Full text Cases
agreement, Exhibit A, was secured by the representation of plaintiff that he was the owner, or
Woodhouse v. Halili
G.R. No. L-4811; July 31, 1953
On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the
defendant, the most important provisions of which are (1) that they shall organize a partnership
for the bottling and distribution of Mision soft drinks, plaintiff to act as industrial partner or
manager, and the defendant as a capitalist, furnishing the capital necessary therefor; (2) that the
defendant was to decide matters of general policy regarding the business, while the plaintiff was
to attend to the operation and development of the bottling plant; (3) that the plaintiff was to
secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership; and (4)
that the plaintiff was to receive 30 per cent of the net profits of the business. The above
agreement was arrived at after various conferences and consultations by and between them,
with the assistance of their respective attorneys. Prior to entering into this agreement, plaintiff
had informed the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers of
the bases and ingridients of the beverages bearing its name, that he had interested a prominent
financier (defendant herein) in the business, who was willing to invest half a million dollars in the
bottling and distribution of the said beverages, and requested, in order that he may close the
deal with him, that the right to bottle and distribute be granted him for a limited time under the
condition that it will finally be transferred to the corporation (Exhibit H). Pursuant for this request,
plaintiff was given "a thirty-days" option on exclusive bottling and distribution rights for the
Philippines" (Exhibit J). Formal negotiations between plaintiff and defendant began at a meeting
on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this meeting
plaintiff's lawyer had prepared the draft of the agreement, Exhibit II or OO, but this was not
satisfactory because a partnership, instead of a corporation, was desired. Defendant's lawyer
prepared after the meeting his own draft, Exhibit HH. This last draft appears to be the main basis
of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the
United States without the agreement being not first signed. On that day plaintiff and defendant
went to the United States, and on December 10, 1947, a franchise agreement (Exhibit V) was
entered into the Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse,
granted defendant the exclusive right, license, and authority to produce, bottle, distribute, and
sell Mision beverages in the Philippines. The plaintiff and the defendant thereafter returned to
the Philippines. Plaintiff reported for duty in January, 1948, but operations were not begun until
the first week of February, 1948. In January plaintiff was given as advance, on account of profits,
the sum of P2,000, besides the use of a car; in February, 1948, also P2,000, and in March only
P1,000. The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded of defendant that the
partnership papers be executed. At first defendant executed himself, saying there was no hurry.
Then he promised to do so after the sales of the product had been increased to P50,000. As
nothing definite was forthcoming, after this condition was attained, and as defendant refused to
give further allowances to plaintiff, the latter caused his attorneys to take up the matter with the
defendant with a view to a possible settlement. as none could be arrived at, the present action
was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of
the profits, and a share thereof of 30 per cent, as well as damages in the amount of P200,000.
In his answer defendant alleges by way of defense (1) that defendant's consent to the
was about to become owner of an exclusive bottling franchise, which representation was false,
and plaintiff did not secure the franchise, but was given to defendant himself; (2) that defendant
did not fail to carry out his undertakings, but that it was plaintiff who failed; (3) that plaintiff
agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do so. He
also presented a counter-claim for P200,000 as damages. On these issues the parties went to
trial, and thereafter the Court of First Instance rendered judgment ordering defendant to render
an accounting of the profits of the bottling and distribution business, subject of the action, and to
pay plaintiff 15 percent thereof. it held that the execution of the contract of partnership could not
be enforced upon the parties, but it also held that the defense of fraud was not proved. Against
this judgment both parties have appealed.
The most important question of fact to be determined is whether defendant had falsely
represented that he had an exclusive franchise to bottle Mission beverages, and whether this
false representation or fraud, if it existed, annuls the agreement to form the partnership. The trial
court found that it is improbable that defendant was never shown the letter, Exhibit J, granting
plaintiff had; that the drafts of the contract prior to the final one can not be considered for the
purpose of determining the issue, as they are presumed to have been already integrated into the
final agreement; that fraud is never presumed and must be proved; that the parties were
represented by attorneys, and that if any party thereto got the worse part of the bargain, this fact
alone would not invalidate the agreement. On this appeal the defendant, as appellant, insists
that plaintiff did represent to the defendant that he had an exclusive franchise, when as a matter
of fact, at the time of its execution, he no longer had it as the same had expired, and that,
therefore, the consent of the defendant to the contract was vitiated by fraud and it is,
consequently, null and void.
Our study of the record and a consideration of all the surrounding circumstances lead us to
believe that defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified
that Woodhouse presented himself as being the exclusive grantee of a franchise, thus:
A. I don't recall any discussion about that matter. I took along with me the file of the office with
regards to this matter. I notice from the first draft of the document which I prepared which calls
for the organization of a corporation, that the manager, that is, Mr. Woodhouse, is represented
as being the exclusive grantee of a franchise from the Mission Dry Corporation. . . . (t.s.n.,
p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila
Hotel conference on November 27th, expressly states that plaintiff had the exclusive franchise.
Thus, the first paragraph states:
Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation
San Francisco, California, for the bottling of Mission products and their sale to the public
throughout the Philippines; . . . .
3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the
Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural acts. We find that
the principle invoked is inapplicable, since the purpose of considering the prior draft is not to
vary, alter, or modify the agreement, but to discover the intent of the parties thereto and the
circumstances surrounding the execution of the contract. The issue of fact is: Did plaintiff
represent to defendant that he had an exclusive franchise? Certainly, his acts or statements
prior to the agreement are essential and relevant to the determination of said issue. The act or
statement of the plaintiff was not sought to be introduced to change or alter the terms of the
agreement, but to prove how he induced the defendant to enter into it — to prove the
representations or inducements, or fraud, with which or by which he secured the other party's
consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough
vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export & Import Lumber
Co., 26 Phil., 602; III Moran 221,1952 rev. ed.) Fraud and false representation are an incident to
the creation of a jural act, not to its integration, and are not governed by the rules on integration.
Were parties prohibited from proving said representations or inducements, on the ground that
the agreement had already been entered into, it would be impossible to prove misrepresentation
or fraud. Furthermore, the parol evidence rule expressly allows the evidence to be introduced
when the validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123,
Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his own letters and his
own testimony. In his letter to Mission Dry Corporation, Exhibit H, he said:.
. . . He told me to come back to him when I was able to speak with authority so that we could
come to terms as far as he and I were concerned. That is the reason why the cable was sent.
Without this authority, I am in a poor bargaining position. . .
I would propose that you grant me the exclusive bottling and distributing rights for a limited
period of time, during which I may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14,
1947. (See Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an
instrument with which to bargain with defendant and close the deal with him, he must have used
his said option for the above-indicated purpose, especially as it appears that he was able to
secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that
when plaintiff called on the latter, the latter answered, "Well, come back to me when you have
the authority to operate. I am definitely interested in the bottling business." (t. s. n., pp. 60-61.)
When after the elections of 1949 plaintiff went to see the defendant (and at that time he had
already the option), he must have exultantly told defendant that he had the authority already. It is
improbable and incredible for him to have disclosed the fact that he had only an option to the
exclusive franchise, which was to last thirty days only, and still more improbable for him to have
disclosed that, at the time of the signing of the formal agreement, his option had already expired.
Had he done so, he would have destroyed all his bargaining power and authority, and in all
probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in
the agreement "to secure the Mission Dry franchise for and in behalf of the proposed
partnership." The existence of this provision in the final agreement does not militate against
plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that
he did actually make the representation. How could plaintiff assure defendant that he would get
the franchise for the latter if he had not actually obtained it for himself? Defendant would not
have gone into the business unless the franchise was raised in his name, or at least in the name
of the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft
prepared by defendant's attorney, Exhibit HH, the above provision is inserted, with the difference
that instead of securing the franchise for the defendant, plaintiff was to secure it for the
partnership. To show that the insertion of the above provision does not eliminate the probability
of plaintiff representing himself as the exclusive grantee of the franchise, the final agreement
contains in its third paragraph the following:
. . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . .
.
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission
Dry Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was made to believe, that
plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that
the franchise was to be transferred to the name of the partnership, and that, upon its dissolution
or termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not
have the exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the
net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff
actually made him believe that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making of
the contract made fraud improbable. Not necessarily, because the alleged representation took
place before the conferences were had, in other words, plaintiff had already represented to
defendant, and the latter had already believed in, the existence of plaintiff's exclusive franchise
before the formal negotiations, and they were assisted by their lawyers only when said formal
negotiations actually took place. Furthermore, plaintiff's attorney testified that plaintiff had said
that he had the exclusive franchise; and defendant's lawyer testified that plaintiff explained to
him, upon being asked for the franchise, that he had left the papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to defendant that he was
the holder of the exclusive franchise. The defendant was made to believe, and he actually
believed, that plaintiff had the exclusive franchise. Defendant would not perhaps have gone to
California and incurred expenses for the trip, unless he believed that plaintiff did have that
exclusive privilege, and that the latter would be able to get the same from the Mission Dry
Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's) exclusive
franchise, as he induced him to that belief, and he may not be allowed to deny that defendant
was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a fraud that
would vitiate the contract? It must be noted that fraud is manifested in illimitable number of
degrees or gradations, from the innocent praises of a salesman about the excellence of his
wares to those malicious machinations and representations that the law punishes as a crime. In
consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the
causal fraud, which may be a ground for the annulment of a contract, and the incidental deceit,
which only renders the party who employs it liable for damages. This Court had held that in
order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the
incidental (dolo causante), inducement to the making of the contract. (Article 1270, Spanish Civil
Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative that the
fact that the principal consideration, the main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to
bottle and distribute for the defendant or for the partnership. The original draft prepared by
defendant's counsel was to the effect that plaintiff obligated himself to secure a franchise for the
defendant. Correction appears in this same original draft, but the change is made not as to the
said obligation but as to the grantee. In the corrected draft the word "capitalist"(grantee) is
changed to "partnership." The contract in its final form retains the substituted term "partnership."
The defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that
the same was to be secured for or transferred to the partnership. The plaintiff no longer had the
exclusive franchise, or the option thereto, at the time the contract was perfected. But while he
had already lost his option thereto (when the contract was entered into), the principal obligation
that he assumed or undertook was to secure said franchise for the partnership, as the bottler
and distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty of a
false representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the
consideration or price plaintiff gave in exchange for the share of 30 percent granted him in the
net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the
net profits because he was transferring his exclusive franchise to the partnership. Thus, in the
draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists:
3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to
the said corporation his exclusive right to bottle Mission products and to sell them throughout the
Philippines. As a consideration for such transfer, the CAPITALIST shall transfer to the Manager
fully paid non assessable shares of the said corporation . . . twenty-five per centum of the capital
stock of the said corporation. (Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the production or
distribution of beverages. As a matter of fact, when the bottling plant being built, all that he
suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive
franchise did not vitiate defendant's consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits; in other words, by pretending that he had the
exclusive franchise and promising to transfer it to defendant, he obtained the consent of the
latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in article
1270 of the Spanish Civil Code, because it was used to get the other party's consent to a big
share in the profits, an incidental matter in the agreement.
Having arrived at the conclusion that the agreement may not be declared null and void, the
question that next comes before us is, May the agreement be carried out or executed? We find
no merit in the claim of plaintiff that the partnership was already a fait accompli from the time of
the operation of the plant, as it is evident from the very language of the agreement that the
parties intended that the execution of the agreement to form a partnership was to be carried out
at a later date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit A.)
