8, 1989,
or about a month after the institution of the complaint on August 3, 1989, a clear indication that payment
was made as an afterthought to give the semblance of truth to their claim.

Thus, the subsequent acts of the parties belie the intent to be bound by the deed of sale. [Emphases
supplied]

The primary consideration in determining the true nature of a contract is the intention of the parties. If the
words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such
intention is determined not only from the express terms of their agreement, but also from the

Page 56 of 92
contemporaneous and subsequent acts of the parties.20 As heretofore shown, the contemporaneous and
subsequent acts of both parties in this case, point to the fact that the intention of Ireneo was just to lend
the title to the Spouses Intac to enable them to borrow money and put up a hospital in Sta. Cruz, Laguna.
Clearly, the subject contract was absolutely simulated and, therefore, void.

In view of the foregoing, the Court finds it hard to believe the claim of the Spouses Intac that the stay of
Ireneo and his family in the subject premises was by their mere tolerance as they were not yet in need of
it. As earlier pointed out, no convincing evidence, written or testimonial, was ever presented by petitioners
regarding this matter. It is also of no moment that TCT No. 106530 covering the subject property was
cancelled and a new TCT (TCT No. 242655)21 was issued in their names. The Spouses Intac never
became the owners of the property despite its registration in their names. After all, registration does not
vest title.

As a logical consequence, petitioners did not become the owners of the subject property even after a TCT
had been issued in their names. After all, registration does not vest title. Certificates of title merely
confirm or record title already existing and vested. They cannot be used to protect a usurper from the true
owner, nor can they be used as a shield for the commission of fraud, or to permit one to enrich oneself at
the expense of others. Hence, reconveyance of the subject property is warranted.22

The Court does not find acceptable either the argument of the Spouses Intac that respondents’ action for
cancellation of TCT No. 242655 and the reconveyance of the subject property is already barred by the
Statute of Limitations. The reason is that the respondents are still in actual possession of the subject
property. It is a well-settled doctrine that "if the person claiming to be the owner of the property is in
actual possession thereof, the right to seek reconveyance, which in effect seeks to quiet title to the
property, does not prescribe."23 In Lucia Carlos Aliño, it was also written:

The lower courts fault Lucia for allegedly not taking concrete steps to recover the subject lot, demanding
its return only after 10 years from the registration of the title. They, however, failed to consider that Lucia
was in actual possession of the property.

It is well-settled that an action for reconveyance prescribes in 10 years, the reckoning point of which is
the date of registration of the deed or the date of issuance of the certificate of title over the property. In
an action for reconveyance, the decree of registration is highly regarded as incontrovertible. What is
sought instead is the transfer of the property or its title, which has been erroneously or wrongfully
registered in another person's name, to its rightful or legal owner or to one who has a better right.

However, in a number of cases in the past, the Court has consistently ruled that if the person claiming to
he the owner of the property is in actual possession thereof, the right to seek reconveyance, which in
effect seeks to quiet title to the property, does not prescribe. The reason for this is that one who is in
actual possession of a piece of land claiming to be the owner thereof may wait until his possession is
disturbed or his title is attacked before taking steps to vindicate his right. The reason being, that his
undisturbed possession gives him the continuing right to seek the aid of a court of equity to ascertain the
nature of the adverse claim of a third party and its effect on his title, which right can be claimed only by
one who is in possession. Thus, considering that Lucia continuously possessed the subject lot, her right to
institute a suit to clear the cloud over her title cannot he barred by the statute of limitations.:

WHEREFORE, the petition is DENIED.

SO ORDERED.
x-------------------------------------------------------------------------------------------------------------------x
G.R. No. 186264 July 8, 2013
DR. LORNA C. FORMARAN, Petitioner, vs.
DR. GLENDA B. ONG AND SOLOMON S. ONG, Respondents.
DECISION
PEREZ, J.:

This is an Appeal by certiorari under Rule 45 of the Revised Rules of Court of the Decision1 of the Court of
Appeals (CA) rendered on August 30, 2007, the dispositive portion of which reads as follows:

Page 57 of 92
"WHEREFORE, in the (sic) light of the foregoing, the assailed Decision is REVERSED AND SET ASIDE. The
Complaint of appellee Lorna C. Formaran is DISMISSED. The appellee, her agents or representatives are
ORDERED to vacate the land in question and to restore the same to appellants."

The facts adopted by both the trial court and the Court of Appeals are summarized thus:

"According to plaintiff (Petitioner)'s complaint, she owns the afore-described parcel of land which was
donated to her intervivos by her uncle and aunt, spouses Melquiades Barraca and Praxedes Casidsid on
June 25, 1967; that on August 12, 1967 upon the proddings and representation of defendant
(Respondent) Glenda, that she badly needed a collateral for a loan which she was applying from a bank to
equip her dental clinic, plaintiff made it appear that she sold one-half of the afore-described parcel of land
to the defendant Glenda; that the sale was totally without any consideration and fictitious; that contrary
to plaintiff’s agreement with defendant Glenda for the latter to return the land, defendant Glenda filed a
case for unlawful detainer against the plaintiff who consequently suffered anxiety, sleepless nights and
besmirched reputation; and that to protect plaintiff’s rights and interest over the land in question, she was
constrained to file the instant case, binding herself to pay ₱50,000.00 as and for attorney's fees.

In an answer filed on December 22, 1997, defendant Glenda insisted on her ownership over the land in
question on account of a Deed of Absolute Sale executed by the plaintiff in her favor; and that plaintiff’s
claim of ownership therefore was virtually rejected by the Municipal Circuit Trial Court of Ibaja-Nabas,
Ibajay, Aklan, when it decided in her favor the unlawful detainer case she filed against the plaintiff,
docketed therein as Civil Case No. 183. Defendants are also claiming moral damages and attorney’s fees
in view of the filing of the present case against them.

Plaintiff’s testimony tends to show that the land in question is part of the land donated to her on June 25,
1967 by spouses Melquiades Barraca and Praxedes Casidsid, plaintiff’s uncle and aunt, respectively. As
owner thereof, she declared the land for taxation purposes (Exhibits A-1 to A-5, inclusive). She religiously
paid its realty taxes (Exhibit A-6). She mortgaged the land to Aklan Development Bank to secure payment
of a loan.

In 1967, defendant Glenda and her father, Melquiades Barraca came to her residence asking for help.
They were borrowing one-half of land donated to her so that defendant Glenda could obtain a loan from
the bank to buy a dental chair. They proposed that she signs an alleged sale over the said portion of land.

Acceding to their request, she signed on August 12, 1967 a prepared Deed of Absolute Sale (Exhibit C)
which they brought along with them (TSN, p. 22, Ibid), covering the land in question without any money
involved. There was no monetary consideration in exchange for executing Exhibit C. She did not also
appear before the Notary Public Edilberto Miralles when Exhibit C was allegedly acknowledged by her on
November 9, 1967.

A month thereafter, plaintiff inquired from her uncle, Melquiades Barracca if they have obtained the loan.
The latter informed her that they did not push through with the loan because the bank’s interest therefore
was high. With her uncle’s answer, plaintiff inquired about Exhibit C. Her uncle replied that they crampled
(kinumos) the Deed of Absolute Sale (Exhibit C) and threw it away. Knowing that Exhibit C was already
thrown away, plaintiff did not bother anymore about the document (TSN, p. 7, Ibid) she thought that
there was no more transaction. Besides, she is also in actual possession of the land and have even
mortgaged the same.

In 1974, plaintiff transferred her residence from Nabas, Aklan, to Antipolo City where she has been
residing up to the present time. From the time she signed the Deed of Absolute Sale (Exhibit C) in August,
1967 up to the present time of her change of residence to Antipolo City, defendant Glenda never
demanded actual possession of the land in question, except when the latter filed on May 30, 1996 a case
for unlawful detainer against her. Following the filing of the ejectment case, she learned for the first time
that the Deed of Absolute Sale was registered on May 25, 1991 and was not thrown away contrary to
what Melquiades Barraca told her. Moreover, she and Melquiades Barraca did not talk anymore about
Exhibit C. That was also the first time she learned that the land in question is now declared for taxation
purposes in the name of defendant Glenda.

Page 58 of 92
In closing her direct testimony, plaintiff declared that the filing of the unlawful detainer case against her,
caused her some sleepless nights and humiliation. She also suffered hypertension.

Upon the other hand, relevant matters that surfaced from the testimonies of the defendants shows that on
June 25, 1967, Melquiades Barraca, father of the defendant Glenda, donated a parcel of land to her niece,
plaintiff Lorna C. Formaran (Exhibit 3). At the time of the donation, plaintiff was still single. She married
Atty. Formaran only in September, 1967.

Subsequently, on August 12, 1967, Dr. Lorna B. Casidsid, herein plaintiff, executed a Deed of Absolute
Sale (Exhibit 1) over one-half portion of the land donated to her, in favor of defendant Glenda. On account
of the Sale (Exhibit 1) defendant Glenda was able to declare in her name the land in question for taxation
purposes (Exhibit 4) and paid the realty taxes (Exhibits 6, 6-A, 6-B and 6-C). She also was able to
possess the land in question.

Defendant Glenda maintained that there was money involved affecting the sale of the land in her favor.
The sale was not to enable her to buy a dental chair for she had already one at the time. Besides, the cost
of a dental chair in 1967 was only ₱2,000.00 which she can readily afford.

The document of sale (Exhibit 1) affecting the land in question was not immediately registered after its
execution in 1967 but only on May 25, 1991 in order to accommodate the plaintiff who mortgaged the
land to Aklan Development Bank on May 18, 1978.

Based on the admissions of the parties in their pleadings, during the pre-trial and evidence on record,
there is no contention that on June 25, 1967, the afore-described parcel of land was donated intervivos
(Exhibit 3) by spouses Melquiades Barraca and Praxedes Casidsid to therein plaintiff, Dr. Lorna Casidsid
Formaran who was yet single. She was married to Atty. Formaran in September 1967. Praxedes was the
aunt of Lorna as the latter’s father was the brother of Praxedes.

Following the donation, plaintiff immediately took possession of the land wherein one-half (1/2) thereof is
the land in question. Since then up to the present time, is still in actual possession of the land, including
the land in question.

Indeed, on May 30, 1996, herein defendant Glenda filed a complaint for unlawful detainer against the
plaintiff before the 7th Municipal Circuit Trial Court of Ibajay-Nabas, Ibajay, Aklan, docketed there in as
Civil Case No. 183. The case was decided on September 2, 1997, (Exhibit 2) in favor of herein defendant
Glenda; ordering the herein plaintiff to vacate the land in question.

After the plaintiff acquired ownership by way of donation over the afore-described parcel of land which
includes the land in question, she declared the same for taxation purposes under Tax Declaration No.
12533, effective 1969 (Exhibit A-1). Revision caused the subsequent and successive cancellation of Exhibit
A-1 by Tax Declaration No. 177, effective 1974 (Exhibit A-2);

Tax Declaration No. 183 effective 1980 (Exhibit A-3); Tax Declaration No. 187, effective 1985 (Exhibit A-
4); PIN-038-14-001-06-049, effective 1990 (Exhibit A-5); and APP/TD No. 93-001-330, effective 1994
(Exhibit A-6).

The last two Tax Declarations (Exhibits A-5 and A-6) no longer covered the land in question which was
segregated therefrom when the Deed of Sale executed on August 12, 1967 (Exhibit C) was registered for
the first time on May 25, 1991.

Realty taxes of the afore-described parcel of land, including the land in question, have been paid by the
plaintiff since 1967 up to the present time (Exhibit B). However, defendant Glenda paid for the first time
the realty taxes of the land in question on January 9, 1995 (Exhibit 6) and up to the present time (Exhibit
6-A and 6-B).

On account of the Deed of Absolute Sale (Exhibit C or 1) signed by the plaintiff, during the cadastral
survey, the land in question was surveyed in the name of defendant and designated as Lot No. 188
(Exhibit 5) and the other half on the western side was designated as Lot No. 189. The land in question is
particularly described as follows:

Page 59 of 92
A parcel of residential land (Lot No. 188, Cad. No. 758-D Nabas Cadastre) located at Poblacion Nabas,
Aklan, Bounded on North by Lot No. 196; on the East by Lot No. 187; on the West by Lot No. 189 all of
Cad. No. 758-D; and on the South by Mabini St., containing an area of THREE HUNDRED FIFTY SEVEN
(357) SQUARE METERS, more or less."

Petitioner filed on action for annulment of the Deed of Sale (Civil Case No. 5398) against respondents
before the Regional Trial Court (RTC), of Kalibo, Aklan, Branch 5.

On December 3, 1999, the trial court rendered a Decision in favor of petitioner and against the respondent
by declaring the Deed of Absolute Sale null and void for being an absolutely simulated contract and for
want of consideration; declaring the petitioner as the lawful owner entitled to the possession of the land in
question; as well as ordering (a) the cancellation of respondent Glenda’s Tax Declaration No. 1031, and
(b) respondents to pay petitioner ₱25,000.00 for attorney’s fees and litigation expenses.

Respondents coursed an appeal to the CA. The CA, on August 30, 2007, reversed and set aside the
Decision of the trial court and ordered petitioner to vacate the land in question and restore the same to
respondents.

Hence, the present petition.

The petition sufficiently shows with convincing arguments that the decision of the CA is based on a
misappreciation of facts.

The Court believes and so holds that the subject Deed of Sale is indeed simulated,2 as it is: (1) totally
devoid of consideration; (2) it was executed on August 12, 1967, less than two months from the time the
subject land was donated to petitioner on June 25, 1967 by no less than the parents of respondent Glenda
Ong; (3) on May 18, 1978, petitioner mortgaged the land to the Aklan Development Bank for a
₱23,000.00 loan; (4) from the time of the alleged sale, petitioner has been in actual possession of the
subject land; (5) the alleged sale was registered on May 25, 1991 or about twenty four (24) years after
execution; (6) respondent Glenda Ong never introduced any improvement on the subject land; and (7)
petitioner’s house stood on a part of the subject land. These are facts and circumstances which may be
considered badges of bad faith that tip the balance in favor of petitioner.

The Court is in accord with the observation and findings of the (RTC,3 Kalibo, Aklan) thus:

"The amplitude of foregoing undisputed facts and circumstances clearly shows that the sale of the land in
question was purely simulated. It is void from the very beginning (Article 1346, New Civil Code). If the
sale was legitimate, defendant Glenda should have immediately taken possession of the land, declared in
her name for taxation purposes, registered the sale, paid realty taxes, introduced improvements therein
and should not have allowed plaintiff to mortgage the land. These omissions properly militated against
defendant Glenda’s submission that the sale was legitimate and the consideration was paid.

While the Deed of Absolute Sale was notarized, it cannot justify the conclusion that the sale is a true
conveyance to which the parties are irrevocably and undeniably bound. Although the notarization of Deed
of Absolute Sale, vests in its favor the presumption of regularity, it does not validate nor make binding an
instrument never intended, in the first place, to have any binding legal effect upon the parties thereto
(Suntay vs. Court of Appeals, G.R. No. 114950, December 19, 1995; cited in Ruperto Viloria vs. Court of
Appeals, et al., G.R. No. 119974, June 30, 1999)."