As a matter of fact, from the time that the franchise from the Mission Dry Corporation was
obtained in California, plaintiff himself had been demanding that defendant comply with the
agreement. And plaintiff's present action seeks the enforcement of this agreement. Plaintiff's
claim, therefore, is both inconsistent with their intention and incompatible with his own conduct
and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will to
carry out the agreement nor execute the partnership papers. Under the Spanish Civil Code, the
defendant has an obligation to do, not to give. The law recognizes the individual's freedom or
liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within what
Spanish commentators call a very personal act (acto personalismo), of which courts may not
compel compliance, as it is considered an act of violence to do so.
The last question for us to decide is that of damages,damages that plaintiff is entitled to receive
because of defendant's refusal to form the partnership, and damages that defendant is also
entitled to collect because of the falsity of plaintiff's representation. (Article 1101, Spanish Civil
Code.) Under article 1106 of the Spanish Civil Code the measure of damages is the actual loss
suffered and the profits reasonably expected to be received, embraced in the terms daño
emergente and lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per
cent of the net profits of the business. Against this amount of damages, we must set off the
damage defendant suffered by plaintiff's misrepresentation that he had obtained a very high
percentage of share in the profits. We can do no better than follow the appraisal that the parties
themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which
he pretended he had and which he had agreed to transfer to the partnership, his spontaneous
reaction was to reduce plaintiff's share form 30 per cent to 15 per cent only, to which reduction
defendant appears to have readily given his assent. It was under this understanding, which
amounts to a virtual modification of the contract, that the bottling plant was established and
plaintiff worked as Manager for the first three months. If the contract may not be considered
modified as to plaintiff's share in the profits, by the decision of defendant to reduce the same to
one-half and the assent thereto of plaintiff, then we may consider the said amount as a fair
estimate of the damages plaintiff is entitled to under the principle enunciated in the case of
Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce
plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the
reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial
court. The agreement contains the stipulation that upon the termination of the partnership,
defendant was to convey the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the
trial court does not fix the period within which these damages shall be paid to plaintiff. In view of
paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the net profits shall
continue to be paid while defendant uses the franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is hereby affirmed. Without
costs.
Siguan v. Lim
G.R. No. 134685 November 19, 1999
May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her
children be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan?
This is the pivotal issue to be resolved in this petition for review on certiorari under Rule 45 of
the Revised Rules of Court.
The relevant facts, as borne out of the records, are as follows:
On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and
P241,668, respectively, payable to "cash." Upon presentment by petitioner with the drawee
bank, the checks were dishonored for the reason "account closed." Demands to make good the
checks proved futile. As a consequence, a criminal case for violation of Batas Pambansa Blg.
22, docketed as Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch
23 of the Regional Trial Court (RTC) of Cebu City. In its decision 1 dated 29 December 1992,
the court a quo convicted LIM as charged. The case is pending before this Court for review and
docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in
Criminal Case No. Q-89-2216 2 filed by a certain Victoria Suarez. This decision was affirmed by
the Court of Appeals. On appeal, however, this Court, in a decision 3 promulgated on 7 April
1997, acquitted LIM but held her civilly liable in the amount of P169,000, as actual damages,
plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil,
was registered with the Office of the Register of Deeds of Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 563 sq. m. and
covered by TCT No. 93433;
(2) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 600 sq. m. and
covered by TCT No. 93434;
(3) a parcel of land situated at Cebu City containing an area of 368 sq. m. and covered by TCT
No. 87019; and
(4) a parcel of land situated at Cebu City, Cebu containing an area of 511 sq. m. and covered by
TCT No. 87020.
New transfer certificates of title were thereafter issued in the names of the donees. 5
On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch
18 of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null
and void the new transfer certificates of title issued for the lots covered by the questioned Deed.
The complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that
sometime in July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real
property to her children in bad faith and in fraud of creditors, including her; that LIM conspired
and confederated with her children in antedating the questioned Deed of Donation, to petitioner's
and other creditors' prejudice; and that LIM, at the time of the fraudulent conveyance, left no
sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in
Criminal Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said
decision to the Court of Appeals. As regards the questioned Deed of Donation, she maintained
that it was not antedated but was made in good faith at a time when she had sufficient property.
Finally, she alleged that the Deed of Donation was registered only on 2 July 1991 because she
was seriously ill.
In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned
deed of donation; (2) declared null and void the transfer certificates of title issued in the names
of private respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu
City to cancel said titles and to reinstate the previous titles in the name of Rosa Lim; and (4)
directed the LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral
damages; P10,000 as attorney's fees; and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed
the decision of the trial court and dismissed petitioner's accion pauliana. It held that two of the
requisites for filing an accion pauliana were absent, namely, (1) there must be a credit existing
prior to the celebration of the contract; and (2) there must be a fraud, or at least the intent to
commit fraud, to the prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was executed and
acknowledged before a notary public, appears on its face to have been executed on 10 August
1989. Under Section 23 of Rule 132 of the Rules of Court, the questioned Deed, being a public
document, is evidence of the fact which gave rise to its execution and of the date thereof. No
antedating of the Deed of Donation was made, there being no convincing evidence on record to
indicate that the notary public and the parties did antedate it. Since LIM's indebtedness to
petitioner was incurred in August 1990, or a year after the execution of the Deed of Donation,
the first requirement for accion pauliana was not met.
Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was
nevertheless in fraud of creditors because Victoria Suarez became LIM's creditor on 8 October
1987, the Court of Appeals found the same untenable, for the rule is basic that the fraud must
prejudice the creditor seeking the rescission.
Her motion for reconsideration having been denied, petitioner came to this Court and submits
the following issue:
WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN FRAUD OF
[THE] CREDITORS OF RESPONDENT ROSA [LIM].
Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in
fraud of creditors is contrary to well-settled jurisprudence laid down by this Court as early as
1912 in the case of Oria v. McMicking, 8 which enumerated the various circumstances indicating
the existence of fraud in a transaction. She reiterates her arguments below, and adds that
another fact found by the trial court and admitted by the parties but untouched by the Court of
Appeals is the existence of a prior final judgment against LIM in Criminal Case No. Q-89-2216
declaring Victoria Suarez as LIM's judgment creditor before the execution of the Deed of
Donation.
Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section 23,
9 Rule 132 of the Rules of Court, in holding that "being a public document, the said deed of
donation is evidence of the fact which gave rise to its execution and of the date of the latter."
Said provision should be read with Section 30 10 of the same Rule which provides that notarial
documents are prima facie evidence of their execution, not "of the facts which gave rise to their
execution and of the date of the latter."
Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil Code,
which provides: "The donation is always presumed to be in fraud of creditors when at the time of
the execution thereof the donor did not reserve sufficient property to pay his debts prior to the
donation." In this case, LIM made no reservation of sufficient property to pay her creditors prior
to the execution of the Deed of Donation.
On the other hand, respondents argue that (a) having agreed on the law and requisites of accion
pauliana, petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the
credit of Victoria Suarez, who is not a party to this case, to support her accion pauliana; (c) the
Court of Appeals correctly applied or interpreted Section 23 of Rule 132 of the Rules of Court;
(d) petitioner failed to present convincing evidence that the Deed of Donation was antedated and
executed in fraud of petitioner; and (e) the Court of Appeals correctly struck down the awards of
damages, attorney's fees and expenses of litigation because there is no factual basis therefor in
the body of the trial court's decision.
The primordial issue for resolution is whether the questioned Deed of Donation was made in
fraud of petitioner and, therefore, rescissible. A corollary issue is whether the awards of
damages, attorney's fees and expenses of litigation are proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court
of Appeals via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact
of the latter court are conclusive, except in a number of instances. 11 In the case at bar, one of
the recognized exceptions warranting a review by this Court of the factual findings of the Court
of Appeals exists, to wit, the factual findings and conclusions of the lower court and Court of
Appeals are conflicting, especially on the issue of whether the Deed of Donation in question was
in fraud of creditors.
Art. 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are
"those contracts undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them."
The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action
to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a
credit prior to the alienation, 12 although demandable later; (2) the debtor has made a
subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no
other legal remedy to satisfy his claim; 13 (4) the act being impugned is fraudulent; 14 (5) the
third person who received the property conveyed, if it is by onerous title, has been an
accomplice in the fraud. 15
The general rule is that rescission requires the existence of creditors at the time of the alleged
fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement
setting aside the contract. 16 Without any prior existing debt, there can neither be injury nor
fraud. While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior to
the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the
judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the
date when the credit was constituted.
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990,
while the deed of donation was purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that the questioned deed was
antedated to make it appear that it was made prior to petitioner's credit. Notably, that deed is a
public document, it having been acknowledged before a notary public. 18 As such, it is evidence
of the fact which gave rise to its execution and of its date, pursuant to Section 23, Rule 132 of
the Rules of Court.
Petitioner's contention that the public documents referred to in said Section 23 are only those
entries in public records made in the performance of a duty by a public officer does not hold
water. Section 23 reads:
Sec. 23. Public documents as evidence. — Documents consisting of entries in public records
made in the performance of a duty by a public officer are prima facie evidence of the facts
therein stated. All other public documents are evidence, even against a third person, of the fact
which gave rise to their execution and of the date of the latter. (Emphasis supplied).
The phrase "all other public documents" in the second sentence of Section 23 means those
public documents other than the entries in public records made in the performance of a duty by
a public officer. And these include notarial documents, like the subject deed of donation. Section
19, Rule 132 of the Rules of Court provides:
Sec. 19. Classes of docum/ents. — For the purpose of their presentation in evidence,
documents are either public or private.
Public documents are:
Documents acknowledged before a notary public except last wills and testaments.
It bears repeating that notarial documents, except last wills and testaments, are public
documents and are evidence of the facts that gave rise to their execution and of their date.
In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not
enough to overcome the presumption as to the truthfulness of the statement of the date in the
questioned deed, which is 10 August 1989. Petitioner's claim against LIM was constituted only in
August 1990, or a year after the questioned alienation. Thus, the first two requisites for the
rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the
contract of donation, still her action for rescission would not fare well because the third requisite
was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors
may be rescinded only when the creditors cannot in any manner collect the claims due them.
Also, Article 1383 of the same Code provides that the action for rescission is but a subsidiary
remedy which cannot be instituted except when the party suffering damage has no other legal
means to obtain reparation for the same. The term "subsidiary remedy" has been defined as "the
exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission
is resorted to." 19 It is, therefore, "essential that the party asking for rescission prove that he has
exhausted all other legal means to obtain satisfaction of his claim. 20 Petitioner neither alleged
nor proved that she did so. On this score, her action for the rescission of the questioned deed is
not maintainable even if the fraud charged actually did exist." 21
The fourth requisite for an accion pauliana to prosper is not present either.
Art. 1387, first paragraph, of the Civil Code provides: "All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to have been entered into in fraud of creditors
when the donor did not reserve sufficient property to pay all debts contracted before the
donation. Likewise, Article 759 of the same Code, second paragraph, states that the donation is
always presumed to be in fraud of creditors when at the time thereof the donor did not reserve
sufficient property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did not leave
adequate properties which creditors might have recourse for the collection of their credits
existing before the execution of the donation.