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals rendered on August 30, 2007
in CA G.R. CV No. 66187 is hereby REVERSED and SET ASIDE. The Decision of the Regional Trial Court,
Branch 5, Kalibo, Aklan in Civil Case No. 5398 dated December 3, 1999 is REINSTATED.

SO ORDERED.
x-------------------------------------------------------------------------------------------------------------------x

Page 60 of 92
G.R. No. 169055 February 22, 2012
SPOUSES JOSE and MILAGROS VILLACERAN and FAR EAST BANK & TRUST COMPANY,
Petitioners, vs. JOSEPHINE DE GUZMAN, Respondent.
DECISION
VILLARAMA, JR., J.:

Before us is a petition for review on certiorari assailing the November 26, 2004 Decision1 and June 29,
2005 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 71831. The CA had affirmed with
modification the Decision3 of the Regional Trial Court (RTC), Branch 24, of Echague, Isabela, in Civil Case
No. 24-0495 entitled "Josephine De Guzman vs. Spouses Jose and Milagros Villaceran, et al."

The antecedent facts follow:

Josephine De Guzman filed a Complaint4 with the RTC of Echague, Isabela against the spouses Jose and
Milagros Villaceran and Far East Bank & Trust Company (FEBTC), Santiago City Branch, for declaration of
nullity of sale, reconveyance, redemption of mortgage and damages with preliminary injunction. The
complaint was later amended to include annulment of foreclosure and Sheriff’s Certificate of Sale.

In her Amended Complaint,5 De Guzman alleged that she is the registered owner of a parcel of land
covered by Transfer Certificate of Title (TCT) No. T-236168,6 located in Echague, Isabela, having an area
of 971 square meters and described as Lot 8412-B of the Subdivision Plan Psd-93948. On April 17, 1995,
she mortgaged the lot to the Philippine National Bank (PNB) of Santiago City to secure a loan of ₱600,000.
In order to secure a bigger loan to finance a business venture, De Guzman asked Milagros Villaceran to
obtain an additional loan on her behalf. She executed a Special Power of Attorney in favor of Milagros.
Considering De Guzman’s unsatisfactory loan record with the PNB, Milagros suggested that the title of the
property be transferred to her and Jose Villaceran and they would obtain a bigger loan as they have a
credit line of up to ₱5,000,000 with the bank.

On June 19, 1996, De Guzman executed a simulated Deed of Absolute Sale7 in favor of the spouses
Villaceran. On the same day, they went to the PNB and paid the amount of ₱721,891.67 using the money
of the spouses Villaceran. The spouses Villaceran registered the Deed of Sale and secured TCT No. T-
2574168 in their names. Thereafter, they mortgaged the property with FEBTC Santiago City to secure a
loan of ₱1,485,000. However, the spouses Villaceran concealed the loan release from De Guzman. Later,
when De Guzman learned of the loan release, she asked for the loan proceeds less the amount advanced
by the spouses Villaceran to pay the PNB loan. However, the spouses Villaceran refused to give the money
stating that they are already the registered owners of the property and that they would reconvey the
property to De Guzman once she returns the ₱721,891.67 they paid to PNB.9

De Guzman offered to pay ₱350,000 provided that the spouses Villaceran would execute a deed of
reconveyance of the property. In view of the simulated character of their transaction, the spouses
Villaceran executed a Deed of Absolute Sale10 dated September 6, 1996 in favor of De Guzman. They also
promised to pay their mortgage debt with FEBTC to avoid exposing the property to possible foreclosure
and auction sale. However, the spouses Villaceran failed to settle the loan and subsequently the property
was extrajudicially foreclosed. A Sheriff’s Certificate of Sale was issued in favor of FEBTC for the amount
of ₱3,594,000. De Guzman asserted that the spouses Villaceran should be compelled to redeem their
mortgage so as not to prejudice her as the real owner of the property.11

On the other hand, the spouses Villaceran and FEBTC, in their Amended Answer,12 averred that in 1996
De Guzman was introduced to Milagros by a certain Digna Maranan. Not long afterwards, De Guzman
requested Milagros to help her relative who had a loan obligation with the PNB in the amount of ₱300,000.
As a consideration for the accommodation, De Guzman would convey her property located at Maligaya,
Echague, Isabela which was then being held in trust by her cousin, Raul Sison. Because of this agreement,
Milagros paid De Guzman’s obligation with the PNB in the amount of ₱300,000.

When Milagros asked for the title of the lot, De Guzman explained that her cousin would not part with the
property unless he is reimbursed the amount of ₱200,000 representing the amount he spent tilling the
land. Milagros advanced the amount of ₱200,000 but De Guzman’s cousin still refused to reconvey the
property. In order for De Guzman to settle her obligation, she offered to sell her house and lot in Echague,
Isabela. At first, Milagros signified her non-interest in acquiring the same because she knew that it was

Page 61 of 92
mortgaged with the PNB Santiago for ₱600,000. De Guzman proposed that they will just secure a bigger
loan from another bank using her house and lot as security. The additional amount will be used in settling
De Guzman’s obligation with PNB. Later, De Guzman proposed that she borrow an additional amount from
Milagros which she will use to settle her loan with PNB. To this request, Milagros acceded. Hence, they
went to the PNB and paid in full De Guzman’s outstanding obligation with PNB which already reached
₱880,000.

Since De Guzman’s total obligation already reached ₱1,380,000, the spouses Villaceran requested her to
execute a deed of absolute sale over the subject property in their favor. Thus, the Deed of Absolute Sale is
supported by a valuable consideration, and the spouses Villaceran became the lawful owners of the
property as evidenced by TCT No. 257416 issued by the Office of the Register of Deeds of Isabela. Later,
they mortgaged the property to FEBTC for ₱1,485,000.

The spouses Villaceran denied having executed a deed of conveyance in favor of De Guzman relative to
the subject property and asserted that the signatures appearing on the September 6, 1996 Deed of Sale,
which purported to sell the subject property back to De Guzman, are not genuine but mere forgeries.

After due proceedings, the trial court rendered its decision on September 27, 2000.

The RTC ruled that the Deed of Sale dated June 19, 1996 executed by De Guzman in favor of the spouses
Villaceran covering the property located in Echague, Isabela was valid and binding on the parties. The RTC
ruled that the said contract was a relatively simulated contract, simulated only as to the purchase price,
but nonetheless binding upon the parties insofar as their true agreement is concerned. The RTC ruled that
De Guzman executed the Deed of Absolute Sale dated June 19, 1996 so that the spouses Villaceran may
use the property located in Echague, Isabela as collateral for a loan in view of De Guzman’s need for
additional capital to finance her business venture. The true consideration for the sale, according to the
RTC, was the ₱300,000 the spouses Villaceran gave to De Guzman plus the ₱721,891.67 they paid to PNB
in order that the title to the subject property may be released and used to secure a bigger loan in another
bank.

The RTC also found that although the spouses Villaceran had already mortgaged the subject property with
FEBTC and the title was already in the possession of FEBTC -- which facts were known to De Guzman who
even knew that the loan proceeds amounting to ₱1,485,000 had been released -- the spouses Villaceran
were nonetheless still able to convince De Guzman that they could still reconvey the subject property to
her if she pays the amount they had paid to PNB. The RTC found that the Deed of Sale dated September
6, 1996 was actually signed by the spouses Villaceran although De Guzman was able to pay only
₱350,000, which amount was stated in said deed of sale as the purchase price. The RTC additionally said
that the spouses Villaceran deceived De Guzman when the spouses Villaceran mortgaged the subject
property with the understanding that the proceeds would go to De Guzman less the amounts the spouses
had paid to PNB. Hence, according to the RTC, the spouses Villaceran should return to De Guzman (1) the
₱350,000 which she paid to them in consideration of the September 6, 1996 Deed of Sale, which sale did
not materialize because the title was in the possession of FEBTC; and (2) the amount of ₱763,108.33
which is the net proceeds of the loan after deducting the ₱721,891.67 that the spouses paid to PNB. Thus,
the decretal portion of the RTC decision reads:

WHEREFORE, judgment is hereby rendered as follows:

a) declaring the Deed of Sale, dated June 1996 (Exhibit "B") as valid and binding;

b) ordering defendants Villaceran to pay to plaintiff the amount of P763,108.33 and P350,000.00 or the
total amount of P1,113,108.33 plus the legal rate of interest starting from the date of the filing of this
case;

c) declaring the Extrajudicial Foreclosure and the Certificate of Sale as valid;

d) ordering defendants Villaceran to pay attorney’s fees in the amount of P20,000.00 and to pay the costs
of suit.

SO ORDERED.

Page 62 of 92
Aggrieved, the spouses Villaceran appealed to the CA arguing that the trial court erred in declaring the
June 19, 1996 Deed of Sale as a simulated contract and ordering them to pay De Guzman ₱1,113,108.33
plus legal rate of interest and attorney’s fees.

On November 26, 2004, the CA rendered its Decision, the dispositive portion of which reads as follows:

IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby AFFIRMED with MODIFICATION,
to read as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Declaring the Deed of Sale dated June 16, 1996 (Exh. "B") and September 6, 1996, as not reflective of
the true intention of the parties, as the same were merely executed for the purpose of the loan
accommodation in favor of the plaintiff-appellee by the defendants-appellants;

2. Ordering defendants-appellants Villaceran to pay plaintiff-appellee the difference between the FEBTC
loan of ₱1,485,000.00 less ₱721,891.67 (used to redeem the PNB loan), plus legal interest thereon
starting from the date of the filing of this case;

3. Declaring the extrajudicial foreclosure and certificate of sale in favor of FEBTC, as valid; and

4. For the appellants to pay the costs of the suit.

SO ORDERED.

The CA ruled that the RTC was correct in declaring that there was relative simulation of contract because
the deeds of sale did not reflect the true intention of the parties. It found that the evidence established
that the documents were executed for the purpose of an agency to secure a higher loan whereby the
spouses Villaceran only accommodated De Guzman. However, the CA did not find any evidence to prove
that De Guzman actually parted away with the ₱350,000 as consideration of the reconveyance of the
property. Thus, it held the trial court erred in ordering the spouses Villaceran to return the ₱350,000 to De
Guzman.

Furthermore, the CA observed that the spouses Villaceran were the ones who redeemed the property from
the mortgage with PNB by paying ₱721,891.67 so that De Guzman’s title could be released. Once
registered in their name, the spouses Villaceran mortgaged the property with FEBTC for ₱1,485,000. With
the loan proceeds of ₱1,485,000, there was no need for the spouses Villaceran to demand for the return of
the ₱721,891.67 they paid in releasing the PNB loan before the property is reconveyed to De Guzman. All
they had to do was to deduct the amount of ₱721,891.67 from the ₱1,485,000 FEBTC loan proceeds.
Hence, the CA ruled that only the balance of the ₱1,485,000 loan proceeds from FEBTC minus the
₱721,891.67 used to redeem the PNB loan should be paid by the spouses Villaceran to De Guzman. The
CA also deleted the grant of attorney’s fees for lack of factual, legal or equitable justification.

On December 22, 2004, the spouses Villaceran filed a motion for reconsideration of the foregoing decision.
Said motion, however, was denied for lack of merit by the CA in its Resolution dated June 29, 2005.
Hence, this appeal.

In their petition for review on certiorari, the spouses Villaceran allege that:

1. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN DECLARING
THE DEED OF SALE DATED JUNE 19, 1996 AS SIMULATED AND THAT THE SAME WAS MERELY EXECUTED
FOR THE PURPOSE OF THE LOAN ACCOMODATION OF PETITIONERS VILLACERAN IN FAVOR OF THE
RESPONDENT DE GUZMAN INSTEAD OF DECLARING SAID DEED AS A VALID DEED OF ABSOLUTE SALE,
THE CONTENTS OF WHICH ARE CLEARLY REFLECTIVE OF THEIR TRUE INTENTION TO ENTER INTO A
CONTRACT OF SALE AND NOT OTHERWISE, IN DIRECT CONTRAVENTION OF THE RULES ON EVIDENCE
AND OF THE ADMISSIONS OF THE PARTIES AND THE HONORABLE COURT’S RULINGS OR
JURISPRUDENCE ON THE MATTER; AND

Page 63 of 92
2. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN ORDERING
PETITIONERS VILLACERAN TO PAY RESPONDENT DE GUZMAN THE DIFFERENCE BETWEEN THE FAR EAST
BANK AND TRUST COMPANY (FEBTC) LOAN OF PHP1,485,000.00 LESS P721,891.67 (USED TO PAY THE
PHILIPPINE NATIONAL BANK [PNB] LOAN) PLUS LEGAL INTEREST THEREON AND TO PAY THE COSTS OF
SUIT.

Essentially, the issue for our resolution is whether the CA erred in ruling that the Deed of Sale dated June
19, 1996 is a simulated contract and not a true sale of the subject property.

Petitioners contend that the previous loans they extended to De Guzman in the amounts of ₱300,000,
₱600,000 and ₱200,000 should have been considered by the CA. When added to the ₱721,891.67 used to
settle the PNB loan, De Guzman’s total loan obtained from them would amount to ₱1,821,891.67. Thus, it
would clearly show that the Deed of Sale dated June 19, 1996, being supported by a valuable
consideration, is not a simulated contract.

We do not agree.

Article 134519 of the Civil Code provides that the simulation of a contract may either be absolute or
relative. In absolute simulation, there is a colorable contract but it has no substance as the parties have
no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any way alter the juridical situation
of the parties.20 As a result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract. However, if the parties state a
false cause in the contract to conceal their real agreement, the contract is only relatively simulated and
the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are
present and the simulation refers only to the content or terms of the contract, the agreement is absolutely
binding and enforceable between the parties and their successors in interest.21

The primary consideration in determining the true nature of a contract is the intention of the parties. If the
words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such
intention is determined not only from the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties.22 In the case at bar, there is a relative simulation
of contract as the Deed of Absolute Sale dated June 19, 1996 executed by De Guzman in favor of
petitioners did not reflect the true intention of the parties.

It is worthy to note that both the RTC and the CA found that the evidence established that the aforesaid
document of sale was executed only to enable petitioners to use the property as collateral for a bigger
loan, by way of accommodating De Guzman. Thus, the parties have agreed to transfer title over the
property in the name of petitioners who had a good credit line with the bank. The CA found it
inconceivable for De Guzman to sell the property for ₱75,000 as stated in the June 19, 1996 Deed of Sale
when petitioners were able to mortgage the property with FEBTC for ₱1,485,000. Another indication of the
lack of intention to sell the property is when a few months later, on September 6, 1996, the same
property, this time already registered in the name of petitioners, was reconveyed to De Guzman allegedly
for ₱350,000.

As regards petitioners’ assertion that De Guzman’s previous loans should have been considered to prove
that there was an actual sale, the Court finds the same to be without merit. Petitioners failed to present
any evidence to prove that they indeed extended loans to De Guzman in the amounts of ₱300,000,
₱600,000 and ₱200,000. We note that petitioners tried to explain that on account of their close friendship
and trust, they did not ask for any promissory note, receipts or documents to evidence the loan. But in
view of the substantial amounts of the loans, they should have been duly covered by receipts or any
document evidencing the transaction. Consequently, no error was committed by the CA in holding that the
June 19, 1996 Deed of Absolute Sale was a simulated contract.

The issue of the genuineness of a deed of sale is essentially a question of fact.1âwphi1 It is settled that
this Court is not duty-bound to analyze and weigh again the evidence considered in the proceedings
below. This is especially true where the trial court’s factual findings are adopted and affirmed by the CA as
in the present case. Factual findings of the trial court, affirmed by the CA, are final and conclusive and
may not be reviewed on appeal.

Page 64 of 92
The Court has time and again ruled that conclusions and findings of fact of the trial court are entitled to
great weight and should not be disturbed on appeal, unless strong and cogent reasons dictate otherwise.
This is because the trial court is in a better position to examine the real evidence, as well as to observe
the demeanor of the witnesses while testifying in the case. In sum, the Court finds that there exists no
reason to disturb the findings of the CA.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated November 26, 2004 and
Resolution dated June 29, 2005 of the Court of Appeals in CA-G.R. CV No. 71831 are AFFIRMED.

With costs against the petitioners.

SO ORDERED.
x-----------------------------------------------------------------------------------------------------------------x
G.R. No. 212277, February 11, 2015
ROBERT AND NENITA DE LEON, Petitioners, v. GILBERT AND ANALYN DELA LLANA,
Respondents.
DECISION
PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari are the Decision dated July 31, 2013 and the Resolution
dated March 31, 2014 of the Court of Appeals (CA) in CA-G.R. SP No. 03523-MIN which reversed and set
aside the Decision dated June 11, 2009 and the Order dated March 1, 2010 of the Regional Trial Court of
Davao City, Branch 11 (RTC) dismissing Civil Case No. 32,003-07.

The Facts

This case stemmed from an unlawful detainer complaint[6] (first ejectment complaint) filed by respondent
Gilbert dela Llana (Gilbert) against petitioner Robert de Leon (Robert) and a certain Gil de Leon (Gil) on
March 7, 2005 before the 3rd Municipal Circuit Trial Court of Nabunturan-Mawab, Compostela Valley
Province (MCTC-Nabunturan-Mawab), docketed as Civil Case No. 821. In the said complaint, Gilbert
averred that sometime in 1999, he, through an undated contract of lease, leased a portion of a 541
square-meter property situated in Poblacion, Nabunturan, Compostela Valley Province, registered in his
name,[8] to Robert, which the latter intended to use as a lottery outlet. The lease contract had a term of
five (5) years and contained a stipulation that any case arising from the same shall be filed in the courts
of Davao City only. Gilbert claimed that Robert and Gil failed to pay their rental arrears to him and refused
to vacate the subject property, despite repeated demands, thus, the first ejectment complaint.

In their defense, Robert and Gil posited that the aforementioned lease contract was simulated and, hence,
not binding on the parties.

The MCTC-Nabunturan-Mawab Ruling in Civil Case No. 821

In a Decision dated January 24, 2006 (January 24, 2006 Decision), the MCTC-Nabunturan-Mawab
dismissed the first ejectment complaint, holding that the undated lease contract was a relatively simulated
contract and, as such, non-binding. This conclusion was based on its finding that there was no effort on
Gilbert's part to collect any rental payments from Robert and Gil for more or less six (6) years and that it
was only upon the filing of the said complaint that Gilbert wanted them ejected. Accordingly, it sustained
Robert and Gil's assertion that the undated lease contract was a mere formality so as to comply with the
requirement of the Philippine Charity Sweepstakes Office (PCSO) in order to install a lottery outlet.

Separately, the MCTC-Nabunturan-Mawab opined that granting arguendo that the lease contract is not
simulated, the dismissal of Gilbert's complaint was still in order on the ground of improper venue given
that the parties expressly agreed that any dispute arising from the same shall be brought before the
courts of Davao City only, to the exclusion of other courts, which does not obtain in this case.

Dissatisfied, Gilbert moved for reconsideration which was, however, denied in an Order dated March 20,
2006, considering that it was a prohibited pleading under the Revised Rules on Summary Procedure.

Page 65 of 92
On August 8, 2006, an Entry of Final Judgment[16] was issued certifying that the MCTC-Nabunturan-
Mawab's January 24, 2006 Decision had already become final and executory on March 20, 2006.

The MTCC-Davao City Proceedings in Civil Case No. 19,590-B-06

The foregoing notwithstanding, on November 13, 2006, Gilbert, together with his spouse Analyn dela
Llana (respondents), filed a second complaint[17] for unlawful detainer, damages, and attorney's fees
(second ejectment complaint) against Robert and his wife Nenita de Leon (petitioners), also grounded on
petitioners' failure to pay rent under the undated lease contract, but this time, before the Municipal Trial
Court in Cities of Davao City, Branch 2 (MTCC-Davao City), docketed as Civil Case No. 19,590-B-06. In
the Verification and Certification of Non-Forum Shopping thereof, respondents disclosed that a previous
ejectment complaint had been filed, but was, however, dismissed due to improper venue.

In their Answer, petitioners raised the defense of res judicata, particularly averring that the second
ejectment complaint should be dismissed given that it was already barred by prior judgment, i.e., by the
MCTC-Nabunturan-Mawab's January 24, 2006 Decision in Civil Case No. 821, which had already attained
finality.[20] In this relation, petitioners further claimed that respondents willfully made false declarations
in the Verification and Certification of Non-Forum Shopping of said pleading regarding the status of the
pending and related cases at the time of its filing.

In a Decision dated July 26, 2007, the MTCC-Davao City ruled in favor of respondents, and thereby
ordered petitioners to: (a) vacate the subject property and turn over its possession to respondents; (b)
pay rental arrears in the amount of P8,000.00 for the period covering January 1999 up to January 2007;
(c) pay monthly rental in the amount of P100.00 per month beginning February 2007 until they have
vacated the subject property; and (d) pay costs of suit.

Without ruling on the issue of whether or not the second ejectment complaint was barred by prior
judgment, the MTCC-Davao City found that the undated lease contract was not a simulated contract for
the reason that the requisites for simulation have not been shown in the case at bar. Nevertheless, it
opined that even assuming that said contract was simulated, Robert's actions showed that he clearly
recognized Gilbert as the administrator of the subject property. Further, it debunked petitioners' claim of
ownership over their occupied portion, considering that title over the subject property was registered
under Gilbert's name which thus could not be subjected to a collateral attack. Lastly, it ruled that even
without the contract of lease, the complaint could still prosper given that petitioners' occupancy may be
regarded as one of tolerance, and, thus, their occupation becomes unlawful upon demand.

Aggrieved, petitioners appealed to the RTC, docketed as Civil Case No. 32,003-07.

The RTC Ruling

In a Decision[25] dated June 11, 2009, the RTC reversed and set aside the MTCC-Davao City ruling, and
ordered the dismissal of the second ejectment complaint since the venue was improperly laid. It held that
venue for real actions does not admit of any exceptions, stating that the proper venue for forcible entry
and unlawful detainer cases is the municipal trial court of the municipality or city where said property is
situated, which in this case, should be the Municipal Trial Court of Nabunturan, Compostela Valley
Province.[26] Relative thereto, it enunciated that the parties' stipulation on venue as found in their
undated lease contract could not be enforced, considering that the cause of action herein is not one for
breach of contract or specific performance, but for unlawful detainer whose venue was specifically
provided for by the Rules of Civil Procedure.

Respondents moved for reconsideration which was, however, denied in an Order dated March 1, 2010.
Hence, they elevated their case before the CA, docketed as CA-G.R. SP No. 03523-MIN.

The CA Ruling

In a Decision dated July 31, 2013, the CA reversed and set aside the RTC issuances and, consequently,
reinstated the MTCC-Davao City's Decision. With its discussion solely focused on the propriety of the
second ejectment complaint's venue, i.e., whether or not it was properly laid before the MTCC-Davao City,

Page 66 of 92
the CA categorically ruled that in unlawful detainer cases, venue may be validly stipulated by the
contracting parties.

Unconvinced, petitioners filed a motion for reconsideration which the CA, however, denied in a Resolution
dated March 31, 2014, hence, this petition.

The Issue Before the Court

The core issue to be resolved is whether or not the principle of res judicata applies that is, whether or not
the second ejectment complaint was barred by prior judgment, i.e., by the MCTC-Nabunturan-Mawab's
January 24, 2006 Decision in Civil Case No. 821.

The Court's Ruling

Res judicata (meaning, a "matter adjudged") is a fundamental principle of law which precludes parties
from re-litigating issues actually litigated and determined by a prior and final judgment. It means that "a
final judgment or decree on the merits by a court of competent jurisdiction is conclusive of the rights of
the parties or their privies in all later suits on all points and matters determined in the former suit."

Notably, res judicata has two (2) concepts. The first is "bar by prior judgment" in which the judgment or
decree of a court of competent jurisdiction on the merits concludes the litigation between the parties, as
well as their privies, and constitutes a bar to a new action or suit involving the same cause of action
before the same or other tribunal, while the second concept is "conclusiveness of judgment" in which any
right, fact or matter in issue directly adjudicated or necessarily involved in the determination of an action
before a competent court in which judgment is rendered on the merits is conclusively settled by the
judgment therein and cannot again be litigated between the parties and their privies whether or not the
claim, demand, purpose, or subject matter of the two actions is the same.

There is a bar by prior judgment where there is identity of parties, subject matter, and causes of action
between the first case where the judgment was rendered and the second case that is sought to be barred.
There is conclusiveness of judgment, on the other hand, where there is identity of parties in the first and
second cases, but no identity of causes of action.

Tested against the foregoing, the Court rules that res judicata, in the concept of bar by prior judgment,
applies in this case.

As the records would show, the MCTC-Nabunturan-Mawab, through its January 24, 2006 Decision in Civil
Case No. 821, dismissed the first ejectment complaint filed by Gilbert against Robert and Gil for the
reason that the undated lease contract entered into by Gilbert and Robert was relatively simulated
(properly speaking, should be absolutely simulated as will be explained later) and, hence, supposedly non-
binding on the parties. To explicate, this pronouncement was made in reference to the cause of action
raised in the first ejectment complaint that is, the alleged breach of the same lease contract due to non-
payment of rent. Therefore, to find that the said contract was simulated and thereby non-binding negates
the cause of action raised in the said complaint, hence, resulting in its dismissal.

By resolving the substantive issue therein that is, the right of Gilbert to recover the de facto possession of
the subject property arising from Robert's breach of the undated lease contract the MCTC-Nabunturan-
Mawab's January 24, 2006 Decision should be properly considered as a judgment on the merits. In Allied
Banking Corporation v. CA, citing Escarte v. Office of the President, the Court defined "judgment on the
merits" as follows:

As a technical legal term, 'merits' has been defined in law dictionaries as a matter of substance in law, as
distinguished from matter of form, and as the real or substantial grounds of action or defense, in
contradistinction to some technical or collateral matter raised in the course of the suit. A judgment is upon
the merits when it amounts to a declaration of the law to the respective rights and duties of the parties,
based upon the ultimate fact or state of facts disclosed by the pleadings and evidence, and upon which the
right of recovery depends, irrespective of formal, technical or dilatory objectives or contentions.

Page 67 of 92
Simply stated, a judgment on the merits is one wherein there is an unequivocal determination of the
rights and obligations of the parties with respect to the causes of action and the subject matter,[42] such
as the MCTC-Nabunturan-Mawab's January 24, 2006 Decision which had resolved the substantive issue in
Civil Case No. 821 as above-explained. Contrary to respondents' stance, said Decision was not premised
on a mere technical ground, particularly, on improper venue. This is evinced by the qualifier "granting
arguendo" which opens the discussion thereof, to show that the first ejectment complaint would, according
to the MCTC-Nabunturan-Mawab, have been dismissed on improper venue notwithstanding the undated
lease contract's simulated character.

Importantly, the MCTC-Nabunturan-Mawab's January 24, 2006 Decision in Civil Case No. 821 had already
attained finality on March 20, 2006 as per an Entry of Final Judgment[45] dated August 8, 2006.
Thereafter, or on November 13, 2006, Gilbert (now joined by his wife, Analyn) filed a second ejectment
complaint before the MTCC-Davao City, docketed as Civil Case No. 19,590-B-06, again against the same
party, Robert (now joined by his wife, Nenita), involving the same subject matter, i.e., the leased portion
of Gilbert's 541 square-meter property situated in Poblacion, Nabunturan, Compostela Valley Province,
and the same cause of action, i.e., Robert's (and Gil's, now Analyn's) ejectment thereat due to Robert's
alleged breach of their undated lease contract for non-payment of rentals.

With the identity of the parties, subject matter, and cause of action between Civil Case Nos. 821 and
19,590-B-06, it cannot thus be seriously doubted that the final and executory judgment in the first case
had already barred the resolution of the second. Res judicata, which, to note, was raised by petitioners at
the earliest opportunity, i.e., in their answer to the second ejectment complaint, but was ignored by the
MTCC-Davao City, the RTC, and the CA, therefore obtains in their favor. Consequently, the instant petition
should be granted.

The Court must, however, clarify that res judicata only applies in reference to the cause of action raised
by Gilbert in both ejectment complaints that is, his entitlement to the de facto possession of the subject
property based on breach of contract (due to non-payment of rent), which was resolved to be simulated
and, hence, non-binding. Accordingly, any subsequent ejectment complaint raising a different cause of
action say for instance, recovery of de facto possession grounded on tolerance (which was, by the way,
not duly raised by the respondents in this case and, therefore, improperly taken cognizance of the MTCC-
Davao City in its ruling) is not barred by the Court's current disposition. In effect, the dismissal of the
second ejectment complaint, by virtue of this Decision, is without prejudice to the filing of another
ejectment complaint grounded on a different cause of action, albeit involving the same parties and subject
matter.

As a final point of concern, the Court deems it apt to correct the MCTC-Nabunturan-Mawab's
characterization of the simulated character of the undated lease contract, which, to note, stands as a
mere error in terminology that would not negate the granting of the present petition on the ground of res
judicata. Properly speaking, the contract, as gathered from the MCTC-Nabunturan-Mawab's ratiocination,
should be considered as an absolutely and not a relatively simulated contract. The distinction between the
two was discussed in Heirs of Intac v. CA, viz.:

Articles 1345 and 1346 of the Civil Code provide:


Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties
do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement.
If the parties state a false cause in the contract to conceal their real agreement, the contract is only
relatively simulated and the parties are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the content or terms of the contract,
the agreement is absolutely binding and enforceable between the parties and their successors in interest.

In absolute simulation, there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. "The main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any way alter the juridical situation

Page 68 of 92
of the parties." "As a result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract." (Emphasis supplied)

The relevant portions of the MCTC-Nabunturan-Mawab's January 24, 2006 Decision read:

On the issue that the contract is simulated, the [MCTC-Nabunturan-Mawab] affords [Robert's] counsel the
benefit of doubt. The Court submits that the contract is relatively simulated for cogent reasons:

It tickles the [MCTC-Nabunturan-Mawab's] imagination why, despite the stark fact that [Robert and Gil
have] failed to pay the agreed monthly rentals for more or less six (6) years, it was only upon the filing of
the instant complaint that [Gilbert] wanted [Robert and Gil] ejected. In spite of the undeniable fact that
[Robert and Gil have] failed to pay their monthly rentals, there was not any effort exerted by [Gilbert] to
collect the same prior to the filing of the action.