As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation
was executed. She cannot, therefore, be said to have been prejudiced or defrauded by such
alienation. Besides, the evidence disclose that as of 10 August 1989, when the deed of donation
was executed, LIM had the following properties:
(1) A parcel of land containing an area of 220 square meters, together with the house
constructed thereon, situated in Sto. Niño Village, Mandaue City, Cebu, registered in the name
of Rosa Lim and covered by TCT No. 19706; 22
(2) A parcel of land located in Benros Subdivision, Lawa-an, Talisay, Cebu; 23
(3) A parcel of land containing an area of 2.152 hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13572. 24
(4) A parcel of land containing an area of 3.6 hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13571. 25
During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was
bought by her in the amount of about P800,000 to P900,000. 26 Thus:
ATTY. FLORIDO:
Q These properties at the Sto. Niño Village, how much did you acquire this property?
A Including the residential house P800,000.00 to P900,000.00.
Q How about the lot which includes the house. How much was the price in the Deed of Sale of
the house and lot at Sto. Niño Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said property was lower. Anent the
property in no. 2, LIM testified that she sold it in 1990. 27 As to the properties in nos. 3 and 4,
the total market value stated in the tax declarations dated 23 November 1993 was P56,871.60.
Aside from these tax declarations, petitioner did not present evidence that would indicate the
actual market value of said properties. It was not, therefore, sufficiently established that the
properties left behind by LIM were not sufficient to cover her debts existing before the donation
was made. Hence, the presumption of fraud will not come into play.
Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759
and 1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may
be proved in any other manner recognized by the law of evidence. Thus in the consideration of
whether certain transfers are fraudulent, the Court has laid down specific rules by which the
character of the transaction may be determined. The following have been denominated by the
Court as badges of fraud:
(1) The fact that the consideration of the conveyance is fictitious or is inadequate;
(2) A transfer made by a debtor after suit has begun and while it is pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or
greatly embarrassed financially;
(6) The fact that the transfer is made between father and son, when there are present other of
the above circumstances; and
(7) The failure of the vendee to take exclusive possession of all the property. 28
The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud
are as varied as the men who perpetrate the fraud in each case. This Court has therefore
declined to define it, reserving the liberty to deal with it under whatever form it may present itself.
29
Petitioner failed to discharge the burden of proving any of the circumstances enumerated above
or any other circumstance from which fraud can be inferred. Accordingly, since the four
requirements for the rescission of a gratuitous contract are not present in this case, petitioner's
action must fail.
In her further attempt to support her action for rescission, petitioner brings to our attention the 31
July 1990 Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216.
LIM was therein held guilty of estafa and was ordered to pay complainant Victoria Suarez the
sum of P169,000 for the obligation LIM incurred on 8 October 1987. This decision was affirmed
by the Court of Appeals. Upon appeal, however, this Court acquitted LIM of estafa but held her
civilly liable for P169,000 as actual damages.
It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the
questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code
provides that rescission shall only be to the extent necessary to cover the damages caused.
Under this Article, only the creditor who brought the action for rescission can benefit from the
rescission; those who are strangers to the action cannot benefit from its effects. 31 And the
revocation is only to the extent of the plaintiff creditor's unsatisfied credit; as to the excess, the
alienation is maintained. 32 Thus, petitioner cannot invoke the credit of Suarez to justify
rescission of the subject deed of donation.
Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses
of litigation in favor of the petitioner. We have pored over the records and found no factual or
legal basis therefor. The trial court made these awards in the dispositive portion of its decision
without stating, however, any justification for the same in the ratio decidendi. Hence, the Court of
Appeals correctly deleted these awards for want of basis in fact, law or equity.
WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of
Appeals in CA-G.R. CV. No. 50091 is AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.
Firme v. Bukal Enterprises
G.R. No. 146608 October 23, 2003
The Case
This is a petition for review on certiorari of the Decision1 dated 3 January 2001 of the Court of
Appeals in CA-G.R. CV No. 60747. The Court of Appeals reversed the Decision2 of the
Regional Trial Court, Branch 223, Quezon City ("trial court"), which held that there was no
perfected contract of sale since there was no consent on the part of the seller.
The Facts
Petitioner Spouses Constante and Azucena Firme ("Spouses Firme") are the registered owners
of a parcel of land3 ("Property") located on Dahlia Avenue, Fairview Park, Quezon City. Renato
de Castro ("De Castro"), the vice president of Bukal Enterprises and Development Corporation
("Bukal Enterprises") authorized his friend, Teodoro Aviles ("Aviles"), a broker, to negotiate with
the Spouses Firme for the purchase of the Property.
On 28 March 1995, Bukal Enterprises filed a complaint for specific performance and damages
with the trial court, alleging that the Spouses Firme reneged on their agreement to sell the
Property. The complaint asked the trial court to order the Spouses Firme to execute the deed of
sale and to deliver the title to the Property to Bukal Enterprises upon payment of the agreed
purchase price.
During trial, Bukal Enterprises presented five witnesses, namely, Aviles, De Castro, Antonio
Moreno, Jocelyn Napa and Antonio Ancheta.
Aviles testified that De Castro authorized him to negotiate on behalf of Bukal Enterprises for the
purchase of the Property. According to Aviles, he met with the Spouses Firme on 23 January
1995 and he presented them with a draft deed of sale4 ("First Draft") dated February 1995. The
First Draft of the deed of sale provides:
DEED OF ABSOLUTE SALE
KNOW ALL MEN BY THESE PRESENTS:
This DEED OF ABSOLUTE SALE made and executed by and between the Spouses
CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age, Filipino citizens and with
postal address at No. 1450 Union, Paco, City of Manila, hereinafter called the VENDOR, and
BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized
and registered in accordance with Philippine Laws, with business address at Dahlia Avenue,
Fairview Park, Quezon City, herein represented by its PRESIDENT, MRS. ZENAIDA A. DE
CASTRO, hereinafter called the VENDEE.
WITNESSETH:
That the VENDOR is the absolute and registered owner of a certain parcel of land located at
Fairview Park, Quezon City, and more particularly described as follows:
A parcel of land (Lot 4, Block 33 of the consolidation-subdivision plan (LRC) Pcs-8124, Sheet
No. I, being a portion of the consolidation of Lots 41-B-2-A and 41-B-2-C, Psd-1136 and Lot
(LRC) Pcs-2665, (LRC) GLRO) Record. No. 1037), situated in Quezon City, Island of Luzon.
Bounded on the NE., points 2 to 5 by Road Lot 24, of the consolidation-subdivision plan.
Beginning at a point marked "1" on plan, being S. 67 deg. 23’W., 9288.80 m. from BLLM I, Mp of
Montalban, Rizal; thence N. 85 deg. 35’E., 17.39 m. to point 2; thence S. 54 deg. 22’E., 4.00 m.
to point 3; thence S. 14 deg. 21’E., 17.87 m. to point 4; thence 3 deg. 56’E., 17.92 m. to point 5;
thence N. 85 deg. 12’ W., 23.38 m. to point 6; thence N. 4 deg. 55’ W., 34.35 m. to the point of
beginning; containing an area of EIGHT HUNDRED AND SIX (806) SQUARE METERS, more or
less.
VENDOR’S title thereto being evidenced by Transfer Certificate of Title No. 264243 issued by
the Register of Deeds of Quezon City;
That the VENDOR, for and in consideration of the sum of THREE MILLION TWO HUNDRED
TWENTY FOUR THOUSAND PESOS (₱3,224,000.00) Philippine Currency, to them in hand
paid and receipt whereof is hereby acknowledged, do hereby SELL, TRANSFER and CONVEY
unto the said VENDEE, its assigns, transferees and successors in interest the above described
property, free from all liens and encumbrances whatsoever;
It is hereby mutually agreed that the VENDEE shall bear all the expenses for the capital gains
tax, documentary stamps, documentation, notarization, removal and relocation of the squatters,
registration, transfer tax and other fees as may be required by law;
That the VENDOR shall pay the real estate tax for the current year and back real estate taxes,
charges and penalties if there are any.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of February,
1995, at Quezon City, Philippines.
CONSTANTE FIRME BUKAL ENTERPRISES AND
DEVELOPMENT CORP.
BY:
AZUCENA E. FIRME
VENDOR ZENAIDA A. DE CASTRO
President
The Spouses Firme rejected this First Draft because of several objectionable conditions,
including the payment of capital gains and other government taxes by the seller and the
relocation of the squatters at the seller’s expense. During their second meeting, Aviles
presented to the Spouses Firme another draft deed of sale5 ("Second Draft") dated March 1995.
The Spouses Firme allegedly accepted the Second Draft in view of the deletion of the
objectionable conditions contained in the First Draft. According to Aviles, the Spouses Firme
were willing to sell the Property at ₱4,000 per square meter. They then agreed that payment
would be made at the Far East Bank and Trust Company ("FEBTC"), Padre Faura Branch,
Manila. However, the scheduled payment had to be postponed due to problems in the transfer of
funds. The Spouses Firme later informed Aviles that they were no longer interested in selling the
Property.6
De Castro testified that he authorized Aviles to negotiate for Bukal Enterprises the purchase of
the Property owned by the Spouses Firme. The Property was located beside the Dahlia
Commercial Complex owned by Bukal Enterprises. Aviles informed him that the Spouses Firme
agreed to sell the Property at ₱4,000 per square meter, payable in cash for a lump sum of
₱3,224,000. Furthermore, Bukal Enterprises agreed to pay the taxes due and to undertake the
relocation of the squatters on the Property. For this purpose, Bukal Enterprises applied for a
loan of ₱4,500,000 which FEBTC granted. Bukal Enterprises then relocated the four families
squatting on the Property at a cost of ₱60,000 per family. After the squatters vacated the
Property, Bukal Enterprises fenced the area, covered it with filling materials, and constructed
posts and riprap. Bukal Enterprises spent approximately ₱300,000 for these improvements. In a
letter7 dated 7 March 1995, Bukal Enterprises offered to pay the purchase price of ₱3,224,000
to the Spouses Firme upon execution of the transfer documents and delivery of the owner’s
duplicate copy of TCT No. 264243. The Spouses Firme did not accept this offer but instead sent
Bukal Enterprises a letter demanding that its workers vacate the Property. Bukal Enterprises
then filed a complaint for specific performance and damages.8
Antonio Moreno, one of the alleged squatters on the Property, testified that he constructed his
house on the Property sometime in 1982. On 26 February 1995, he was summoned together
with the other squatters to a meeting with Aviles regarding their relocation. They agreed to
relocate provided they would be given financial assistance of ₱60,000 per family. Thus, on 6
March 1995, the squatter families were each paid ₱60,000 in the presence of De Castro and
Aviles. Thereafter, they voluntarily demolished their houses and vacated the Property.9
Jocelyn Mapa, the manager of FEBTC, Padre Faura Branch, testified that Bukal Enterprises has
been their client since 1994. According to her, Bukal Enterprises applied for a loan of
₱4,500,000 on the third week of February 1995 allegedly to buy a lot in Fairview. FEBTC
approved the loan on the last week of February and released the proceeds on the first week of
March.10
Antonio Ancheta ("Ancheta"), barangay captain of Barangay Fairview, testified that he was
present when one of the officers of Bukal Enterprises, a certain Renato, paid each of the four
squatter families around ₱60,000 to ₱100,000. Ancheta informed Dr. Constante Firme that he
told the squatters to leave considering that they already received payment for their relocation.
According to Ancheta, Dr. Constante Firme must have misunderstood him and thought that the
squatters left through Ancheta’s own efforts.11
On the other hand, Dr. Constante Firme ("Dr. Firme") was the sole witness for the defendant
spouses.
Dr. Firme testified that on 30 January 1995, he and his wife met with Aviles at the Aristocrat
Restaurant in Quezon City. Aviles arranged the meeting with the Spouses Firme involving their
Property in Fairview. Aviles offered to buy the Property at ₱2,500 per square meter. The
Spouses Firme did not accept the offer because they were reserving the Property for their
children. On 6 February 1995, the Spouses Firme met again with Aviles upon the latter’s
insistence. Aviles showed the Spouses Firme a copy of a draft deed of sale12 ("Third Draft")
which Aviles prepared. The Third Draft of the deed of sale provides:
CONRACT OF SALE
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, executed this ___ day of February, 1995, by and between the Spouses
CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age, Filipino citizen and with
postal address at __________, Quezon City, hereinafter referred to as the VENDORS, and
BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized
and registered in accordance with Philippine Laws, with postal address at Fairview Park,
Quezon City, herein represented by its President and Chief Executive Officer, hereinafter
referred to as the VENDEE.
WITNESSETH:
That for and in consideration of the sum of THREE MILLION TWO HUNDRED TWENTY FOUR
THOUSAND PESOS (₱3,224,000.00), Philippine Currency, payable in the form hereinafter
expressed, agreed to sell to the VENDEE and the VENDEE has agreed to buy from the
VENDORS, a parcel of land situated at Dahlia Avenue corner Rolex Street, Fairview Park,
Quezon City, containing an area of 806 Square Meters more or less, of which the VENDORS
are the absolute registered owners in accordance with the Land Registration Act, as evidenced
by Transfer Certificate of Title No. 264243 issued by the Register of Deeds of Quezon City,
more particularly described and bounded as follows:
(DESCRIPTION AND BOUNDARIES OF PROPERTY)
THE FURTHER TERMS AND CONDITIONS OF THE CONTRACT ARE AS FOLLOWS:
1. The VENDEE agrees to pay the VENDORS upon execution of this Contract the sum of ONE
MILLION PESOS (₱1,000,000.00), Philippine Currency, as downpayment and agrees to pay the
balance of TWO MILLION TWO HUNDRED TWENTY FOUR THOUSAND PESOS
(₱2,224,000.00) at the post office address of the VENDORS in Quezon City, or such other place
or Office as the VENDORS may designate within a period of sixty (60) days counted from the
date of this Contract;
2. The VENDORS have hereunto authorized the VENDEE to mortgage the property and submit
this Contract, together with a certified true copy of the TCT, Tax Declaration, Tax Clearance and
Vicinity/Lot Plan, with their Lending Bank. The proceeds of the VENDEE’S Loan shall directly be
paid and remitted by the Bank to the VENDORS;
3. The said parcel of land shall remain in the name of the VENDORS until the Lending Bank of
the VENDEE shall have issued a Letter Guaranty Payment in favor of the VENDORS, at which
time the VENDORS agree to execute a Deed of Absolute Sale in favor of the VENDEE and
cause the issuance of the Certificate of Title in the name of the latter. The Capital Gains Tax and
Documentary Stamps shall be charged from the VENDORS in accordance with law;1awphi1.nét
4. The payment of the balance of ₱2,224,000.00 by the VENDEE to the VENDORS shall be
within a period of sixty (60) days effective from the date of this Contract. After the lapse of 60
days and the loan has not yet been released due to fortuitous events the VENDEE shall pay an
interest of the balance a monthly interest based on existing bank rate until said fortuitous event
is no longer present;
5. The VENDEE shall remove and relocate the Squatters, however, such actual, reasonable and
necessary expenses shall be charged to the VENDORS upon presentation of receipts and
documents to support the act;
6. The VENDEE shall be allowed for all legal purposes to take possession of the parcel of land
after the execution of this Contract and payment of the downpayment;
7. The VENDEE shall shoulder all expenses like the documentation, registration, transfer tax
and relocation of the property.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of February,
1995, at Quezon City, Philippines.
CONSTANTE E. FIRME
VENDOR BUKAL ENTERPRISES DEV. CORP.
VENDEE
BY:
AZUCENA E. FIRME
VENDOR ________________________
President & Chief Executive Officer
The Spouses Firme did not accept the Third Draft because they found its provisions one-sided.
The Spouses Firme particularly opposed the provision on the delivery of the Property’s title to
Bukal Enterprises for the latter to obtain a loan from the bank and use the proceeds to pay for
the Property. The Spouses Firme repeatedly told Aviles that the Property was not for sale when
Aviles called on 2 and 4 March 1995 regarding the Property. On 6 March 1995, the Spouses
Firme visited their Property and discovered that there was a hollow block fence on one side,
concrete posts on another side and bunkers occupied by workers of a certain Florante de
Castro. On 11 March 1995, Spouses Firme visited the Property again with a surveyor. Dr. Firme
talked with Ancheta who told him that the squatters had voluntarily demolished their shanties.
The Spouses Firme sent a letter13 dated 20 March 1995 to Bukal Enterprises demanding
removal of the bunkers and vacation by the occupants of the Property. On 22 March 1995, the
Spouses Firme received a letter14 dated 7 March 1995 from Bukal Enterprises demanding that
they sell the Property.15
On 7 August 1998, the trial court rendered judgment against Bukal Enterprises as follows:
WHEREFORE, in the light of the foregoing premises, the above-entitled case [is] hereby
DISMISSED and plaintiff BUKAL ENTERPRISES DEVELOPMENT CORPORATION is hereby
ordered to pay the defendants Spouses Constante and Azucena Firme:
1. the sum of Three Hundred Thirty Five Thousand Nine Hundred Sixty Four and 90/100
(₱335,964.90) as and by way of actual and compensatory damages;
2. the sum of Five Hundred Thousand Pesos (₱500,000.00) as and by way of moral damages;
3. the sum of One Hundred Thousand Pesos (₱100,000.00) as and by way of attorney’s fees;
and
4. the costs of the suit.
SO ORDERED.16
Bukal Enterprises appealed to the Court of Appeals, which reversed and set aside the decision
of the trial court. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the Decision, dated August 7, 1998, is hereby
REVERSED and SET ASIDE. The complaint is granted and the appellees are directed to
henceforth execute the Deed of Absolute Sale transferring the ownership of the subject property
to the appellant immediately upon receipt of the purchase price of ₱3,224,000.00 and to perform
all such acts necessary and proper to effect the transfer of the property covered by TCT No.
264243 to appellant. Appellant is directed to deliver the payment of the purchase price of the
property within sixty days from the finality of this judgment. Costs against appellees.
SO ORDERED.17
Hence, the instant petition.1a\^/phi1.net
The Ruling of the Trial Court
The trial court held there was no perfected contract of sale. Bukal Enterprises failed to establish
that the Spouses Firme gave their consent to the sale of the Property. The parties did not go
beyond the negotiation stage and there was no evidence of meeting of the minds between the
parties. Furthermore, Aviles had no valid authority to bind Bukal Enterprises in the sale
transaction. Under Sections 23 and 36 (No. 7) of the Corporation Code, the corporate power to
purchase a specific property is exercised by the Board of Directors of the corporation. Without
an authorization from the Board of Directors, Aviles could not validly finalize the purchase of the
Property on behalf of Bukal Enterprises. There is no basis to apply the Statute of Frauds since
there was no perfected contract of sale.
The Ruling of the Court of Appeals
The Court of Appeals held that the lack of a board resolution authorizing Aviles to act on behalf
of Bukal Enterprises in the purchase of the Property was cured by ratification. Bukal Enterprises
ratified the purchase when it filed the complaint for the enforcement of the sale.
The Court of Appeals also held there was a perfected contract of sale. The appellate court ruled
that the Spouses Firme revealed their intent to sell the Property when they met with Aviles twice.
The Spouses Firme rejected the First Draft because they considered the terms unacceptable.
When Aviles presented the Second Draft without the objectionable provisions, the Spouses
Firme no longer had any cause for refusing to sell the Property. On the other hand, the acts of
Bukal Enterprises in fencing the Property, constructing posts, relocating the squatters and
obtaining a loan to purchase the Property are circumstances supporting their claim that there
was a perfected contract of sale.
The Spouses Firme allowed Bukal Enterprises to exercise acts of ownership over the Property
when the latter introduced improvements on the Property and evicted the squatters. These acts
constitute partial performance of the contract of sale that takes the oral contract out of the scope
of the Statute of Frauds.
The Issues
The Spouses Firme raise the following issues:
1. WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT THERE WAS A
PERFECTED CONTRACT OF SALE BETWEEN PETITIONERS AND RESPONDENT DESPITE
THE ADDUCED EVIDENCE PATENTLY TO THE CONTRARY;
2. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ALLEGED
CONTRACT OF SALE IS ENFORCEABLE DESPITE THE FACT THAT THE SAME IS
COVERED BY THE STATUTE OF FRAUDS;
3. WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THE FACT THAT IT
WAS NOT LEGALLY AND FACTUALLY POSSIBLE FOR RESPONDENT TO PERFECT A
CONTRACT OF SALE; AND
4. THE COURT OF APPEALS ERRED IN RULING THAT THE AWARD BY THE TRIAL COURT
OF MORAL AND COMPENSATORY DAMAGES TO PETITIONERS IS IMPROPER.18
The Ruling of the Court
The petition is meritorious.
The fundamental question for resolution is whether there was a perfected contract of sale
between the Spouses Firme and Bukal Enterprises. This requires a review of the factual and
legal issues of this case. As a rule, only questions of law are appealable to this Court under Rule
4519 of the Rules of Civil Procedure. The findings of fact by the Court of Appeals are generally
conclusive and binding on the parties and are not reviewable by this Court.20 However, when
the factual findings of the Court of Appeals are contrary to those of the trial court or when the
inference made is manifestly mistaken, this Court has the authority to review the findings of
fact.21 Likewise, this Court may review findings of fact when the judgment of the Court of
Appeals is premised on a misapprehension of facts.22 This is the situation in this case.
Whether there was a perfected contract of sale
We agree with the finding of the trial court that there was no perfected contract of sale. Clearly,
the Court of Appeals misapprehended the facts of the case in ruling otherwise.
First, the records indubitably show that there was no consent on the part of the Spouses Firme.
Aviles did not present any draft deed of sale during his first meeting with the Spouses Firme on
30 January 1995.23 Dr. Firme was consistent in his testimony that he and his wife rejected the
provisions of the Third Draft presented by Aviles during their second meeting on 6 February
1995. The Spouses Firme found the terms and conditions unacceptable and told Aviles that they
would not sell the property.24 Aviles showed them only one draft deed of sale (Third Draft)
during their second and last meeting on 6 February 1995.25 When shown a copy of the First
Draft, Dr. Firme testified that it was not the deed of sale shown to them by Aviles during their
second meeting26 and that the Third Draft was completely different from the First Draft.27
On the other hand, Aviles gave conflicting testimony as to what transpired during the two
meetings with the Spouses Firme. In his direct examination, Aviles testified that during his first
meeting with the Spouses Firme on 23 January 1995, he showed them the First Draft which the
Spouses Firme rejected.28 On their second meeting, Aviles showed the Spouses Firme the
Second Draft, which the Spouses Firme allegedly approved because the objectionable
conditions contained in the First Draft were already deleted. However, a perusal of the First Draft
and the Second Draft would show that both deeds of sale contain exactly the same provisions.
The only difference is that the date of the First Draft is February 1995 while that of the Second
Draft is March 1995.