Failure of other parties to demand performance of the obligation of the other for unreasonable length of
time renders the contract ineffective x x x.

Now the [MCTC-Nabunturan-Mawab] entertains the thought that the filing of the case at bench on March
7, 2005 was just a mere leverage or shall we say a cushion in view of [Fely de Leon's] filing of the
aforesaid civil case against [Gilbert] on June 28, 2004.

In a simulated contract, the parties do not intend to be bound by the same x x x.

The [MCTC-Nabunturan-Mawab] is now inclined to toe the line of [Robert and Gil] that the execution of
the contract was just a mere formality with the requirement of the PCSO for one to install or put up a
lottery outlet.

As may be gleaned from the foregoing, it is quite apparent that the MCTC-Nabunturan-Mawab actually
intended to mean that the undated lease contract subject of this case was absolutely simulated. Its
pronouncement that the parties did not intend to be bound by their agreement is simply inconsistent with
relative simulation. Note that regardless of the correctness of its ruling on the contract's simulated
character, the fact of the matter is that the same had already attained finality. As a result, the MCTC-
Nabunturan-Mawab's January 24, 2006 Decision bars any other action involving the same parties, subject
matter, and cause of action, such as the second ejectment complaint.

Further, with the undated lease contract definitely settled as absolutely simulated, and hence, void, there
can be no invocation of the exclusive venue stipulation on the part of either party; thus, the general rule
on the filing of real actions in the court where the property is situated as in the filing of the first ejectment
complaint before the MCTC-Nabunturan-Mawab located in Compostela Valley same as the subject property
of this case prevails.

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2013 and the Resolution dated March
31, 2014 of the Court of Appeals in CA-G.R. SP No. 03523-MIN are hereby REVERSED and SET ASIDE.
The ejectment complaint of respondents-spouses Gilbert and Analyn dela Llana in Civil Case No. 19,590-
B-06 before the Municipal Trial Court in Cities of Davao City, Branch 2 is DISMISSED without prejudice as
afore-discussed.

SO ORDERED.
x--------------------------------------------------------------------------------------------------------------------x

Page 69 of 92
G.R. No. 165748 September 14, 2011
HEIRS OF POLICRONIO M. URETA, SR., namely: CONRADO B. URETA, MACARIO B. URETA,
GLORIA URETA-GONZALES, ROMEO B. URETA, RITA URETA-SOLANO, NENA URETA-TONGCUA,
VENANCIO B. URETA, LILIA URETA-TAYCO, and HEIRS OF POLICRONIO B. URETA, JR., namely:
MIGUEL T. URETA, RAMON POLICRONIO T. URETA, EMMANUEL T. URETA, and BERNADETTE T.
URETA, Petitioners, vs.
HEIRS OF LIBERATO M. URETA, namely: TERESA F. URETA, AMPARO URETA-CASTILLO, IGNACIO
F. URETA, SR., EMIRITO F. URETA, WILKIE F. URETA, LIBERATO F. URETA, JR., RAY F. URETA,
ZALDY F. URETA, and MILA JEAN URETA CIPRIANO; HEIRS OF PRUDENCIA URETA PARADERO,
namely: WILLIAM U. PARADERO, WARLITO U. PARADERO, CARMENCITA P. PERLAS, CRISTINA
P. CORDOVA, EDNA P. GALLARDO, LETICIA P. REYES; NARCISO M. URETA; VICENTE M. URETA;
HEIRS OF FRANCISCO M. URETA, namely: EDITA T. URETA-REYES and LOLLIE T. URETA-
VILLARUEL; ROQUE M. URETA; ADELA URETA-GONZALES; HEIRS OF INOCENCIO M. URETA,
namely: BENILDA V. URETA, ALFONSO V. URETA II, DICK RICARDO V. URETA, and ENRIQUE V.
URETA; MERLINDA U. RIVERA; JORGE URETA; ANDRES URETA, WENEFREDA U. TARAN; and
BENEDICT URETA, Respondents.
x - - - - - - - - - - - - - - - -x
G.R. No. 165930
HEIRS OF LIBERATO M. URETA, namely: TERESA F. URETA, AMPARO URETA-CASTILLO, IGNACIO
F. URETA, SR., EMIRITO F. URETA, WILKIE F. URETA, LIBERATO F. URETA, JR., RAY F. URETA,
ZALDY F. URETA, and MILA JEAN URETA CIPRIANO; HEIRS OF PRUDENCIA URETA PARADERO,
namely: WILLIAM U. PARADERO, WARLITO U. PARADERO, CARMENCITA P. PERLAS, CRISTINA
P. CORDOVA, EDNA P. GALLARDO, LETICIA P. REYES; NARCISO M. URETA; VICENTE M. URETA;
HEIRS OF FRANCISCO M. URETA, namely: EDITA T. URETA-REYES and LOLLIE T. URETA-
VILLARUEL; ROQUE M. URETA; ADELA URETA-GONZALES; HEIRS OF INOCENCIO M. URETA,
namely: BENILDA V. URETA, ALFONSO V. URETA II, DICK RICARDO V. URETA, and ENRIQUE V.
URETA; MERLINDA U. RIVERA; JORGE URETA; ANDRES URETA, WENEFREDA U. TARAN; and
BENEDICT URETA,Petitioners, vs.
HEIRS OF POLICRONIO M. URETA, SR., namely: CONRADO B. URETA, MACARIO B. URETA,
GLORIA URETA-GONZALES, ROMEO B. URETA, RITA URETA-SOLANO, NENA URETA-TONGCUA,
VENANCIO B. URETA, LILIA URETA-TAYCO, and HEIRS OF POLICRONIO B. URETA, JR., namely:
MIGUEL T. URETA, RAMON POLICRONIO T. URETA, EMMANUEL T. URETA, and BERNADETTE T.
URETA, Respondents.
DECISION
MENDOZA, J.:

These consolidated petitions for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure assail the April 20, 2004 Decision1 of the Court of Appeals (CA), and its October 14, 2004
Resolution in C.A.-G.R. CV No. 71399, which affirmed with modification the April 26, 2001 Decision3 of the
Regional Trial Court, Branch 9, Kalibo, Aklan (RTC) in Civil Case No. 5026.

The Facts

In his lifetime, Alfonso Ureta (Alfonso) begot 14 children, namely, Policronio, Liberato, Narciso, Prudencia,
Vicente, Francisco, Inocensio, Roque, Adela, Wenefreda, Merlinda, Benedicto, Jorge, and Andres. The
children of Policronio (Heirs of Policronio), are opposed to the rest of Alfonso’s children and their
descendants (Heirs of Alfonso).

Alfonso was financially well-off during his lifetime. He owned several fishpens, a fishpond, a sari-sari store,
a passenger jeep, and was engaged in the buying and selling of copra. Policronio, the eldest, was the only
child of Alfonso who failed to finish schooling and instead worked on his father’s lands.

Sometime in October 1969, Alfonso and four of his children, namely, Policronio, Liberato, Prudencia, and
Francisco, met at the house of Liberato. Francisco, who was then a municipal judge, suggested that in
order to reduce the inheritance taxes, their father should make it appear that he had sold some of his
lands to his children. Accordingly, Alfonso executed four (4) Deeds of Sale covering several parcels of land
in favor of Policronio,4 Liberato,5 Prudencia,6 and his common-law wife, Valeriana Dela Cruz.7 The Deed
of Sale executed on October 25, 1969, in favor of Policronio, covered six parcels of land, which are the
properties in dispute in this case.

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Since the sales were only made for taxation purposes and no monetary consideration was given, Alfonso
continued to own, possess and enjoy the lands and their produce.

When Alfonso died on October 11, 1972, Liberato acted as the administrator of his father’s estate. He was
later succeeded by his sister Prudencia, and then by her daughter, Carmencita Perlas. Except for a portion
of parcel 5, the rest of the parcels transferred to Policronio were tenanted by the Fernandez Family. These
tenants never turned over the produce of the lands to Policronio or any of his heirs, but to Alfonso and,
later, to the administrators of his estate.

Policronio died on November 22, 1974. Except for the said portion of parcel 5, neither Policronio nor his
heirs ever took possession of the subject lands.

On April 19, 1989, Alfonso’s heirs executed a Deed of Extra-Judicial Partition,8 which included all the lands
that were covered by the four (4) deeds of sale that were previously executed by Alfonso for taxation
purposes. Conrado, Policronio’s eldest son, representing the Heirs of Policronio, signed the Deed of Extra-
Judicial Partition in behalf of his co-heirs.

After their father’s death, the Heirs of Policronio found tax declarations in his name covering the six
parcels of land. On June 15, 1995, they obtained a copy of the Deed of Sale executed on October 25,
1969 by Alfonso in favor of Policronio.

Not long after, on July 30, 1995, the Heirs of Policronio allegedly learned about the Deed of Extra-Judicial
Partition involving Alfonso’s estate when it was published in the July 19, 1995 issue of the Aklan Reporter.

Believing that the six parcels of land belonged to their late father, and as such, excluded from the Deed of
Extra-Judicial Partition, the Heirs of Policronio sought to amicably settle the matter with the Heirs of
Alfonso. Earnest efforts proving futile, the Heirs of Policronio filed a Complaint for Declaration of
Ownership, Recovery of Possession, Annulment of Documents, Partition, and Damages9 against the Heirs
of Alfonso before the RTC on November 17, 1995 where the following issues were submitted: (1) whether
or not the Deed of Sale was valid; (2) whether or not the Deed of Extra-Judicial Partition was valid; and
(3) who between the parties was entitled to damages.

The Ruling of the RTC

On April 26, 2001, the RTC dismissed the Complaint of the Heirs of Policronio and ruled in favor of the
Heirs of Alfonso in a decision, the dispositive portion of which reads:

WHEREFORE, the Court finds that the preponderance of evidence tilts in favor of the defendants, hence
the instant case is hereby DISMISSED.

The counterclaims are likewise DISMISSED. With costs against plaintiffs.

SO ORDERED.

The RTC found that the Heirs of Alfonso clearly established that the Deed of Sale was null and void. It held
that the Heirs of Policronio failed to rebut the evidence of the Heirs of Alfonso, which proved that the Deed
of Sale in the possession of the former was one of the four (4) Deeds of Sale executed by Alfonso in favor
of his 3 children and second wife for taxation purposes; that although tax declarations were issued in the
name of Policronio, he or his heirs never took possession of the subject lands except a portion of parcel 5;
and that all the produce were turned over by the tenants to Alfonso and the administrators of his estate
and never to Policronio or his heirs.

The RTC further found that there was no money involved in the sale. Even granting that there was, as
claimed by the Heirs of Policronio, ₱2,000.00 for six parcels of land, the amount was grossly inadequate.
It was also noted that the aggregate area of the subject lands was more than double the average share
adjudicated to each of the other children in the Deed of Extra-Judicial Partition; that the siblings of
Policronio were the ones who shared in the produce of the land; and that the Heirs of Policronio only paid
real estate taxes in 1996 and 1997. The RTC opined that Policronio must have been aware that the

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transfer was merely for taxation purposes because he did not subsequently take possession of the
properties even after the death of his father.

The Deed of Extra-Judicial Partition, on the other hand, was declared valid by the RTC as all the heirs of
Alfonso were represented and received equal shares and all the requirements of a valid extra-judicial
partition were met. The RTC considered Conrado’s claim that he did not understand the full significance of
his signature when he signed in behalf of his co-heirs, as a gratutitous assertion. The RTC was of the view
that when he admitted to have signed all the pages and personally appeared before the notary public, he
was presumed to have understood their contents.

Lastly, neither party was entitled to damages. The Heirs of Alfonso failed to present testimony to serve as
factual basis for moral damages, no document was presented to prove actual damages, and the Heirs of
Policronio were found to have filed the case in good faith.

The Ruling of the CA

Aggrieved, the Heirs of Policronio appealed before the CA, which rendered a decision on April 20, 2004,
the dispositive portion of which reads as follows:

WHEREFORE, the appeal is PARTIALLY GRANTED. The appealed Decision, dated 26 April 2001, rendered
by Hon. Judge Dean R. Telan of the Regional Trial Court of Kalibo, Aklan, Branch 9, is hereby AFFIRMED
with MODIFICATION:

1.) The Deed of Sale in favor of Policronio Ureta, Sr., dated 25 October 1969, covering six (6) parcels of
land is hereby declared VOID for being ABSOLUTELY SIMULATED;

2.) The Deed of Extra-Judicial Partition, dated 19 April 1989, is ANNULLED;

3.) The claim for actual and exemplary damages are DISMISSED for lack of factual and legal basis.

The case is hereby REMANDED to the court of origin for the proper partition of ALFONSO URETA’S Estate
in accordance with Rule 69 of the 1997 Rules of Civil Procedure. No costs at this instance.

SO ORDERED.

The CA affirmed the finding of the RTC that the Deed of Sale was void. It found the Deed of Sale to be
absolutely simulated as the parties did not intend to be legally bound by it. As such, it produced no legal
effects and did not alter the juridical situation of the parties. The CA also noted that Alfonso continued to
exercise all the rights of an owner even after the execution of the Deed of Sale, as it was undisputed that
he remained in possession of the subject parcels of land and enjoyed their produce until his death.

Policronio, on the other hand, never exercised any rights pertaining to an owner over the subject lands
from the time they were sold to him up until his death. He never took or attempted to take possession of
the land even after his father’s death, never demanded delivery of the produce from the tenants, and
never paid realty taxes on the properties. It was also noted that Policronio never disclosed the existence
of the Deed of Sale to his children, as they were, in fact, surprised to discover its existence. The CA, thus,
concluded that Policronio must have been aware that the transfer was only made for taxation purposes.

The testimony of Amparo Castillo, as to the circumstances surrounding the actual arrangement and
agreement between the parties prior to the execution of the four (4) Deeds of Sale, was found by the CA
to be unrebutted. The RTC’s assessment of the credibility of her testimony was accorded respect, and the
intention of the parties was given the primary consideration in determining the true nature of the contract.

Contrary to the finding of the RTC though, the CA annulled the Deed of Extra-Judicial Partition due to the
incapacity of one of the parties to give his consent to the contract. It held that before Conrado could
validly bind his co-heirs to the Deed of Extra-Judicial Partition, it was necessary that he be clothed with
the proper authority. The CA ruled that a special power of attorney was required under Article 1878 (5)
and (15) of the Civil Code. Without a special power of attorney, it was held that Conrado lacked the legal

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capactiy to give the consent of his co-heirs, thus, rendering the Deed of Extra-Judicial Partition voidable
under Article 1390 (1) of the Civil Code.

As a consequence, the CA ordered the remand of the case to the RTC for the proper partition of the
estate, with the option that the parties may still voluntarily effect the partition by executing another
agreement or by adopting the assailed Deed of Partition with the RTC’s approval in either case. Otherwise,
the RTC may proceed with the compulsory partition of the estate in accordance with the Rules.

With regard to the claim for damages, the CA agreed with the RTC and dismissed the claim for actual and
compensatory damages for lack of factual and legal basis.

Both parties filed their respective Motions for Reconsideration, which were denied by the CA for lack of
merit in a Resolution dated October 14, 2004.

In their Motion for Reconsideration, the Heirs of Policronio argued that the RTC violated the best evidence
rule in giving credence to the testimony of Amparo Castillo with regard to the simulation of the Deed of
Sale, and that prescription had set in precluding any question on the validity of the contract.

The CA held that the oral testimony was admissible under Rule 130, Section 9 (b) and (c), which provides
that evidence aliunde may be allowed to explain the terms of the written agreement if the same failed to
express the true intent and agreement of the parties thereto, or when the validity of the written
agreement was put in issue. Furthermore, the CA found that the Heirs of Policronio waived their right to
object to evidence aliunde having failed to do so during trial and for raising such only for the first time on
appeal. With regard to prescription, the CA ruled that the action or defense for the declaration of the
inexistence of a contract did not prescribe under Article 1410 of the Civil Code.

On the other hand, the Heirs of Alfonso argued that the Deed of Extra-Judicial Partition should not have
been annulled, and instead the preterited heirs should be given their share. The CA reiterated that
Conrado’s lack of capacity to give his co-heirs’ consent to the extra-judicial settlement rendered the same
voidable.

Hence, the present Petitions for Review on Certiorari.

The Issues

The issues presented for resolution by the Heirs of Policronio in G.R. No. 165748 are as follows:

I. Whether the Court of Appeals is correct in ruling that the Deed of Absolute Sale of 25 October 1969 is
void for being absolutely fictitious and in relation therewith, may parol evidence be entertained to thwart
its binding effect after the parties have both died?

Assuming that indeed the said document is simulated, whether or not the parties thereto including their
successors in interest are estopped to question its validity, they being bound by Articles 1412 and 1421 of
the Civil Code?

II. Whether prescription applies to bar any question respecting the validity of the Deed of Absolute Sale
dated 25 October 1969? Whether prescription applies to bar any collateral attack on the validity of the
deed of absolute sale executed 21 years earlier?

III. Whether the Court of Appeals correctly ruled in nullifying the Deed of Extrajudicial Partition because
Conrado Ureta signed the same without the written authority from his siblings in contravention of Article
1878 in relation to Article 1390 of the Civil Code and in relation therewith, whether the defense of
ratification and/or preterition raised for the first time on appeal may be entertained?

The issues presented for resolution by the Heirs of Alfonso in G.R. No. 165930 are as follows:

I. Whether or not grave error was committed by the Trial Court and Court of Appeals in declaring the Deed
of Sale of subject properties as absolutely simulated and null and void thru parol evidence based on their

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factual findings as to its fictitious nature, and there being waiver of any objection based on violation of the
parol evidence rule.

II. Whether or not the Court of Appeals was correct in holding that Conrado Ureta’s lack of capacity to give
his co-heirs’ consent to the Extra-Judicial Partition rendered the same voidable.

III. Granting arguendo that Conrado Ureta was not authorized to represent his co-heirs and there was no
ratification, whether or not the Court of Appeals was correct in ordering the remand of the case to the
Regional Trial Court for partition of the estate of Alfonso Ureta.

IV. Since the sale in favor of Policronio Ureta Sr. was null and void ab initio, the properties covered therein
formed part of the estate of the late Alfonso Ureta and was correctly included in the Deed of Extrajudicial
Partition even if no prior action for nullification of the sale was filed by the heirs of Liberato Ureta.

V. Whether or not the heirs of Policronio Ureta Sr. can claim that estoppel based on Article 1412 of the
Civil Code as well as the issue of prescription can still be raised on appeal.

These various contentions revolve around two major issues, to wit: (1) whether the Deed of Sale is valid,
and (2) whether the Deed of Extra-Judicial Partition is valid. Thus, the assigned errors shall be discussed
jointly and in seriatim.

The Ruling of the Court


Validity of the Deed of Sale

Two veritable legal presumptions bear on the validity of the Deed of Sale: (1) that there was sufficient
consideration for the contract; and (2) that it was the result of a fair and regular private transaction. If
shown to hold, these presumptions infer prima facie the transaction’s validity, except that it must yield to
the evidence adduced.

As will be discussed below, the evidence overcomes these two presumptions.

Absolute Simulation

First, the Deed of Sale was not the result of a fair and regular private transaction because it was
absolutely simulated.

The Heirs of Policronio argued that the land had been validly sold to Policronio as the Deed of Sale
contained all the essential elements of a valid contract of sale, by virtue of which, the subject properties
were transferred in his name as evidenced by the tax declaration. There being no invalidation prior to the
execution of the Deed of Extra-Judicial Partition, the probity and integrity of the Deed of Sale should
remain undiminished and accorded respect as it was a duly notarized public instrument.

The Heirs of Policronio posited that his loyal services to his father and his being the eldest among Alfonso’s
children, might have prompted the old man to sell the subject lands to him at a very low price as an
advance inheritance. They explained that Policronio’s failure to take possession of the subject lands and to
claim their produce manifests a Filipino family practice wherein a child would take possession and enjoy
the fruits of the land sold by a parent only after the latter’s death. Policronio simply treated the lands the
same way his father Alfonso treated them - where his children enjoyed usufructuary rights over the
properties, as opposed to appropriating them exclusively to himself. They contended that Policronio’s
failure to take actual possession of the lands did not prove that he was not the owner as he was merely
exercising his right to dispose of them. They argue that it was an error on the part of the CA to conclude
that ownership by Policronio was not established by his failure to possess the properties sold. Instead,
emphasis should be made on the fact that the tax declarations, being indicia of possession, were in
Policronio’s name.

They further argued that the Heirs of Alfonso failed to appreciate that the Deed of Sale was clear enough
to convey the subject parcels of land. Citing jurisprudence, they contend that there is a presumption that
an instrument sets out the true agreement of the parties thereto and that it was executed for valuable
consideration,11 and where there is no doubt as to the intention of the parties to a contract, the literal

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meaning of the stipulation shall control.12 Nowhere in the Deed of Sale is it indicated that the transfer
was only for taxation purposes. On the contrary, the document clearly indicates that the lands were sold.
Therefore, they averred that the literal meaning of the stipulation should control.

The Court disagrees.

The Court finds no cogent reason to deviate from the finding of the CA that the Deed of Sale is null and
void for being absolutely simulated. The Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties
do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement.

Valerio v. Refresca13 is instructive on the matter of simulation of contracts:

In absolute simulation, there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract
is not really desired or intended to produce legal effect or in any way alter the juridical situation of the
parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from
each other what they may have given under the contract. However, if the parties state a false cause in the
contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound
by their real agreement. Hence, where the essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors in interest.

Lacking, therefore, in an absolutely simulated contract is consent which is essential to a valid and
enforceable contract.14 Thus, where a person, in order to place his property beyond the reach of his
creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title and
control of the property; hence, the deed of transfer is but a sham.15 Similarly, in this case, Alfonso
simulated a transfer to Policronio purely for taxation purposes, without intending to transfer ownership
over the subject lands.

The primary consideration in determining the true nature of a contract is the intention of the parties. If the
words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such
intention is determined not only from the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties.16 The true intention of the parties in this case was
sufficiently proven by the Heirs of Alfonso.

The Heirs of Alfonso established by a preponderance of evidence17 that the Deed of Sale was one of the
four (4) absolutely simulated Deeds of Sale which involved no actual monetary consideration, executed by
Alfonso in favor of his children, Policronio, Liberato, and Prudencia, and his second wife, Valeriana, for
taxation purposes.

Amparo Castillo, the daughter of Liberato, testified, to wit:

Q: Now sometime in the year 1969 can you recall if your grandfather and his children [met] in your
house?
A: Yes sir, that was sometime in October 1969 when they [met] in our house, my grandfather, my late
uncle Policronio Ureta, my late uncle Liberato Ureta, my uncle Francisco Ureta, and then my auntie
Prudencia Ureta they talk[ed] about, that idea came from my uncle Francisco Ureta to [sell] some parcels
of land to his children to lessen the inheritance tax whatever happened to my grandfather, actually no
money involved in this sale.

Q: Now you said there was that agreement, verbal agreement. [W]here were you when this Alfonso Ureta
and his children gather[ed] in your house?
A: I was near them in fact I heard everything they were talking [about]

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Q: Were there documents of sale executed by Alfonso Ureta in furtherance of their verbal agreement?
A: Yes sir.

Q: To whom in particular did your grandfather Alfonso Ureta execute this deed of sale without money
consideration according to you?
A: To my uncle Policronio Ureta and to Prudencia Ureta Panadero.

Q: And who else?


A: To Valeriana dela Cruz.

Q: How about your father?


A: He has.

The other Deeds of Sale executed by Alfonso in favor of his children Prudencia and Liberato, and second
wife Valeriana, all bearing the same date of execution, were duly presented in evidence by the Heirs of
Alfonso, and were uncontested by the Heirs of Policronio. The lands which were the subject of these Deeds
of Sale were in fact included in the Deed of Extra-Judicial Partition executed by all the heirs of Alfonso,
where it was expressly stipulated:

That the above-named Amparo U. Castillo, Prudencia U. Paradero, Conrado B. Ureta and Merlinda U.
Rivera do hereby recognize and acknowledge as a fact that the properties presently declared in their
respective names or in the names of their respective parents and are included in the foregoing instrument
are actually the properties of the deceased Alfonso Ureta and were transferred only for the purpose of
effective administration and development and convenience in the payment of taxes and, therefore, all
instruments conveying or affecting the transfer of said properties are null and void from the beginning.19

As found by the CA, Alfonso continued to exercise all the rights of an owner even after the execution of
the Deeds of Sale. It was undisputed that Alfonso remained in possession of the subject lands and enjoyed
their produce until his death. No credence can be given to the contention of the Heirs of Policrionio that
their father did not take possession of the subject lands or enjoyed the fruits thereof in deference to a
Filipino family practice. Had this been true, Policronio should have taken possession of the subject lands
after his father died. On the contrary, it was admitted that neither Policronio nor his heirs ever took
possession of the subject lands from the time they were sold to him, and even after the death of both
Alfonso and Policronio.

It was also admitted by the Heirs of Policronio that the tenants of the subject lands never turned over the
produce of the properties to Policronio or his heirs but only to Alfonso and the administrators of his estate.
Neither was there a demand for their delivery to Policronio or his heirs. Neither did Policronio ever pay real
estate taxes on the properties, the only payment on record being those made by his heirs in 1996 and
1997 ten years after his death. In sum, Policronio never exercised any rights pertaining to an owner over
the subject lands.

The most protuberant index of simulation of contract is the complete absence of an attempt in any
manner on the part of the ostensible buyer to assert rights of ownership over the subject properties.
Policronio’s failure to take exclusive possession of the subject properties or, in the alternative, to collect
rentals, is contrary to the principle of ownership. Such failure is a clear badge of simulation that renders
the whole transaction void. 20

It is further telling that Policronio never disclosed the existence of the Deed of Sale to his children. This,
coupled with Policronio’s failure to exercise any rights pertaining to an owner of the subject lands, leads to
the conclusion that he was aware that the transfer was only made for taxation purposes and never
intended to bind the parties thereto.

As the above factual circumstances remain unrebutted by the Heirs of Policronio, the factual findings of
the RTC, which were affirmed by the CA, remain binding and conclusive upon this Court.21

It is clear that the parties did not intend to be bound at all, and as such, the Deed of Sale produced no
legal effects and did not alter the juridical situation of the parties. The Deed of Sale is, therefore, void for
being absolutely simulated pursuant to Article 1409 (2) of the Civil Code which provides:

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Art. 1409. The following contracts are inexistent and void from the beginning:

(2) Those which are absolutely simulated or fictitious;

For guidance, the following are the most fundamental characteristics of void or inexistent contracts:

1) As a general rule, they produce no legal effects whatsoever in accordance with the principle "quod
nullum est nullum producit effectum."

2) They are not susceptible of ratification.

3) The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced.

4) The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible.

5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose interests are not
directly affected.22

Since the Deed of Sale is void, the subject properties were properly included in the Deed of Extra-Judicial
Partition of the estate of Alfonso.

Absence and Inadequacy of Consideration

The second presumption is rebutted by the lack of consideration for the Deed of Sale.

In their Answer, the Heirs of Alfonso initially argued that the Deed of Sale was void for lack of
consideration, and even granting that there was consideration, such was inadequate. The Heirs of
Policronio counter that the defenses of absence or inadequacy of consideration are not grounds to render
a contract void.

The Heirs of Policronio contended that under Article 1470 of the Civil Code, gross inadequacy of the price
does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties
really intended a donation or some other act or contract. Citing jurisprudence, they argued that
inadequacy of monetary consideration does not render a conveyance inexistent as liberality may be
sufficient cause for a valid contract, whereas fraud or bad faith may render it either rescissible or voidable,
although valid until annulled.24 Thus, they argued that if the contract suffers from inadequate
consideration, it remains valid until annulled, and the remedy of rescission calls for judicial intervention,
which remedy the Heirs of Alfonso failed to take.

It is further argued that even granting that the sale of the subject lands for a consideration of ₱2,000.00
was inadequate, absent any evidence of the fair market value of the land at the time of its sale, it cannot
be concluded that the price at which it was sold was inadequate.25 As there is nothing in the records to
show that the Heirs of Alfonso supplied the true value of the land in 1969, the amount of ₱2,000.00 must
thus stand as its saleable value.

On this issue, the Court finds for the Heirs of Alfonso.

For lack of consideration, the Deed of Sale is once again found to be void. It states that Policronio paid,
and Alfonso received, the ₱2,000.00 purchase price on the date of the signing of the contract:

That I, ALFONSO F. URETA, x x x for and in consideration of the sum of TWO THOUSAND (₱2,000.00)
PESOS, Philippine Currency, to me in hand paid by POLICRONIO M. URETA, x x x, do hereby CEDE,
TRANSFER, and CONVEY, by way of absolute sale, x x x six (6) parcels of land x x x.26 [Emphasis ours]

Although, on its face, the Deed of Sale appears to be supported by valuable consideration, the RTC found
that there was no money involved in the sale.27 This finding was affirmed by the CA in ruling that the sale
is void for being absolutely simulated. Considering that there is no cogent reason to deviate from such
factual findings, they are binding on this Court.

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It is well-settled in a long line of cases that where a deed of sale states that the purchase price has been
paid but in fact has never been paid, the deed of sale is null and void for lack of consideration.28 Thus,
although the contract states that the purchase price of ₱2,000.00 was paid by Policronio to Alfonso for the
subject properties, it has been proven that such was never in fact paid as there was no money involved. It
must, therefore, follow that the Deed of Sale is void for lack of consideration.

Given that the Deed of Sale is void, it is unnecessary to discuss the issue on the inadequacy of
consideration.

Parol Evidence and Hearsay

The Heirs of Policronio aver that the rules on parol evidence and hearsay were violated by the CA in ruling
that the Deed of Sale was void.

They argued that based on the parol evidence rule, the Heirs of Alfonso and, specifically, Amparo Castillo,
were not in a position to prove the terms outside of the contract because they were not parties nor
successors-in-interest in the Deed of Sale in question. Thus, it is argued that the testimony of Amparo
Castillo violates the parol evidence rule.