When Aviles testified again as rebuttal witness, his testimony became more confusing. Aviles
testified that during his first meeting with the Spouses Firme on 30 January 1995, he showed
them the Third Draft, which was not acceptable to the latter.29 However, upon further
questioning by his counsel, Aviles concurred with Dr. Firme’s testimony that he presented the
Third Draft (Exh. "5"; Exh. "L") to the Spouses Firme only during their second meeting. He also
stated that he prepared and presented to the Spouses Firme the First Draft (Exh. "C") and the
Second Draft (Exh. "C-1") during their first or second meeting. He testified:
ATTY. MARQUEDA:
Q: On page 11 of the tsn dated August 5, 1997 a question was posed "How did you find this
draft the Contract of Sale which was presented to you by Mr. Aviles on the second meeting?"
The answer is "On the first meeting(sic), we find it totally unacceptable, sir."30 What can you say
on this? Before that, Mr. Witness, what is this Contract of Sale that you presented to Mr. Aviles
on the second meeting? Is this different from the Contract of Sale that was marked as Exhibit "5-
L"?
Q: May I see the document Exhibit 5 – L?31
INTERPRETER:
Witness going over the record.
ATTY. MARQUEDA:
Q: Is that the same document that was presented by you to Mr. Firme on the second meeting or
there is a different contract?
A: This is the same document – draft of the document that I submitted to them during our
second meeting. That was February. This was the draft.
Q: What about Exhibit C and C-1 [which] were identified by you. When was this presented to Dr.
Firme?
A: This is the same.
Q: Exhibit C and C-1?
A: Yes because I prepared two documents during our meeting. One already with notarial, the
one without notarial page and the other one with notarial page already, so I prepared two
documents but with the same contents both were dated February of 1995.32
Q: So, you are referring now to Exhibit C and C-1 for the plaintiff?
A: C-1 is already in the final form because we agreed already as to the date of the payment, so I
prepared already another document which is dated March 1995.33 (Emphasis supplied)
In his cross-examination, Aviles again changed his testimony. According to him, he presented
the Third Draft to the Spouses Firme during their first meeting.34 However, when he went over
the records, he again changed his answer and stated that he presented the Third Draft during
their second meeting.35
In his re-direct examination, Aviles gave another version of what he presented to the Spouses
Firme during the two meetings. According to him, he presented the Third Draft during the first
meeting. On their second meeting, he presented the First and the Second Drafts to the Spouses
Firme.36
Furthermore, Aviles admitted that the first proposal of Bukal Enterprises was at ₱2,500 per
square meter for the Property.37 But the First, Second and Third Drafts of the deed of sale
prepared by Aviles all indicated a purchase price of ₱4,000 per square meter or a lump sum of
₱3,224,000 (₱4,000 per sq.m. x 806 sq.m. = ₱3,224,000) for the Property. Hence, Aviles could
not have presented any of these draft deeds of sale to the Spouses Firme during their first
meeting.
Considering the glaring inconsistencies in Aviles’ testimony, it was proper for the trial court to
give more credence to the testimony of Dr. Firme.
Even after the two meetings with Aviles, the Spouses Firme were firm in their decision not to sell
the Property. Aviles called the Spouses Firme twice after their last meeting. The Spouses Firme
informed Aviles that they were not selling the Property.38 Aviles himself admitted this during his
testimony, thus:
Q. Now, the next question which states: "But did you not have any occasion to talk to him after
that second meeting?" and the answer of Dr. Firme is "He called up a month after, that’s March
2, 1995." What can you say on this?
A. I called him to inform him that the loan was already transferred from Makati to Padre Faura
Branch of the Far East Bank, so I scheduled already the payment of their property.
Q. When?
A. On March 4, 1995.
Q. And then the next question which also states: "What did you talked (sic) about over the
telephone?" The answer of Dr. Firme was "When I found out that he was calling, I told him that
the property is not for sale." What can you say on this?
A. He mentioned that they are no longer interested to sell their property, perhaps they would like
a higher price of the property. They did not mention to me. I do not know what was their reason.
Q. The next question "So, what happened next?" The answer is "He called up two days later,
March 4 and my wife answered the telephone and told him that the property is not for sale, sir."
What can you say on this?
A. That is true. That is what Mrs. Firme told me during our conversation on the telephone that
they are no longer interested to sell the property for obvious reason.
Q. When was that?
A. March 4, 1995, your honor.39 (Emphasis supplied)
Significantly, De Castro also admitted that he was aware of the Spouses Firme’s refusal to sell
the Property.40
The confusing testimony of Aviles taken together with De Castro’s admission that he was aware
of the Spouses Firme’s refusal to sell the Property reinforces Dr. Firme’s testimony that he and
his wife never consented to sell the Property.
Consent is one of the essential elements of a valid contract. The Civil Code 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.
The absence of any of these essential elements will negate the existence of a perfected contract
of sale.41 Thus, where there is want of consent, the contract is non-existent.42 As held in
Salonga, et al. v. Farrales, et al.:43
It is elementary that consent is an essential element for the existence of a contract, and where it
is wanting, the contract is non-existent. The essence of consent is the conformity of the parties
on the terms of the contract, the acceptance by one of the offer made by the other. The contract
to sell is a bilateral contract. Where there is merely an offer by one party, without the acceptance
of the other, there is no consent. (Emphasis supplied)
In this case, the Spouses Firme flatly rejected the offer of Aviles to buy the Property on behalf of
Bukal Enterprises. There was therefore no concurrence of the offer and the acceptance on the
subject matter, consideration and terms of payment as would result in a perfected contract of
sale.44 Under Article 1475 of the Civil Code, the contract of sale is perfected at the moment
there is a meeting of minds on the thing which is the object of the contract and on the price.
Another piece of evidence which supports the contention of the Spouses Firme that they did not
consent to the contract of sale is the fact they never signed any deed of sale. If the Spouses
Firme were already agreeable to the offer of Bukal Enterprises as embodied in the Second Draft,
then the Spouses Firme could have simply affixed their signatures on the deed of sale, but they
did not.
Even the existence of a signed document purporting to be a contract of sale does not preclude a
finding that the contract is invalid when the evidence shows that there was no meeting of the
minds between the seller and buyer.45 In this case, what were offered in evidence were mere
unsigned deeds of sale which have no probative value.46 Bukal Enterprises failed to show the
existence of a perfected contract of sale by competent proof.1ªvvphi1.nét
Second, there was no approval from the Board of Directors of Bukal Enterprises as would
finalize any transaction with the Spouses Firme. Aviles did not have the proper authority to
negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro, had asked him to
negotiate with the Spouses Firme to buy the Property.47 De Castro, as Bukal Enterprises’ vice
president, testified that he authorized Aviles to buy the Property.48 However, there is no Board
Resolution authorizing Aviles to negotiate and purchase the Property on behalf of Bukal
Enterprises.49
It is the board of directors or trustees which exercises almost all the corporate powers in a
corporation. Thus, the Corporation Code provides:
SEC. 23. The board of directors or trustees. — Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stock, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified.
SEC. 36. Corporate powers and capacity. — Every corporation incorporated under this Code
has the power and capacity:
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations,
as the transaction of a lawful business of the corporation may reasonably and necessarily
require, subject to the limitations prescribed by the law and the Constitution.
Under these provisions, the power to purchase real property is vested in the board of directors
or trustees. While a corporation may appoint agents to negotiate for the purchase of real
property needed by the corporation, the final say will have to be with the board, whose approval
will finalize the transaction.50 A corporation can only exercise its powers and transact its
business through its board of directors and through its officers and agents when authorized by a
board resolution or its by-laws.51 As held in AF Realty & Development, Inc. v. Dieselman Freight
Services, Co.:52
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or
acts of a corporation must be made either by the board of directors or by a corporate agent duly
authorized by the board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the
course of, or connected with, the performance of authorized duties of such director, are held not
binding on the corporation. (Emphasis supplied)
In this case, Aviles, who negotiated the purchase of the Property, is neither an officer of Bukal
Enterprises nor a member of the Board of Directors of Bukal Enterprises. There is no Board
Resolution authorizing Aviles to negotiate and purchase the Property for Bukal Enterprises.
There is also no evidence to prove that Bukal Enterprises approved whatever transaction Aviles
made with the Spouses Firme. In fact, the president of Bukal Enterprises did not sign any of the
deeds of sale presented to the Spouses Firme. Even De Castro admitted that he had never met
the Spouses Firme.53 Considering all these circumstances, it is highly improbable for Aviles to
finalize any contract of sale with the Spouses Firme.
Furthermore, the Court notes that in the Complaint filed by Bukal Enterprises with the trial court,
Aviles signed54 the verification and certification of non-forum shopping.55 The verification and
certification of non-forum shopping was not accompanied by proof that Bukal Enterprises
authorized Aviles to file the complaint on behalf of Bukal Enterprises.
The power of a corporation to sue and be sued is exercised by the board of directors. "The
physical acts of the corporation, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of
directors."56
The purpose of verification is to secure an assurance that the allegations in the pleading are true
and correct and that it is filed in good faith.57 True, this requirement is procedural and not
jurisdictional. However, the trial court should have ordered the correction of the complaint since
Aviles was neither an officer of Bukal Enterprises nor authorized by its Board of Directors to act
on behalf of Bukal Enterprises.
Whether the Statute of Frauds is applicable
The Court of Appeals held that partial performance of the contract of sale takes the oral contract
out of the scope of the Statute of Frauds. This conclusion arose from the appellate court’s
erroneous finding that there was a perfected contract of sale. The records show that there was
no perfected contract of sale. There is therefore no basis for the application of the Statute of
Frauds. The application of the Statute of Frauds presupposes the existence of a perfected
contract.58 Article 1403 of the Civil Code provides:
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 Q: In your Complaint you said you find out on March 3, 1995. Is that not correct?
legal representation, or who has acted beyond his powers;
A: I cannot exactly remember, sir.
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the ATTY. MARQUEDA:
same, or some note or memorandum thereof, be in writing and subscribed by the party charged
or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or In the Complaint it does not state March 3. Maybe counsel was thinking of this Paragraph 6
a secondary evidence of its contents: which states, "When the property was rid of the squatters on March 2, 1995 for the
documentation and payment of the sale, xxx".
(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein; ATTY. EJERCITO:

Whether Bukal Enterprises is a builder in good faith Q: So, you found out on March 2, 1995 that the defendants were no longer interested in selling
to you the property. Is that correct?
Bukal Enterprises is not a builder in good faith. The Spouses Firme did not accept Aviles’ offer to
purchase the Property. Aviles testified that when he called the Spouses Firme on 2 March 1995, A: Yes, sir, because Mr. Aviles relayed it to me.
Dr. Firme informed him that they were no longer interested in selling the Property. On 4 March
1995, Aviles called again and this time Mrs. Firme told him that they were not selling the Q: Mr. Aviles relayed to you that the Spouses Firme were no longer interested in selling to you
Property. Aviles informed De Castro of the refusal of the Spouses Firme to sell the Property. the property in March 2, 1995. Is that correct?
However, Bukal Enterprises still proceeded in relocating the squatters and constructing
improvements on the Property. De Castro testified: A: Yes, sir. Mr. Aviles told me.

ATTY. EJERCITO: Q: In so many words, Mr. Witness, you learned that the Spouses Firme were no longer
interested in selling the property before you spent allegedly all the sum of money for the
Q: The truth of the matter, Mr. Witness, is that the post was constructed sometime late 1994. Is relocation of squatters for all this construction that you are telling this Court now?
that not correct?
WITNESS:
A: No, sir. It is not true.
A: The refusal to sell is not yet formal and the lawyer sent a letter tendering full payment of the
Q: When was it constructed? purchase price.