Stemming from the presumption that the Heirs of Alfonso were not parties to the contract, it is also
argued that the parol evidence rule may not be properly invoked by either party in the litigation against
the other, where at least one of the parties to the suit is not a party or a privy of a party to the written
instrument in question and does not base a claim on the instrument or assert a right originating in the
instrument or the relation established thereby.

Their arguments are untenable.

The objection against the admission of any evidence must be made at the proper time, as soon as the
grounds therefor become reasonably apparent, and if not so made, it will be understood to have been
waived. In the case of testimonial evidence, the objection must be made when the objectionable question
is asked or after the answer is given if the objectionable features become apparent only by reason of such
answer.30 In this case, the Heirs of Policronio failed to timely object to the testimony of Amparo Castillo
and they are, thus, deemed to have waived the benefit of the parol evidence rule.

Granting that the Heirs of Policronio timely objected to the testimony of Amparo Castillo, their argument
would still fail.

Section 9 of Rule 130 of the Rules of Court provides:

Section 9. Evidence of written agreements. — When the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon and there can be, between the parties and
their successors in interest, no evidence of such terms other than the contents of the written agreement.

However, a party may present evidence to modify, explain or add to the terms of written agreement if he
puts in issue in his pleading:

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the
execution of the written agreement.

The term "agreement" includes wills.

[Emphasis ours]

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Paragraphs (b) and (c) are applicable in the case at bench.

The failure of the Deed of Sale to express the true intent and agreement of the parties was clearly put in
issue in the Answer of the Heirs of Alfonso to the Complaint. It was alleged that the Deed of Sale was only
made to lessen the payment of estate and inheritance taxes and not meant to transfer ownership. The
exception in paragraph (b) is allowed to enable the court to ascertain the true intent of the parties, and
once the intent is clear, it shall prevail over what the document appears to be on its face.32 As the true
intent of the parties was duly proven in the present case, it now prevails over what appears on the Deed
of Sale.

The validity of the Deed of Sale was also put in issue in the Answer, and was precisely one of the issues
submitted to the RTC for resolution.33 The operation of the parol evidence rule requires the existence of a
valid written agreement. It is, thus, not applicable in a proceeding where the validity of such agreement is
the fact in dispute, such as when a contract may be void for lack of consideration.34 Considering that the
Deed of Sale has been shown to be void for being absolutely simulated and for lack of consideration, the
Heirs of Alfonso are not precluded from presenting evidence to modify, explain or add to the terms of the
written agreement.

The Heirs of Policronio must be in a state of confusion in arguing that the Heirs of Alfonso may not
question the Deed of Sale for not being parties or successors-in-interest therein on the basis that the parol
evidence rule may not be properly invoked in a proceeding or litigation where at least one of the parties to
the suit is not a party or a privy of a party to the written instrument in question and does not base a claim
on the instrument or assert a right originating in the instrument or the relation established thereby. If
their argument was to be accepted, then the Heirs of Policronio would themselves be precluded from
invoking the parol evidence rule to exclude the evidence of the Heirs of Alfonso.

Indeed, the applicability of the parol evidence rule requires that the case be between parties and their
successors-in-interest.35 In this case, both the Heirs of Alfonso and the Heirs of Policronio are successors-
in-interest of the parties to the Deed of Sale as they claim rights under Alfonso and Policronio,
respectively. The parol evidence rule excluding evidence aliunde, however, still cannot apply because the
present case falls under two exceptions to the rule, as discussed above.

With respect to hearsay, the Heirs of Policronio contended that the rule on hearsay was violated when the
testimony of Amparo Castillo was given weight in proving that the subject lands were only sold for
taxation purposes as she was a person alien to the contract. Even granting that they did not object to her
testimony during trial, they argued that it should not have been appreciated by the CA because it had no
probative value whatsoever.

The Court disagrees.

It has indeed been held that hearsay evidence whether objected to or not cannot be given credence for
having no probative value. This principle, however, has been relaxed in cases where, in addition to the
failure to object to the admissibility of the subject evidence, there were other pieces of evidence presented
or there were other circumstances prevailing to support the fact in issue. In Top-Weld Manufacturing, Inc.
v. ECED S.A., this Court held:

Hearsay evidence alone may be insufficient to establish a fact in an injunction suit (Parker v. Furlong, 62
P. 490) but, when no objection is made thereto, it is, like any other evidence, to be considered and given
the importance it deserves. (Smith v. Delaware & Atlantic Telegraph & Telephone Co., 51 A 464).
Although we should warn of the undesirability of issuing judgments solely on the basis of the affidavits
submitted, where as here, said affidavits are overwhelming, uncontroverted by competent evidence and
not inherently improbable, we are constrained to uphold the allegations of the respondents regarding the
multifarious violations of the contracts made by the petitioner.

In the case at bench, there were other prevailing circumstances which corroborate the testimony of
Amparo Castillo. First, the other Deeds of Sale which were executed in favor of Liberato, Prudencia, and
Valeriana on the same day as that of Policronio’s were all presented in evidence. Second, all the properties
subject therein were included in the Deed of Extra-Judicial Partition of the estate of Alfonso. Third,
Policronio, during his lifetime, never exercised acts of ownership over the subject properties (as he never

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demanded or took possession of them, never demanded or received the produce thereof, and never paid
real estate taxes thereon). Fourth, Policronio never informed his children of the sale.

As the Heirs of Policronio failed to controvert the evidence presented, and to timely object to the
testimony of Amparo Castillo, both the RTC and the CA correctly accorded probative weight to her
testimony.

Prior Action Unnecessary

The Heirs of Policronio averred that the Heirs of Alfonso should have filed an action to declare the sale
void prior to executing the Deed of Extra-Judicial Partition. They argued that the sale should enjoy the
presumption of regularity, and until overturned by a court, the Heirs of Alfonso had no authority to include
the land in the inventory of properties of Alfonso’s estate. By doing so, they arrogated upon themselves
the power of invalidating the Deed of Sale which is exclusively vested in a court of law which, in turn, can
rule only upon the observance of due process. Thus, they contended that prescription, laches, or estoppel
have set in to militate against assailing the validity of the sale.

The Heirs of Policronio are mistaken.

A simulated contract of sale is without any cause or consideration, and is, therefore, null and void; in such
case, no independent action to rescind or annul the contract is necessary, and it may be treated as non-
existent for all purposes. A void or inexistent contract is one which has no force and effect from the
beginning, as if it has never been entered into, and which cannot be validated either by time or
ratification. A void contract produces no effect whatsoever either against or in favor of anyone; it does not
create, modify or extinguish the juridical relation to which it refers.40 Therefore, it was not necessary for
the Heirs of Alfonso to first file an action to declare the nullity of the Deed of Sale prior to executing the
Deed of Extra-Judicial Partition.

Personality to Question Sale

The Heirs of Policronio contended that the Heirs of Alfonso are not parties, heirs, or successors-in-interest
under the contemplation of law to clothe them with the personality to question the Deed of Sale. They
argued that under Article 1311 of the Civil Code, contracts take effect only between the parties, their
assigns and heirs. Thus, the genuine character of a contract which personally binds the parties cannot be
put in issue by a person who is not a party thereto. They posited that the Heirs of Alfonso were not parties
to the contract; neither did they appear to be beneficiaries by way of assignment or inheritance. Unlike
themselves who are direct heirs of Policronio, the Heirs of Alfonso are not Alfonso’s direct heirs. For the
Heirs of Alfonso to qualify as parties, under Article 1311 of the Civil Code, they must first prove that they
are either heirs or assignees. Being neither, they have no legal standing to question the Deed of Sale.

They further argued that the sale cannot be assailed for being barred under Article 1421 of the Civil Code
which provides that the defense of illegality of a contract is not available to third persons whose interests
are not directly affected.

Again, the Court disagrees.

Article 1311 and Article 1421 of the Civil Code provide:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, x x x

Art. 1421. The defense of illegality of contracts is not available to third persons whose interests are not
directly affected.

The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in the case
of annullable or voidable contracts; it is extended to third persons who are directly affected by the
contract. Thus, where a contract is absolutely simulated, even third persons who may be prejudiced
thereby may set up its inexistence.41 The Heirs of Alfonso are the children of Alfonso, with his deceased
children represented by their children (Alfonso’s grandchildren). The Heirs of Alfonso are clearly his heirs

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and successors-in-interest and, as such, their interests are directly affected, thereby giving them the right
to question the legality of the Deed of Sale.

Inapplicability of Article 842

The Heirs of Policronio further argued that even assuming that the Heirs of Alfonso have an interest in the
Deed of Sale, they would still be precluded from questioning its validity. They posited that the Heirs of
Alfonso must first prove that the sale of Alfonso’s properties to Policronio substantially diminished their
successional rights or that their legitimes would be unduly prejudiced, considering that under Article 842
of the Civil Code, one who has compulsory heirs may dispose of his estate provided that he does not
contravene the provisions of the Civil Code with regard to the legitime of said heirs. Having failed to do so,
they argued that the Heirs of Alfonso should be precluded from questioning the validity of the Deed of
Sale.

Still, the Court disagrees.

Article 842 of the Civil Code provides:

Art. 842. One who has no compulsory heirs may dispose by will of all his estate or any part of it in favor of
any person having capacity to succeed.

One who has compulsory heirs may dispose of his estate provided he does not contravene the provisions
of this Code with regard to the legitime of said heirs.

This article refers to the principle of freedom of disposition by will. What is involved in the case at bench is
not a disposition by will but by Deed of Sale. Hence, the Heirs of Alfonso need not first prove that the
disposition substantially diminished their successional rights or unduly prejudiced their legitimes.

Inapplicability of Article 1412

The Heirs of Policronio contended that even assuming that the contract was simulated, the Heirs of
Alfonso would still be barred from recovering the properties by reason of Article 1412 of the Civil Code,
which provides that if the act in which the unlawful or forbidden cause does not constitute a criminal
offense, and the fault is both on the contracting parties, neither may recover what he has given by virtue
of the contract or demand the performance of the other’s undertaking. As the Heirs of Alfonso alleged that
the purpose of the sale was to avoid the payment of inheritance taxes, they cannot take from the Heirs of
Policronio what had been given to their father.

On this point, the Court again disagrees.

Article 1412 of the Civil Code is as follows:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by
virtue of the contract, or demand the performance of the other’s undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of
the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may
demand the return of what he has given without any obligation to comply with his promise.

Article 1412 is not applicable to fictitious or simulated contracts, because they refer to contracts with an
illegal cause or subject-matter.42 This article presupposes the existence of a cause, it cannot refer to
fictitious or simulated contracts which are in reality non-existent.43 As it has been determined that the
Deed of Sale is a simulated contract, the provision cannot apply to it.

Granting that the Deed of Sale was not simulated, the provision would still not apply. Since the subject
properties were included as properties of Alfonso in the Deed of Extra-Judicial Partition, they are covered

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by corresponding inheritance and estate taxes. Therefore, tax evasion, if at all present, would not arise,
and Article 1412 would again be inapplicable.

Prescription

From the position that the Deed of Sale is valid and not void, the Heirs of Policronio argued that any
question regarding its validity should have been initiated through judicial process within 10 years from its
notarization in accordance with Article 1144 of the Civil Code. Since 21 years had already elapsed when
the Heirs of Alfonso assailed the validity of the Deed of Sale in 1996, prescription had set in. Furthermore,
since the Heirs of Alfonso did not seek to nullify the tax declarations of Policronio, they had impliedly
acquiesced and given due recognition to the Heirs of Policronio as the rightful inheritors and should, thus,
be barred from laying claim on the land.

The Heirs of Policronio are mistaken.

Article 1410 of the Civil Code provides:

Art. 1410. The action for the declaration of the inexistence of a contract does not prescribe.

This is one of the most fundamental characteristics of void or inexistent contracts.44

As the Deed of Sale is a void contract, the action for the declaration of its nullity, even if filed 21 years
after its execution, cannot be barred by prescription for it is imprescriptible. Furthermore, the right to set
up the defense of inexistence or absolute nullity cannot be waived or renounced.45 Therefore, the Heirs of
Alfonso cannot be precluded from setting up the defense of its inexistence.

Validity of the Deed of Extra-Judicial Partition

The Court now resolves the issue of the validity of the Deed of Extra-Judicial Partition.

Unenforceability

The Heirs of Alfonso argued that the CA was mistaken in annulling the Deed of Extra-Judicial Partition due
to the incapacity of Conrado to give the consent of his co-heirs for lack of a special power of attorney.
They contended that what was involved was not the capacity to give consent in behalf of the co-heirs but
the authority to represent them. They argue that the Deed of Extra-Judicial Partition is not a voidable or
an annullable contract under Article 1390 of the Civil Code, but rather, it is an unenforceable or, more
specifically, an unauthorized contract under Articles 1403 (1) and 1317 of the Civil Code. As such, the
Deed of Extra-Judicial Partition should not be annulled but only be rendered unenforceable against the
siblings of Conrado.

They further argued that under Article 1317 of the Civil Code, when the persons represented without
authority have ratified the unauthorized acts, the contract becomes enforceable and binding. They
contended that the Heirs of Policronio ratified the Deed of Extra-Judicial Partition when Conrado took
possession of one of the parcels of land adjudicated to him and his siblings, and when another parcel was
used as collateral for a loan entered into by some of the Heirs of Policronio. The Deed of Extra-Judicial
Partition having been ratified and its benefits accepted, the same thus became enforceable and binding
upon them.

The Heirs of Alfonso averred that granting arguendo that Conrado was not authorized to represent his co-
heirs and there was no ratification, the CA should not have remanded the case to the RTC for partition of
Alfonso’s estate. They argued that the CA should not have applied the Civil Code general provision on
contracts, but the special provisions dealing with succession and partition. They contended that contrary
to the ruling of the CA, the extra-judicial parition was not an act of strict dominion, as it has been ruled
that partition of inherited land is not a conveyance but a confirmation or ratification of title or right to the
land.46 Therefore, the law requiring a special power of attorney should not be applied to partitions.

On the other hand, the Heirs of Policronio insisted that the CA pronouncement on the invalidity of the
Deed of Extra-Judicial Partition should not be disturbed because the subject properties should not have

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been included in the estate of Alfonso, and because Conrado lacked the written authority to represent his
siblings. They argued with the CA in ruling that a special power of attorney was required before Conrado
could sign in behalf of his co-heirs.

The Heirs of Policronio denied that they ratified the Deed of Extra-Judicial Partition. They claimed that
there is nothing on record that establishes that they ratified the partition. Far from doing so, they
precisely questioned its execution by filing a complaint. They further argued that under Article 1409 (3) of
the Civil Code, ratification cannot be invoked to validate the illegal act of including in the partition those
properties which do not belong to the estate as it provides another mode of acquiring ownership not
sanctioned by law.

Furthermore, the Heirs of Policronio contended that the defenses of unenforceability, ratification, and
preterition are being raised for the first time on appeal by the Heirs of Alfonso. For having failed to raise
them during the trial, the Heirs of Alfonso should be deemed to have waived their right to do so.

The Court agrees in part with the Heirs of Alfonso.

To begin, although the defenses of unenforceability, ratification and preterition were raised by the Heirs of
Alfonso for the first time on appeal, they are concomitant matters which may be taken up. As long as the
questioned items bear relevance and close relation to those specifically raised, the interest of justice
would dictate that they, too, must be considered and resolved. The rule that only theories raised in the
initial proceedings may be taken up by a party thereto on appeal should refer to independent, not
concomitant matters, to support or oppose the cause of action.47

In the RTC, the Heirs of Policronio alleged that Conrado’s consent was vitiated by mistake and undue
influence, and that he signed the Deed of Extra-Judicial Partition without the authority or consent of his
co-heirs.

The RTC found that Conrado’s credibility had faltered, and his claims were rejected by the RTC as
gratuitous assertions. On the basis of such, the RTC ruled that Conrado duly represented his siblings in
the Deed of Extra-Judicial Partition.

On the other hand, the CA annulled the Deed of Extra-Judicial Partition under Article 1390 (1) of the Civil
Code, holding that a special power of attorney was lacking as required under Article 1878 (5) and (15) of
the Civil Code. These articles are as follows:

Art. 1878. Special powers of attorney are necessary in the following cases:

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;

(15) Any other act of strict dominion.

Art. 1390. The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of
ratification.

This Court finds that Article 1878 (5) and (15) is inapplicable to the case at bench. It has been held in
several cases48 that partition among heirs is not legally deemed a conveyance of real property resulting in
change of ownership. It is not a transfer of property from one to the other, but rather, it is a confirmation
or ratification of title or right of property that an heir is renouncing in favor of another heir who accepts
and receives the inheritance. It is merely a designation and segregation of that part which belongs to each

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heir. The Deed of Extra-Judicial Partition cannot, therefore, be considered as an act of strict dominion.
Hence, a special power of attorney is not necessary.

In fact, as between the parties, even an oral partition by the heirs is valid if no creditors are affected. The
requirement of a written memorandum under the statute of frauds does not apply to partitions effected by
the heirs where no creditors are involved considering that such transaction is not a conveyance of
property resulting in change of ownership but merely a designation and segregation of that part which
belongs to each heir.

Neither is Article 1390 (1) applicable. Article 1390 (1) contemplates the incapacity of a party to give
consent to a contract. What is involved in the case at bench though is not Conrado’s incapacity to give
consent to the contract, but rather his lack of authority to do so. Instead, Articles 1403 (1), 1404, and
1317 of the Civil Code find application to the circumstances prevailing in this case. They are as follows:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;

Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of
this Book.

Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless
he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.

Such was similarly held in the case of Badillo v. Ferrer:

The Deed of Extrajudicial Partition and Sale is not a voidable or an annullable contract under Article 1390
of the New Civil Code. Article 1390 renders a contract voidable if one of the parties is incapable of giving
consent to the contract or if the contracting party’s consent is vitiated by mistake, violence, intimidation,
undue influence or fraud. x x x

The deed of extrajudicial parition and sale is an unenforceable or, more specifically, an unauthorized
contract under Articles 1403(1) and 1317 of the New Civil Code.50

Therefore, Conrado’s failure to obtain authority from his co-heirs to sign the Deed of Extra-Judicial
Partition in their behalf did not result in his incapacity to give consent so as to render the contract
voidable, but rather, it rendered the contract valid but unenforceable against Conrado’s co-heirs for having
been entered into without their authority.

A closer review of the evidence on record, however, will show that the Deed of Extra-Judicial Partition is
not unenforceable but, in fact, valid, binding and enforceable against all the Heirs of Policronio for having
given their consent to the contract. Their consent to the Deed of Extra-Judicial Partition has been proven
by a preponderance of evidence.

Regarding his alleged vitiated consent due to mistake and undue influence to the Deed of Extra-Judicial
Partition, Conrado testified, to wit:

Q: Mr. Ureta you remember having signed a document entitled deed of extra judicial partition consisting
of 11 pages and which have previously [been] marked as Exhibit I for the plaintiffs?
A: Yes sir.

Q: Can you recall where did you sign this document?


A: The way I remember I signed that in our house.

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Q: And who requested or required you to sign this document?
A: My aunties.

Q: Who in particular if you can recall?


A: Nay Pruding Panadero.

Q: You mean that this document that you signed was brought to your house by your Auntie Pruding
Pa[r]adero [who] requested you to sign that document?
A: When she first brought that document I did not sign that said document because I [did] no[t] know the
contents of that document.

Q: How many times did she bring this document to you [until] you finally signed the document?
A: Perhaps 3 times.

Q: Can you tell the court why you finally signed it?
A: Because the way she explained it to me that the land of my grandfather will be partitioned.

Q: When you signed this document were your brothers and sisters who are your co-plaintiffs in this case
aware of your act to sign this document?
A: They do not know.

Q: After you have signed this document did you inform your brothers and sisters that you have signed this
document?
No I did not. 51

Q: Now you read the document when it was allegedly brought to your house by your aunt Pruding
Pa[r]adero?
A: I did not read it because as I told her I still want to ask the advise of my brothers and sisters.

Q: So do I get from you that you have never read the document itself or any part thereof?
A: I have read the heading.

Q: And why is it that you did not read all the pages of this document because I understand that you know
also how to read in English?
A: Because the way Nay Pruding explained to me is that the property of my grandfather will be partitioned
that is why I am so happy.

Q: You mean to say that after you signed this deed of extra judicial partition up to the present you never
informed them?
A: Perhaps they know already that I have signed and they read already the document and they have read
the document.

Q: My question is different, did you inform them?


A: The document sir? I did not tell them.

Q: Even until now?


A: Until now I did not inform them.

This Court finds no cogent reason to reverse the finding of the RTC that Conrado’s explanations were mere
gratuitous assertions not entitled to any probative weight. The RTC found Conrado’s credibility to have
faltered when he testified that perhaps his siblings were already aware of the Deed of Extra-Judicial
Partition. The RTC was in the best position to judge the credibility of the witness’ testimony. The CA also
recognized that Conrado’s consent was not vitiated by mistake and undue influence as it required a special
power of attorney in order to bind his co-heirs and, as such, the CA thereby recognized that his signature
was binding to him but not with respect to his co-heirs. Findings of fact of the trial court, particularly when
affirmed by the CA, are binding to this Court.

Furthermore, this Court notes other peculiarities in Conrado’s testimony. Despite claims of undue
influence, there is no indication that Conrado was forced to sign by his aunt, Prudencia Paradero. In fact,

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he testified that he was happy to sign because his grandfather’s estate would be partitioned. Conrado,
thus, clearly understood the document he signed. It is also worth noting that despite the document being
brought to him on three separate occasions and indicating his intention to inform his siblings about it,
Conrado failed to do so, and still neglected to inform them even after he had signed the partition. All these
circumstances negate his claim of vitiated consent. Having duly signed the Deed of Extra-Judicial Partition,
Conrado is bound to it. Thus, it is enforceable against him.

Although Conrado’s co-heirs claimed that they did not authorize Conrado to sign the Deed of Extra-Judicial
Partition in their behalf, several circumstances militate against their contention.

First, the Deed of Extra-Judicial Partition was executed on April 19, 1989, and the Heirs of Policronio claim
that they only came to know of its existence on July 30, 1995 through an issue of the Aklan Reporter. It is
difficult to believe that Conrado did not inform his siblings about the Deed of Extra-Judicial Partition or at
least broach its subject with them for more than five years from the time he signed it, especially after
indicating in his testimony that he had intended to do so.

Second, Conrado retained possession of one of the parcels of land adjudicated to him and his co-heirs in
the Deed of Extra-Judicial Partition.

Third, after the execution of the partition on April 19, 1989 and more than a year before they claimed to
have discovered the existence of the Deed of Extra-Judicial Partition on July 30, 1995, some of the Heirs
of Policronio, namely, Rita Solano, Macario Ureta, Lilia Tayco, and Venancio Ureta executed on June 1,
1994, a Special Power of Attorney54 in favor of their sister Gloria Gonzales, authorizing her to obtain a
loan from a bank and to mortgage one of the parcels of land adjudicated to them in the Deed of Extra-
Judicial Partition to secure payment of the loan. They were able to obtain the loan using the land as
collateral, over which a Real Estate Mortgage55 was constituted. Both the Special Power of Attorney and
the Real Estate Mortgage were presented in evidence in the RTC, and were not controverted or denied by
the Heirs of Policronio.

Fourth, in the letter dated August 15, 1995, sent by the counsel of the Heirs of Policronio to the Heirs of
Alfonso requesting for amicable settlement, there was no mention that Conrado’s consent to the Deed of
Extra-Judicial Partition was vitiated by mistake and undue influence or that they had never authorized
Conrado to represent them or sign the document on their behalf. It is questionable for such a pertinent
detail to have been omitted. The body of said letter is reproduced hereunder as follows:

Greetings:

Your nephews and nieces, children of your deceased brother Policronio Ureta, has referred to me for
appropriate legal action the property they inherited from their father consisting of six (6) parcels of land
which is covered by a Deed of Absolute Sale dated October 25, 1969. These properties ha[ve] already
been transferred to the name of their deceased father immediately after the sale, machine copy of the
said Deed of Sale is hereto attached for your ready reference.

Lately, however, there was published an Extra-judicial Partition of the estate of Alfonso Ureta, which to
the surprise of my clients included the properties already sold to their father before the death of said
Alfonso Ureta. This inclusion of their property is erroneous and illegal because these properties were
covered by the Deed of Absolute Sale in favor of their father Policronio Ureta no longer form part of the
estate of Alfonso Ureta. Since Policronio Ureta has [sic] died in 1974 yet, these properties have passed by
hereditary succession to his children who are now the true and lawful owners of the said properties.

My clients are still entitled to a share in the estate of Alfonso Ureta who is also their grandfather as they
have stepped into the shoes of their deceased father Policronio Ureta. But this estate of Alfonso Ureta
should already exclude the six (6) parcels of land covered by the Deed of Absolute Sale in favor of
Policronio Ureta.

My clients cannot understand why the properties of their late father [should] be included in the estate of
their grandfather and be divided among his brothers and sisters when said properties should only be
divided among themselves as children of Policronio Ureta.

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Since this matter involves very close members of the same family, I have counseled my clients that an
earnest effort towards a compromise or amicable settlement be first explored before resort to judicial
remedy is pursued. And a compromise or amicable settlement can only be reached if all the parties meet
and discuss the problem with an open mind. To this end, I am suggesting a meeting of the parties on
September 16, 1995 at 2:00 P.M. at B Place Restaurant at C. Laserna St., Kalibo, Aklan. It would be best
if the parties can come or be represented by their duly designated attorney-in-fact together with their
lawyers if they so desire so that the problem can be discussed unemotionally and intelligently.

I would, however, interpret the failure to come to the said meeting as an indication that the parties are
not willing to or interested in amicable settlement of this matter and as a go signal for me to resort to
legal and/or judicial remedies to protest the rights of my clients.

Thank you very much.

Based on the foregoing, this Court concludes that the allegation of Conrado’s vitiated consent and lack of
authority to sign in behalf of his co-heirs was a mere afterthought on the part of the Heirs of Policronio. It
appears that the Heirs of Policronio were not only aware of the existence of the Deed of Extra-Judicial
Partition prior to June 30, 1995 but had, in fact, given Conrado authority to sign in their behalf. They are
now estopped from questioning its legality, and the Deed of Extra-Judicial Partition is valid, binding, and
enforceable against them.

In view of the foregoing, there is no longer a need to discuss the issue of ratification.

Preterition

The Heirs of Alfonso were of the position that the absence of the Heirs of Policronio in the partition or the
lack of authority of their representative results, at the very least, in their preterition and not in the
invalidity of the entire deed of partition. Assuming there was actual preterition, it did not render the Deed
of Extra-Judicial Partition voidable. Citing Article 1104 of the Civil Code, they aver that a partition made
with preterition of any of the compulsory heirs shall not be rescinded, but the heirs shall be
proportionately obliged to pay the share of the person omitted. Thus, the Deed of Extra-Judicial Partition
should not have been annulled by the CA. Instead, it should have ordered the share of the heirs omitted
to be given to them.

The Heirs of Alfonso also argued that all that remains to be adjudged is the right of the preterited heirs to
represent their father, Policronio, and be declared entitled to his share. They contend that remand to the
RTC is no longer necessary as the issue is purely legal and can be resolved by the provisions of the Civil
Code for there is no dispute that each of Alfonso’s heirs received their rightful share. Conrado, who
received Policronio’s share, should then fully account for what he had received to his other co-heirs and be
directed to deliver their share in the inheritance.

These arguments cannot be given credence.

Their posited theory on preterition is no longer viable. It has already been determined that the Heirs of
Policronio gave their consent to the Deed of Extra-Judicial Partition and they have not been excluded from
it. Nonetheless, even granting that the Heirs of Policronio were denied their lawful participation in the
partition, the argument of the Heirs of Alfonso would still fail.

Preterition under Article 854 of the Civil Code is as follows:

Art. 854. The preterition or omission of one, some, or all of the compulsory heirs in the direct line,
whether living at the time of the execution of the will or born after the death of the testator, shall annul
the institution of heir; but the devises and legacies shall be valid insofar as they are not inofficious.

If the omitted compulsory heirs should die before the testator, the institution shall be effectual, without
prejudice to the right of representation.

Preterition has been defined as the total omission of a compulsory heir from the inheritance.1âwphi1 It
consists in the silence of the testator with regard to a compulsory heir, omitting him in the testament,

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either by not mentioning him at all, or by not giving him anything in the hereditary property but without
expressly disinheriting him, even if he is mentioned in the will in the latter case.57 Preterition is thus a
concept of testamentary succession and requires a will. In the case at bench, there is no will involved.
Therefore, preterition cannot apply.

Remand Unnecessary

The Deed of Extra-Judicial Partition is in itself valid for complying with all the legal requisites, as found by
the RTC, to wit:

A persual of the Deed of Extra-judicial Partition would reveal that all the heirs and children of Alfonso
Ureta were represented therein; that nobody was left out; that all of them received as much as the others
as their shares; that it distributed all the properties of Alfonso Ureta except a portion of parcel 29
containing an area of 14,000 square meters, more or less, which was expressly reserved; that Alfonso
Ureta, at the time of his death, left no debts; that the heirs of Policronio Ureta, Sr. were represented by
Conrado B. Ureta; all the parties signed the document, was witnessed and duly acknowledged before
Notary Public Adolfo M. Iligan of Kalibo, Aklan; that the document expressly stipulated that the heirs to
whom some of the properties were transferred before for taxation purposes or their children, expressly
recognize and acknowledge as a fact that the properties were transferred only for the purpose of effective
administration and development convenience in the payment of taxes and, therefore, all instruments
conveying or effecting the transfer of said properties are null and void from the beginning (Exhs. 1-4, 7-
d).58

Considering that the Deed of Sale has been found void and the Deed of Extra-Judicial Partition valid, with
the consent of all the Heirs of Policronio duly given, there is no need to remand the case to the court of
origin for partition.1ªvvph!1

WHEREFORE, the petition in G.R. No. 165748 is DENIED. The petition in G.R. No. 165930 is GRANTED.
The assailed April 20, 2004 Decision and October 14, 2004 Resolution of the Court of Appeals in CA-G.R.
CV No. 71399, are hereby MODIFIED in this wise:

(1) The Deed of Extra-Judicial Partition, dated April 19, 1989, is VALID, and
(2) The order to remand the case to the court of origin is hereby DELETED.