A: That March. ATTY. EJERCITO:

Q: When in March? Q: You mean to say that you did not believe Mr. Aviles when he told you that the Spouses Firme
were no longer selling the property?
A: 1995.
A: No, sir.
Q: When in March 1995?
Q: Was there anything formal when you say the Spouses Firme agreed to sell the property?
A: From the period of March 2, 1995 or two (2) weeks after the removal of the squatters.
A: None, sir.
Q: When were the squatters removed?
Q: And yet that time you believe Mr. Aviles when he verbally told you that the Sps. Firme agreed
WITNESS: to sell the property? At what point of the transaction with the Spouses Firme were you advised
by your lawyer?
A: March 6 and 7 because there were four (4) squatters.
WITNESS:
ATTY. EJERCITO:
A: At the time when they refused to sell the lot.
Q: When did you find out that the Spouses Firme did not want to sell the same?
ATTY. EJERCITO:
A: First week of March 1995.
Q: Was that before the squatters were relocated allegedly by Bukal Enterprises? Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose
A: Yes, sir. of indemnifying the plaintiff for any loss suffered by him.

Q: In fact, it was the lawyer who advised you to relocate the squatters. Is it not true? Art. 2222. The court may award nominal damages in every obligation arising from any source
enumerated in article 1157, or in every case where any property right has been invaded.
A: No, sir.59 (Emphasis supplied)
The award of damages is also in accordance with Article 451 of the Civil Code which states that
Bukal Enterprises is obviously a builder in bad faith. No deed of sale has been executed in this the landowner is entitled to damages from the builder in bad faith.65
case. Despite the refusal of the Spouses Firme to sell the Property, Bukal Enterprises still
proceeded to introduce improvements on the Property. Bukal Enterprises introduced WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RENDER a new one:
improvements on the Property without the knowledge and consent of the Spouses Firme. When
the Spouses Firme learned about the unauthorized constructions made by Bukal Enterprises on 1. Declaring that there was no perfected contract of sale;
the Property, they advised the latter to desist from further acts of trespass on their Property.60
2. Ordering Bukal Enterprises to pay the Spouses Firme ₱30,000 as nominal damages.
The Civil Code provides:
SO ORDERED.
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right of indemnity.

Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith
may demand the demolition of the work, or that the planting or sowing be removed, in order to
replace things in their former condition at the expense of the person who built, planted or sowed;
or he may compel the builder or planter to pay the price of the land, and the owner the proper
rent.

Under these provisions the Spouses Firme have the following options: (1) to appropriate what
Bukal Enterprises has built without any obligation to pay indemnity; (2) to ask Bukal Enterprises
to remove what it has built; or (3) to compel Bukal Enterprises to pay the value of the land.61
Since the Spouses Firme are undoubtedly not selling the Property to Bukal Enterprises, they
may exercise any of the first two options. They may appropriate what has been built without
paying indemnity or they may ask Bukal Enterprises to remove what it has built at Bukal
Enterprises’ own expense.

Bukal Enterprises is not entitled to reimbursement for the expenses incurred in relocating the
squatters. Bukal Enterprises spent for the relocation of the squatters even after learning that the
Spouses Firme were no longer interested in selling the Property. De Castro testified that even
though the Spouses Firme did not require them to remove the squatters, they chose to spend for
the relocation of the squatters since they were interested in purchasing the Property.62

Whether the Spouses Firme are entitled to compensatory and moral damages

The Court agrees with the Court of Appeals to delete the award for compensatory and moral
damages. In awarding actual damages, the trial court took into account the traveling expenses
incurred by the Spouses Firme who are already residing in the United States. However, the trial
court failed to consider the testimony of Dr. Firme that they normally travel to the Philippines
more than once a year to visit their children.63 Thus, the expenses for the roundtrip tickets
dated 1996-1997 could not be attributed solely for the attendance of hearings in the case.

Nevertheless, an award of nominal damages of ₱30,000 is warranted since Bukal Enterprises

Western Mindanao Co v. Medalle
violated the property rights of the Spouses Firme.64 The Civil Code provides:
G.R. No. L-23213 October 28, 1977
Appeal from the order of the Court of First Of the complaint upon the ground that the claim on
which it is founded is unenforceable under the Statute of Fraud and Special law.
The complaint, filed on December 16, 1960, alleges that: ñé+.£ªwph!1
2. — The Plaintiff is engaged in logging operations in Curuan Zamboanga City and in connection
with the said logging operation it obtained on September 8, 1955 a right-of-way through the said
Lot 2136, of the Cadastral Survey of Zamboanga from Mr. Luciano Hernandez, then the
registered owner, a copy of the agreement being enclosed as Annex A';
3. — The former owners of the logging concession operated by the Plaintiff constructed and
maintained the said road through Lot 2136, but the Plaintiff improved the said road, paying to the
registered owner for all the improvements damaged by the improvement of the road;
4. — Long before the execution of the right-of-way agreement on September 8, 1955, since then
and up to the present time the said road has been maintained and used not only by the
predecessor of the Plaintiff and the Plaintiff, but also by the public:
5. — The said Lot 2136 was purchased by the defendants in 1958 and the said road then
existed and was in public use and the defendants did not oppose but instead allowed the
continued use and maintenance of the road by the Plaintiff and the public;
6. — The said road is indispensable to the business operations of the Plaintiff, because it is the
only access from their concession to the highway;
7. — That defendants have now sent to the Plaintiff a notice (Annex'B') of their intention to close
the road; and
8. — The Plaintiff has the right to the continued use of said road, the closing of which will cause
injustice and irreparable damages to the Plaintiff and the Plaintiff is willing to post a bond for the
issuance of a writ of preliminary injunction to stop the defendants from closing the road.
Wherefore, the plaintiff prayed that a writ of preliminary injunction be issued restraining the
defendants from closing the said road, and after hearing, make the injunction permanent. It also
prayed that the defendants be directed to recognize and respect the said road right-of-way
agreement. 1 Copies of the road right-of-way agreement and the letter of the defendants
advising the plaintiff of the closure of the road were attached thereto. 2 Upon the filing of a bond
in the amount of P1,000.00, a writ of preliminary injunction was issued, restraining the
defendants from closing the road. 3
Instead of a responsive pleading, the defendants filed a motion to dismiss the complaint on
January 4, 1961, upon the ground that the claim on which the action or suit is founded is
unenforceable under the provisions of the Statute of Frauds and special law, in that the first
page of the said road right-of-way agreement was not signed by both parties and their
instrumental witnesses; page two thereof is not dated, and the signature of the plaintiffs
corporate agent does not appear; and that said agreement is not acknowledged before a person
authorized to administer oaths. 4
The plaintiff opposed the motion, stating that the agreement between plaintiff and Luciano
Hernandez is not one of those agreements specified in the Statute of Frauds 5 Nevertheless, the
trial court granted the motion to dismiss on January 17, 1961 and the cases. 6
The plaintiff filed a motion for reconsideration of the said order, insisting that the road right-of-
way agreement is not covered by the Statute of Frauds. 7 Then, on March 4, 1961, the plaintiff
filed an Amended Complaint, accompanied by a motion for its admission. The plaintiff therein
prayed, among others, that the Defendants be ordered to keep the road open and to respect the
right-of-way agreement, and "should it be ascertained that under the law the plainttiff is bound to
pay compensation for the right-of- way to the defendants, it is prayed that the reasonable
amount of such compensation be fixed. 8
After hearing the parties, the trial court issued an order on September 6, 1961, denying the
motion for reconsideration. 9
Whereupon, the plaintiff perfected an appeal to the Court of Appeals. 10 The Appellate Court,
finding that only questions of law are raised, elevated the appeal to this Court. 11
The plaintiff-appellant made the following assignment of errors in its Brief: ñé+.£ªwph!1
1. The trial court erred in dismissing the complaint on the ground that the claim on which the
action or suit is founded is unenforceable under the provisions of the Statute of Frauds and
special law; and
2. The trial court erred in denying plaintiffs motion for reconsideration.
The appeal is meritorious. The Statute of Frauds refers to specific kinds of transactions and
cannot apply to any that is not enumerated therein. 12 The transactions or agrrements covered
by said statute are the following: ñé+.£ªwph!1
(a) An agreement that by its terms is not to be performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action, or pay at the time somepart of the
purchase money; but when a sale is made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of property sold, terms of sale price,
names of purchasers and person on whose account the sale is made, it is sufficient
memorandum;
(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
(f) A representation as to the credit of a third person. 13
Obviously, an agreement creating an easement of right-of-way is not one of those contracts
coverede by the statue of rauds since it is not a sale of property or of an interest therein. The
trial court therefore, erred in dismissing the case upon the defendants' claim that the road fight-
of-way agreement in question is unenforceable under the statute of frauds. Besides, the
complaint, as amended, may be viewed not only as a claim for the recognition of the existence
of an easement of right-of-way on defendants' estate, but also a demand for the establishment
of an easement of right-of-way, if none exist, pursuant to Art. 649 of the Civil Code, in view of
the plaintiffs offer to pay reasonable compensation for the use of the land.
WHEREFORE, the judgment from is hereby reversed and the order of January 17, 1961 and
September 6, 1961 set aside.Costs against the defendants-appellees.
SO ORDERED.
Tankeh v. DBP
G.R. No. 171428 November 11, 2013
This is a Petition for Review on Certiorari praying that the assailed October 25, 2005 Decision
and the February 9, 2006 Resolution of the Court of Appeals1 be reversed, and that the January
4, 1996 Decision of the Regional Trial Court of Manila Branch 32 be affirmed. Petitioner prays
that this Court grant his claims for moral damages and attorney’s fees, as proven by the
evidence.
Respondent Ruperto V. Tankeh is the president of Sterling Shipping Lines, Inc. It was
incorporated on April 23, 1979 to operate ocean-going vessels engaged primarily in foreign
trade.2 Ruperto V. Tankeh applied for a $3.5 million loan from public respondent Development
Bank of the Philippines for the partial financing of an ocean-going vessel named the M/V Golden
Lilac. To authorize the loan, Development Bank of the Philippines required that the following
conditions be met:
1) A first mortgage must be obtained over the vessel, which by then had been renamed the M/V
Sterling Ace;
2) Ruperto V. Tankeh, petitioner Dr. Alejandro V. Tankeh, Jose Marie Vargas, as well as
respondents Sterling Shipping Lines, Inc. and Vicente Arenas should become liable jointly and
severally for the amount of the loan;
3) The future earnings of the mortgaged vessel, including proceeds of Charter and Shipping
Contracts, should be assigned to Development Bank of the Philippines; and
4) Development Bank of the Philippines should be assigned no less than 67% of the total
subscribed and outstanding voting shares of the company. The percentage of shares assigned
should be maintained at all times, and the assignment was to subsist as long as the assignee,
Development Bank of the Philippines, deemed it necessary during the existence of the loan.3
According to petitioner Dr. Alejandro V. Tankeh, Ruperto V. Tankeh approached him sometime
in 1980.4 Ruperto informed petitioner that he was operating a new shipping line business.
Petitioner claimed that respondent, who is also petitioner’s younger brother, had told him that
petitioner would be given one thousand (1,000) shares to be a director of the business. The
shares were worth ₱1,000,000.00.5
On May 12, 1981, petitioner signed the Assignment of Shares of Stock with Voting Rights.6
Petitioner then signed the May 12, 1981 promissory note in December 1981. He was the last to
sign this note as far as the other signatories were concerned.7 The loan was approved by
respondent Development Bank of the Philippines on March 18, 1981. The vessel was acquired
on September 29, 1981 for $5.3 million.8 On December 3, 1981, respondent corporation Sterling
Shipping Lines, Inc. through respondent Ruperto V. Tankeh executed a Deed of Assignment in
favor of Development Bank of the Philippines. The deed stated that the assignor, Sterling
Shipping Lines, Inc.:
x x x does hereby transfer and assign in favor of the ASSIGNEE (DBP), its successors and
assigns, future earnings of the mortgaged M/V "Sterling Ace," including proceeds of charter and
shipping contracts, it being understood that this assignment shall continue to subsist for as long
as the ASSIGNOR’S obligation with the herein ASSIGNEE remains unpaid.9
On June 16, 1983, petitioner wrote a letter to respondent Ruperto V. Tankeh saying that he was
severing all ties and terminating his involvement with Sterling Shipping Lines, Inc.10 He required
that its board of directors pass a resolution releasing him from all liabilities, particularly the loan
contract with Development Bank of the Philippines. In addition, petitioner asked that the private
respondents notify Development Bank of the Philippines that he had severed his ties with
Sterling Shipping Lines, Inc.11
The accounts of respondent Sterling Shipping Lines, Inc. in the Development Bank of the
Philippines were transferred to public respondent Asset Privatization Trust on June 30, 1986.12
Presently, respondent Asset Privatization Trust is known as the Privatization and Management
Office. Asset Privatization Trust was a government agency created through Presidential
Proclamation No. 50, issued in 1986. Through Administrative Order No. 14, issued by former
President Corazon Aquino dated February 3, 1987, assets including loans in favor of
Development Bank of the Philippines were ordered to be transferred to the national government.
In turn, the management and facilitation of these assets were delegated to Asset Privatization
Trust, pursuant to Presidential Proclamation No. 50. In 1999, Republic Act No. 8758 was signed
into law, and it provided that the corporate term of Asset Privatization Trust would end on
December 31, 2000. The same law empowered the President of the Philippines to determine
which office would facilitate the management of assets held by Asset Privatization Trust. Thus,
on December 6, 2000, former President Joseph E. Estrada signed Executive Order No. 323,
creating the Privatization Management Office. Its present function is to identify disposable
assets, monitor the progress of privatization activities, and approve the sale or divestment of
assets with respect to price and buyer.13
On January 29, 1987, the M/V Sterling Ace was sold in Singapore for $350,000.00 by
Development Bank of the Philippines’ legal counsel Atty. Prospero N. Nograles. When petitioner
came to know of the sale, he wrote respondent Development Bank of the Philippines to express
that the final price was inadequate, and therefore, the transaction was irregular. At this time,
petitioner was still bound as a debtor because of the promissory note dated May 12, 1981, which
petitioner signed in December of 1981. The promissory note subsisted despite Sterling Shipping
Lines, Inc.’s assignment of all future earnings of the mortgaged M/V Sterling Ace to
Development Bank of the Philippines. The loan also continued to bind petitioner despite Sterling
Shipping Lines, Inc.’s cash equity contribution of ₱13,663,200.00 which was used to cover part
of the acquisition cost of the vessel, pre-operating expenses, and initial working capital.14
Petitioner filed several Complaints15 against respondents, praying that the promissory note be
declared null and void and that he be absolved from any liability from the mortgage of the vessel
and the note in question.
In the Complaints, petitioner alleged that respondent Ruperto V. Tankeh, together with Vicente
L. Arenas, Jr. and Jose Maria Vargas, had exercised deceit and fraud in causing petitioner to
bind himself jointly and severally to pay respondent Development Bank of the Philippines the
amount of the mortgage loan.16 Although he had been made a stockholder and director of the
respondent corporation Sterling Shipping Lines, Inc., petitioner alleged that he had never
invested any amount in the corporation and that he had never been an actual member of the
board of directors.17 He alleged that all the money he had supposedly invested was provided by
respondent Ruperto V. Tankeh.18 He claimed that he only attended one meeting of the board.
In that meeting, he was introduced to two directors representing Development Bank of the
Philippines, namely, Mr. Jesus Macalinag and Mr. Gil Corpus. Other than that, he had never
been notified of another meeting of the board of directors.
Petitioner further claimed that he had been excluded deliberately from participating in the affairs
of the corporation and had never been compensated by Sterling Shipping Lines, Inc. as a
director and stockholder.19 According to petitioner, when Sterling Shipping Lines, Inc. was
organized, respondent Ruperto V. Tankeh had promised him that he would become part of the
administration staff and oversee company operations. Respondent Ruperto V. Tankeh had also
promised petitioner that the latter’s son would be given a position in the company.20 However,
after being designated as vice president, petitioner had not been made an officer and had been
alienated from taking part in the respondent corporation.21
Petitioner also alleged that respondent Development Bank of the Philippines had been
inexcusably negligent in the performance of its duties.22 He alleged that Development Bank of
the Philippines must have been fully aware of Sterling Shipping Lines, Inc.’s financial situation.
Petitioner claimed that Sterling Shipping Lines, Inc. was controlled by the Development Bank of
the Philippines because 67% of voting shares had been assigned to the latter.23 Furthermore,
the mortgage contracts had mandated that Sterling Shipping Lines, Inc. "shall furnish the DBP
with copies of the minutes of each meeting of the Board of Directors within one week after the
meeting. Sterling Shipping Lines Inc. shall likewise furnish DBP its annual audited financial
statements and other information or data that may be needed by DBP as its accommodations
[sic] with DBP are outstanding."24 Petitioner further alleged that the Development Bank of the
Philippines had allowed "highly questionable acts"25 to take place, including the gross
undervaluing of the M/V Sterling Aces.26 Petitioner alleged that one day after Development
Bank of the Philippines’ Atty. Nograles sold the vessel, the ship was re-sold by its buyer for
double the amount that the ship had been bought.27
As for respondent Vicente L. Arenas, Jr., petitioner alleged that since Arenas had been the
treasurer of Sterling Shipping Lines, Inc. and later on had served as its vice president, he was
also responsible for the financial situation of Sterling Shipping Lines, Inc.
Lastly, in the Amended Complaint dated April 16, 1991, petitioner impleaded respondent Asset
Privatization Trust for being the agent and assignee of the M/V Sterling Ace.
In their Answers28 to the Complaints, respondents raised the following defenses against
petitioner: Respondent Development Bank of the Philippines categorically denied receiving any
amount from Sterling Shipping Lines, Inc.’s future earnings and from the proceeds of the
shipping contracts. It maintained that equity contributions could not be deducted from the
outstanding loan obligation that stood at ₱245.86 million as of December 31, 1986.
Development Bank of the Philippines also maintained that it is immaterial to the case whether
the petitioner is a "real stockholder" or merely a "pseudo-stockholder" of the corporation.29 By
affixing his signature to the loan agreement, he was liable for the obligation. According to
Development Bank of the Philippines, he was in pari delicto and could not be discharged from
his obligation. Furthermore, petitioner had no cause of action against Development Bank of the
Philippines since this was a case between family members, and earnest efforts toward
compromise should have been complied with in accordance with Article 222 of the Civil Code of
the Philippines.30
Respondent Ruperto V. Tankeh stated that petitioner had voluntarily signed the promissory note
in favor of Development Bank of the Philippines and with full knowledge of the consequences.
Respondent Tankeh also alleged that he did not employ any fraud or deceit to secure
petitioner’s involvement in the company, and petitioner had been fully aware of company
operations. Also, all that petitioner had to do to avoid liability had been to sell his shareholdings
in the company.31
Respondent Asset Privatization Trust raised that petitioner had no cause of action against them
since Asset Privatization Trust had been mandated under Proclamation No. 50 to take title to
and provisionally manage and dispose the assets identified for privatization or deposition within
the shortest possible period. Development Bank of the Philippines had transferred and conveyed
all its rights, titles, and interests in favor of the national government in accordance with
Administrative Order No. 14. In line with that, Asset Privatization Trust was constituted as trustee
of the assets transferred to the national government to effect privatization of these assets,
including respondent Sterling Shipping Lines, Inc.32 Respondent Asset Privatization Trust also
filed a compulsory counterclaim against petitioner and its co-respondents Sterling Shipping
Lines, Inc., Ruperto V. Tankeh, and Vicente L. Arenas, Jr. for the amount of ₱264,386,713.84.
Respondent Arenas did not file an Answer to any of the Complaints of petitioner but filed a
Motion to Dismiss that the Regional Trial Court denied. Respondent Asset Privatization Trust
filed a Cross Claim against Arenas. In his Answer33 to Asset Privatization Trust’s Cross Claim,
Arenas claimed that he had been released from any further obligation to Development Bank of
the Philippines and its successor Asset Privatization Trust because an extension had been
granted by the Development Bank of the Philippines to the debtors of Sterling Shipping Lines,
Inc. and/or Ruperto V. Tankeh, which had been secured without Arenas’ consent.
The trial proceeded with the petitioner serving as a sole witness for his case. In a January 4,
1996 Decision,34 the Regional Trial Court ruled:
Here, we find –
1. Plaintiff being promised by his younger brother, Ruperto V. Tankeh, 1,000 shares with par
value of ₱1 Million with all the perks and privileges of being stockholder and director of SSLI, a
new international shipping line;
2. That plaintiff will be part of the administration and operation of the business, so with his son
who is with the law firm Romulo Ozaeta Law Offices;
3. But this was merely the come-on or appetizer for the Real McCoy or the primordial end of
congregating the incorporators proposed - - that he sign the promissory note (Exhibit "C"), the
mortgage contract (Exhibit "A"), and deed of assignment so SSLI could get the US $3.5 M loan
from DBP to partially finance the importation of vessel M.V. "Golden Lilac" renamed M.V.
"Sterling ACE";
4. True it is, plaintiff was made a stockholder and director and Vice-President in 1979 but he was
never notified of any meeting of the Board except only once, and only to be introduced to the
two (2) directors representing no less than 67% of the total subscribed and outstanding voting
shares of the company. Thereafter, he was excluded from any board meeting, shorn of his
powers and duties as director or Vice-President, and was altogether deliberately demeaned as
an outsider.
5. What kind of a company is SSLI who treated one of their incorporators, one of their Directors
and their paper Vice-President in 1979 by preventing him access to corporate books, to
corporate earnings, or losses, and to any compensation or remuneration whatsoever? Whose
President and Treasurer did not submit the required SEC yearly report? Who did not remit to
DBP the proceeds on charter mortgage contracts on M/V Sterling Ace?
6. The M/V Sterling Ace was already in the Davao Port when it was then diverted to Singapore
to be disposed on negotiated sale, and not by public bidding contrary to COA Circular No. 86-
264 and without COA’s approval. Sterling Ace was seaworthy but was sold as scrap in
Singapore. No foreclosure with public bidding was made in contravention of the Promissory Note
to recover any deficiency should DBP seeks [sic] to recover it on the outstanding mortgage loan.
Moreover the sale was done after the account and asset (nay, now only a liability) were
transferred to APT. No approval of SSLI Board of Directors to the negotiated sale was given.
7. Plaintiff’s letter to his brother President, Ruperto V. Tankeh, dated June 15, 1983 (Exhibit "D")
his letter thru his lawyer to DBP (Exhibit "J") and another letter to it (Exhibit "K") show no
estoppel on his part as he consistently and continuously assailed the several injurious acts of
defendants while assailing the Promissory Note itself x x x (Citations omitted) applying the
maxim: Rencintiatio non praesumitur. By this Dr. Tankeh never waived the right to question the
Promissory Note contract terms. He did not ratify, by concurring acts, express or tacit, after the
reasons had surfaced entitling him to render the contract voidable, defendants’ acts in
implementing or not the conditions of the mortgage, the promissory note, the deed of
assignment, the lack of audit and accounting, and the negotiated sale of MV Sterling Ace. He did
not ratify defendants [sic] defective acts (Art. 1396, New Civil Code (NCC).