SO ORDERED.
X-----------------------------------------------------------------------------------------------------------------x
G.R. No. 204029 June 4, 2014
AVELINA ABARIENTOS REBUSQUILLO [substituted by her heirs, except Emelinda R. Gualvez]
and SALVADOR A. OROSCO, Petitioners, vs.
SPS. DOMINGO and EMELINDA REBUSQUILLO GUALVEZ and the CITY ASSESSOR OF LEGAZPI
CITY, Respondents.
DECISION
VELASCO, JR., J.:

Before Us is a Petition for Review on Certiorari under Rule 45 assailing the Decision1 and Resolution2
dated March 30, 2012 and September 25, 2012, respectively, of the Court of Appeals (CA) in CA-G.R. CV
No. 93035, which reversed and set aside the Decision dated January 20, 2009 of the Regional Trial Court
(RTC), Branch 4 in Legazpi City, in Civil Case No. 10407.

The antecedent facts may be summarized as follows:

On October 26, 2004, petitioners Avelina Abarientos Rebusquillo (Avelina) and Salvador Orosco (Salvador)
filed a Complaint for annulment and revocation of an Affidavit of Self-Adjudication dated December 4,
2001 and a Deed of Absolute Sale dated February 6, 2002 before the court a quo. In it, petitioners alleged
that Avelina was one of the children of Eulalio Abarientos (Eulalio) and Victoria Villareal (Victoria). Eulalio
died intestate on July 3, 1964, survived by his wife Victoria, six legitimate children, and one illegitimate
child, namely: (1) Avelina Abarientos-Rebusquillo, petitioner in this case; (2) Fortunata Abarientos-
Orosco, the mother of petitioner Salvador; (3) Rosalino Abarientos; (4) Juan Abarientos; (5) Feliciano

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Abarientos; (6) Abraham Abarientos; and (7) Carlos Abarientos. His wife Victoria eventually died intestate
on June 30, 1983.

On his death, Eulalio left behind an untitled parcel of land in Legazpi City consisting of two thousand eight
hundred sixty-nine(2,869) square meters, more or less, which was covered by Tax Declaration ARP No.
(TD) 0141.

In 2001, Avelina was supposedly made to sign two (2) documents by her daughter Emelinda Rebusquillo-
Gualvez (Emelinda) and her son-in-law Domingo Gualvez (Domingo), respondents in this case, on the
pretext that the documents were needed to facilitate the titling of the lot. It was only in 2003, so
petitioners claim, that Avelina realized that what she signed was an Affidavit of Self-Adjudication and a
Deed of Absolute Sale in favor of respondents.

As respondents purportedly ignored her when she tried to talk to them, Avelina sought the intervention of
the RTC to declare null and void the two (2) documents in order to reinstate TD0141 and so correct the
injustice done to the other heirs of Eulalio.

In their answer, respondents admitted that the execution of the Affidavit of Self-Adjudication and the
Deed of Sale was intended to facilitate the titling of the subject property. Paragraph 9 of their Answer
reads:

Sometime in the year 2001, [petitioner] Avelina together with the other heirs of Eulalio Abarientos
brought out the idea to [respondent] Emelinda Rebusquillo-Gualvez to have the property described in
paragraph 8 of the complaint registered under the Torrens System of Registration. To facilitate the titling
of the property, so that the same could be attractive to prospective buyers, it was agreed that the
property’s tax declaration could be transferred to [respondents] Spouses [Emelinda] R. Gualvez and
Domingo Gualvez who will spend all the cost of titling subject to reimbursement by all other heirs in case
the property is sold; That it was agreed that all the heirs will be given their corresponding shares on the
property; That pursuant to said purpose Avelina Abarientos-Rebusquillo with the knowledge and consent
of the other heirs signed and executed an Affidavit of Self-Adjudication and a Deed of Absolute Sale in
favor of [respondents] Gualvez. In fact, [petitioner] Avelina Rebusquillo was given an advance sum of
FIFTY THOUSAND PESOS (₱50,000.00) by [respondent] spouses and all the delinquent taxes paid by
[respondents].3

After trial, the RTC rendered its Decision dated January 20, 2009 annulling the Affidavit of Self-
Adjudication and the Deed of Absolute Sale executed by Avelina on the grounds that (1) with regard to the
Affidavit of Self-Adjudication, she was not the sole heir of her parents and was not therefore solely entitled
to their estate; and (2) in the case of the Deed of Absolute Sale, Avelina did not really intend to sell her
share in the property as it was only executed to facilitate the titling of such property. The dispositive
portion of the RTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered, as follows:

1. The subject Affidavit of Self-Adjudication of the Estate of the Deceased Spouses Eulalio Abarientos and
Victoria Villareal, dated December 4, 2001 as well as the subject Deed of Absolute Sale, notarized on
February 6, 2002, covering the property described in par. 8 of the Amended Complaint are hereby ordered
ANNULLED;

2. That defendant City Assessor’s Officer of Legazpi City is hereby ordered to CANCEL the Tax Declaration
in the name of private [respondents] spouses Gualvez under ARP No. 4143 and to REINSTATE the Tax
Declaration under ARP No. 0141 in the name of Eulalio Abarientos;

3. By way of restitution, [petitioner] Avelina Abarientos Rebusquillo is hereby ordered to return or refund
to [respondents] spouses Domingo Gualvez and Emelinda Gualvez, the ₱50,000.00 given by the latter
spouses to the former.

Assailing the trial court’s decision, respondents interposed an appeal with the CA arguing that the Deed of
Sale cannot be annulled being a public document that has for its object the creation and transmission of
real rights over the immovable subject property. The fact that Avelina’s testimony was not offered in

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evidence, so respondents argued, the signature on the adverted deed remains as concrete proof of her
agreement to its terms. Lastly, respondents contended that the Complaint filed by petitioners Avelina and
Salvador before the RTC is not the proper remedy provided by law for those compulsory heirs unlawfully
deprived of their inheritance.

Pending the resolution of respondents’ appeal, Avelina died intestate on September 1, 2009 leaving
behind several living heirs5 including respondent Emelinda.

In its Decision dated March 30, 2012, the appellate court granted the appeal and reversed and set aside
the Decision of the RTC. The CA held that the RTC erred in annulling the Affidavit of Self-Adjudication
simply on petitioners’ allegation of the existence of the heirs of Eulalio, considering that issues on heirship
must be made in administration or intestate proceedings, not in an ordinary civil action. Further, the
appellate court observed that the Deed of Absolute Sale cannot be nullified as it is a notarized document
that has in its favor the presumption of regularity and is entitled to full faith and credit upon its face.

Aggrieved by the CA’s Decision, petitioner Avelina, as substituted by her heirs except respondent
Emelinda, and petitioner Salvador are now before this Court ascribing reversible error on the part of the
appellate court.

We find merit in the instant petition.

It has indeed been ruled that the declaration of heirship must be made in a special proceeding, not in an
independent civil action. However, this Court had likewise held that recourse to administration
proceedings to determine who heirs are is sanctioned only if there is a good and compelling reason for
such recourse.6 Hence, the Court had allowed exceptions to the rule requiring administration proceedings
as when the parties in the civil case already presented their evidence regarding the issue of heirship, and
the RTC had consequently rendered judgment upon the issues it defined during the pre-trial.7 In Portugal
v. Portugal-Beltran,8 this Court held:

In the case at bar, respondent, believing rightly or wrongly that she was the sole heir to Portugal’s estate,
executed on February 15, 1988 the questioned Affidavit of Adjudication under the second sentence of Rule
74, Section 1 of the Revised Rules of Court. Said rule is an exception to the general rule that when a
person dies leaving a property, it should be judicially administered and the competent court should
appoint a qualified administrator, in the order established in Sec. 6, Rule 78 in case the deceased left no
will, or in case he did, he failed to name an executor therein.

Petitioners claim, however, to be the exclusive heirs of Portugal. A probate or intestate court, no doubt,
has jurisdiction to declare who are the heirs of a deceased.

It appearing, however, that in the present case the only property of the intestate estate of Portugal is the
Caloocan parcel of land to still subject it, under the circumstances of the case, to a special proceeding
which could be long, hence, not expeditious, just to establish the status of petitioners as heirs is not only
impractical; it is burdensome to the estate with the costs and expenses of an administration proceeding.
And it is superfluous in light of the fact that the parties to the civil case - subject of the present case,
could and had already in fact presented evidence before the trial court which assumed jurisdiction over
the case upon the issues it defined during pre-trial.

In fine, under the circumstances of the present case, there being no compelling reason to still subject
Portugal’s estate to administration proceedings since a determination of petitioners’ status as heirs could
be achieved in the civil case filed by petitioners, the trial court should proceed to evaluate the evidence
presented by the parties during the trial and render a decision thereon upon the issues it defined during
pre-trial x x x. (emphasis supplied)

Similar to Portugal, in the present case, there appears to be only one parcel of land being claimed by the
contending parties as the inheritance from Eulalio. It would be more practical, as Portugal teaches, to
dispense with a separate special proceeding for the determination of the status of petitioner Avelina as
sole heir of Eulalio, especially in light of the fact that respondents spouses Gualvez admitted in court that
they knew for a fact that petitioner Avelina was not the sole heir of Eulalio and that petitioner Salvador
was one of the other living heirs with rights over the subject land. As confirmed by the RTC in its Decision,

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respondents have stipulated and have thereby admitted the veracity of the following facts during the pre-
trial:

IV – UNCONTROVERTED FACTS: (Based on the stipulation of facts in the Pre-Trial Order)

B. [Petitioners] and private [respondents] spouses Gualvez admitted the following facts:

1. Identity of the parties;

2. Capacity of the [petitioners] and private [respondents] to sue and be sued;

3. [Petitioner] Avelina Abarientos-Rebusquilllo is not the only surviving heir of deceased spouses Eulalio
and Victoria Abarientos;

4. Petitioner Salvador Orosco is a co-owner/possessor of a portion of the subject property;

5. Fortunata Abarientos-Orosco is the sister of Avelina Abarientos;

6. [Respondent] Emelinda Rebusquillo-Gualves is a daughter of [petitioner] Avelina A. Rebusquillo;

7. [Petitioner] Avelina Rebusquillo was born on Nov. 10, 1923;

8. The existence of Affidavit of Self-Adjudication of Estate of the Deceased and Deed of Absolute Sale
executed by [petitioner] Avelina A. Rebusquillo on the subject property.9 (emphasis supplied)

In light of the admission of respondents spouses Gualvez, it is with more reason that a resort to special
proceeding will be but an unnecessary superfluity. Accordingly, the court a quo had properly rendered
judgment on the validity of the Affidavit of Self-Adjudication executed by Avelina. As pointed out by the
trial court, an Affidavit of Self-Adjudication is only proper when the affiant is the sole heir of the decedent.
The second sentence of Section 1, Rule 74 of the Rules of Court is patently clear that self-adjudication is
only warranted when there is only one heir:

Section 1. Extrajudicial settlement by agreement between heirs. –– x x x If there is only one heir, he may
adjudicate to himself the entire estate by means of an affidavit filed in the office of the register of deeds. x
x x (emphasis supplied)

As admitted by respondents, Avelina was not the sole heir of Eulalio. In fact, as admitted by respondents,
petitioner Salvador is one of the co-heirs by right of representation of his mother. Without a doubt,
Avelina had perjured herself when she declared in the affidavit that she is "the only daughter and sole heir
of spouses EULALIO ABARIENTOS AND VICTORIA VILLAREAL."10 The falsity of this claim renders her act
of adjudicating to herself the inheritance left by her father invalid. The RTC did not, therefore, err in
granting Avelina’s prayer to declare the affidavit null and void and so correct the wrong she has
committed.

In like manner, the Deed of Absolute Sale executed by Avelina in favor of respondents was correctly
nullified and voided by the RTC. Avelina was not in the right position to sell and transfer the absolute
ownership of the subject property to respondents. As she was not the sole heir of Eulalio and her Affidavit
of Self-Adjudication is void, the subject property is still subject to partition. Avelina, in fine, did not have
the absolute ownership of the subject property but only an aliquot portion. What she could have
transferred to respondents was only the ownership of such aliquot portion. It is apparent from the
admissions of respondents and the records of this case that Avelina had no intention to transfer the
ownership, of whatever extent, over the property to respondents. Hence, the Deed of Absolute Sale is
nothing more than a simulated contract.

The Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties
do not intend to be bound at all; the latter, when the parties conceal their true agreement. (emphasis
supplied)

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Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement.

In Heirs of Policronio Ureta Sr. v. Heirs of Liberato Ureta, this Court explained the concept of the
simulation of contracts:

In absolute simulation, there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract
is not really desired or intended to produce legal effect or in any way alter the juridical situation of the
parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from
each other what they may have given under the contract. However, if the parties state a false cause in the
contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound
by their real agreement. Hence, where the essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors in interest. (emphasis supplied)

In the present case, the true intention of the parties in the execution of the Deed of Absolute Sale is
immediately apparent from respondents’ very own Answer to petitioners’ Complaint. As respondents
themselves acknowledge, the purpose of the Deed of Absolute Sale was simply to "facilitate the titling of
the [subject] property," not to transfer the ownership of the lot to them. Furthermore, respondents
concede that petitioner Salvador remains in possession of the property and that there is no indication that
respondents ever took possession of the subject property after its supposed purchase. Such failure to take
exclusive possession of the subject property or, in the alternative, to collect rentals from its possessor, is
contrary to the principle of ownership and is a clear badge of simulation that renders the whole
transaction void.

Contrary to the appellate court’s opinion, the fact that the questioned Deed of Absolute Sale was reduced
to writing and notarized does not accord it the quality of incontrovertibility otherwise provided by the
parole evidence rule. The form of a contract does not make an otherwise simulated and invalid act valid.
The rule on parole evidence is not, as it were, ironclad. Sec. 9, Rule 130 of the Rules of Court provides the
exceptions:

Section 9. Evidence of written agreements. – x x x

However, a party may present evidence to modify, explain or add to the terms of written agreement if he
puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the
execution of the written agreement.

The term "agreement" includes wills. (emphasis supplied)

The failure of the Deed of Absolute Sale to express the true intent and agreement of the contracting
parties was clearly put in issue in the present case. Again, respondents themselves admit in their Answer
that the Affidavit of Self-Adjudication and the Deed of Absolute Sale were only executed to facilitate the
titling of the property. The RTC is, therefore, justified to apply the exceptions provided in the second
paragraph of Sec. 9, Rule 130 to ascertain the true intent of the parties, which shall prevail over the letter
of the document. That said, considering that the Deed of Absolute Sale has been shown to be void for
being absolutely simulated, petitioners are not precluded from presenting evidence to modify, explain or
add to the terms of the written agreement.

WHEREFORE, the instant petition is GRANTED. The Decision dated March 30, 2012 and the Resolution
dated September 25, 2012 of the Court of Appeals in CA-G.R. CV No. 93035 are hereby REVERSED and
SET ASIDE. The Decision dated January 20, 2009 in Civil Case No. 10407 of the Regional Trial Court
(RTC),Branch 4 in Legazpi City is REINSTATED.
SO ORDERED.

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