The foregoing and the following essays, supported by evidence, the fraud committed by
plaintiff’s brother before the several documents were signed (SEC documents, Promissory Note,
Mortgage (MC) Contract, assignment (DA)), namely:
1. Ruperto V. Tankeh approaches his brother Alejandro to tell the latter of his new shipping
business. The project was good business proposal [sic].
2. Ruperto tells Alejandro he’s giving him shares worth ₱1 Million and he’s going to be a Director
3. He tells his brother that he will be part of the company’s Administration and Operations and
his eldest son will be in it, too.
4. Ruperto tells his brother they need a ship, they need to buy one for the business, and they
therefore need a loan, and they could secure a loan from DBP with the vessel brought to have a
first mortgage with DBP but anyway the other two directors and comptroller will be from DBP
with a 67% SSLI shares voting rights.
Without these insidious, devastating and alluring words, without the machinations used by
defendant Ruperto V. Tankeh upon the doctor, without the inducement and promise of
ownership of shares and the exercise of administrative and operating functions, and the partial
financing by one of the best financial institutions, the DBP, plaintiff would not have agreed to join
his brother; and the safeguarding of the Bank’s interest by its nominated two (2) directors in the
Board added to his agreeing to the new shipping business. His consent was vitiated by the fraud
before the several contracts were consummated.
This alone convenes [sic] this Court to annul the Promissory Note as it relates to plaintiff himself.
Plaintiff also pleads annulment on ground of equity. Article 19, NCC, provides him the way as it
requires every person, in the exercise of his rights and performance of his duties, to act with
justice, give everyone his due, and observe honesty and good faith (Velayo vs. Shell Co. of the
Phils., G.R. L-7817, October 31, 1956). Not to release him from the clutch of the Promissory
Note when he was never made a part of the operation of the SSLI, when he was not notified of
the Board Meetings, when the corporation nary remitted earnings of M/V Sterling Ace from
charter or shipping contracts to DBP, when the SSLI did not comply with the deed of assignment
and mortgage contract, and when the vessel was sold in Singapore (he, learning of the sale only
from the newspapers) in contravention of the Promissory Note, and which he questioned, will be
an injustice, inequitable, and even iniquitous to plaintiff. SSLI and the private defendants did not
observe honesty and good faith to one of their incorporators and directors. As to DBP, the Court
cannot put demerits on what plaintiff’s memorandum has pointed out:
While defendant DBP did not exercise the caution and prudence in the discharge of their
functions to protect its interest as expected of them and worst, allowed the perpetuation of the
illegal acts committed in contrast to the virtues they publicly profess, namely: "palabra de honor,
delicadeza, katapatan, kaayusan, pagkamasinop at kagalingan" Where is the vision banking
they have for our country?
Had DBP listened to a cry in the wilderness – that of the voice of the doctor – the doctor would
not have allowed the officers and board members to defraud DBP and he would demand of
them to hew and align themselves to the deed of assignment.
Prescinding from the above, plaintiff’s consent to be with SSLI was vitiated by fraud. The fact
that defendant Ruperto Tankeh has not questioned his liability to DBP or that Jose Maria Vargas
has been declared in default do not detract from the fact that there was attendant fraud and that
there was continuing fraud insofar as plaintiff is concerned.
Ipinaglaban lang ni Doctor ang karapatan niya. Kung wala siyang sense of righteous indignation
and fairness, tatahimik na lang siya, sira naman ang pinangangalagaan niyang pangalan, honor
and family prestige [sic] (Emphasis provided).35
All of the defendants’ counterclaims and cross-claims x x x including plaintiff’s and the other
defendants’ prayer for damages are not, for the moment, sourced and proven by substantial
evidence, and must perforce be denied and dismissed.
WHEREFORE, this Court, finding and declaring the Promissory Note (Exhibit "C") and the
Mortgage Contract (Exhibit "A") null and void insofar as plaintiff DR. ALEJANDRO V. TANKEH is
concerned, hereby ANNULS and VOIDS those documents as to plaintiff, and it is hereby further
ordered that he be released from any obligation or liability arising therefrom.
All the defendants’ counterclaims and cross-claims and plaintiff’s and defendants’ prayer for
damages are hereby denied and dismissed, without prejudice.
SO ORDERED.36
Respondents Ruperto V. Tankeh, Asset Privatization Trust, and Arenas immediately filed their
respective Notices of Appeal with the Regional Trial Court. The petitioner filed a Motion for
Reconsideration with regard to the denial of his prayer for damages. After this Motion had been
denied, he then filed his own Notice of Appeal.
In a Decision37 promulgated on October 25, 2005, the Third Division of the Court of Appeals
reversed the trial court’s findings. The Court of Appeals held that petitioner had no cause of
action against public respondent Asset Privatization Trust. This was based on the Court of
Appeals’ assessment of the case records and its findings that Asset Privatization Trust did not
commit any act violative of the right of petitioner or constituting a breach of Asset Privatization
Trust’s obligations to petitioner. The Court of Appeals found that petitioner’s claim for damages
against Asset Privatization Trust was based merely on his own self-serving allegations.38
As to the finding of fraud, the Court of Appeals held that:
In all the complaints from the original through the first, second and third amendments, the
plaintiff imputes fraud only to defendant Ruperto, to wit:
4. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto V. Tankeh, plaintiff,
together with Vicente L. Arenas, Jr. and Jose Maria Vargas signed a promissory note in favor of
the defendant, DBP, wherein plaintiff bound himself to jointly and severally pay the DBP the
amount of the mortgage loan. This document insofar as plaintiff is concerned is a simulated
document considering that plaintiff was never a real stockholder of Sterling Shipping Lines, Inc.
(Emphasis provided)
More allegations of deceit were added in the Second Amended Complaint, but they are also
attributed against Ruperto:
6. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE FACT
THAT when the Sterling Shipping Lines, Inc. was organized in 1980, Ruperto V. Tankeh
promised plaintiff that he would be a part of the administration staff so that he could oversee the
operation of the company. He was also promised that his son, a lawyer, would be given a
position in the company. None of these promsies [sic] was complied with. In fact he was not
even allowed to find out the data about the income and expenses of the company.
7. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT THAT
PLAINTIFF WAS INVITED TO ATTEND THE BOARD MEETING OF THE STERLING
SHIPPING LINES INC. ONLY ONCE, WHICH WAS FOR THE SOLE PURPOSE OF
INTRODUCING HIM TO THE TWO DIRECTORS OF THE DBP IN THE BOARD OF THE
STERLING SHIPPING LINES, INC., NAMELY, MR. JESUS MACALINAG AND MR. GIL
CORPUS. THEREAFTER HE WAS NEVER INVITED AGAIN. PLAINTIFF WAS NEVER
COMPENSATED BY THE STERLING SHIPPING LINES, INC. FOR HIS BEING A SO-CALLED
DIRECTOR AND STOCKHOLDER.
8-A THAT A WEEK AFTER SENDING THE ABOVE LETTER PLAINTIFF MADE EARNEST
EFFORTS TOWARDS A COMPROMISE BETWEEN HIM AND HIS BROTHER RUPERTO V.
TANKEH, WHICH EFFORTS WERE SPURNED BY RUPERTO V. TANKEH, AND ALSO
AFTER THE NEWS OF THE SALE OF THE ‘STERLING ACE’ WAS PUBLISHED AT THE
NEWSPAPER, PLAINTIFF TRIED ALL EFFORTS TO CONTACT RUPERTO V. TANKEH FOR
THE PURPOSE OF ARRIVING AT SOME COMPROMISE, BUT DEFENDANT RUPERTO V.
TANKEH AVOIDED ALL CONTACTS WITH THE PLAINTIFF UNTIL HE WAS FORCED TO
SEEK LEGAL ASSISTANCE FROM HIS LAWYER.
In the absence of any allegations of fraud and/or deceit against the other defendants, namely,
the DBP, Vicente Arenas, Sterling Shipping Lines, Inc., and the Asset Privatization Trust, the
plaintiff’s evidence thereon should only be against Ruperto, since a plaintiff is bound to prove
only the allegations of his complaint. In any case, no evidence of fraud or deceit was ever
presented against defendants DBP, Arenas, SSLI and APT.
As to the evidence against Ruperto, the same consists only of the testimony of the plaintiff.
None of his documentary evidence would prove that Ruperto was guilty of fraud or deceit in
causing him to sign the subject promissory note.39
Analyzing closely the foregoing statements, we find no evidence of fraud or deceit. The mention
of a new shipping lines business and the promise of a free 1,000-share and directorship in the
corporation do not amount to insidious words or machinations. In any case, the shipping
business was indeed established, with the plaintiff himself as one of the incorporators and
stockholders with a share of 4,000, worth ₱4,000,000.00 of which ₱1,000,000.00 was reportedly
paid up. As such, he signed the Articles of Incorporation and the corporation’s By-Laws which
were registered with the Securities and Exchange Commission in April 1979. It was not until May
12, 1981 that he signed the questioned promissory note. From his own declaration at the
witness stand, the plaintiff signed the promissory note voluntarily. No pressure, force or
intimidation was made to bear upon him. In fact, according to him, only a messenger brought the
paper to him for signature. The promised shares of stock were given and recorded in the
plaintiff’s name. He was made a director and Vice-President of SSLI. Apparently, only the
promise that his son would be given a position in the company remained unfulfilled. However,
the same should have been threshed out between the plaintiff and his brother, defendant
Ruperto, and its non-fulfillment did not amount to fraud or deceit, but was only an unfulfilled
promise.
It should be pointed out that the plaintiff is a doctor of medicine and a seasoned businessman. It
cannot be said that he did not understand the import of the documents he signed. Certainly he
knew what he was signing. He should have known that being an officer of SSLI, his signing of
the promissory note together with the other officers of the corporation was expected, as the
other officers also did. It cannot therefore be said that the promissory note was simulated. The
same is a contract validly entered into, which the parties are obliged to comply with.40 (Citations
omitted)
The Court of Appeals ruled that in the absence of any competent proof, Ruperto V. Tankeh did
not commit any fraud. Petitioner Alejandro V. Tankeh was unable to prove by a preponderance
of evidence that fraud or deceit had been employed by Ruperto to make him sign the promissory
note. The Court of Appeals reasoned that:
Fraud is never presumed but must be proved by clear and convincing evidence, mere
preponderance of evidence not even being adequate. Contentions must be proved by
competent evidence and reliance must be had on the strength of the party’s evidence and not
upon the weakness of the opponent’s defense. The plaintiff clearly failed to discharge such
burden.41 (Citations omitted)
With that, the Court of Appeals reversed and set aside the judgment and ordered that plaintiff’s
Complaint be dismissed. Petitioner filed a Motion for Reconsideration dated October 25, 2005
that was denied in a Resolution42 promulgated on February 9, 2006.
Hence, this Petition was filed.
In this Petition, Alejandro V. Tankeh stated that the Court of Appeals seriously erred and gravely
abused its discretion in acting and deciding as if the evidence stated in the Decision of the
Regional Trial Court did not exist. He averred that the ruling of lack of cause of action had no leg
to stand on, and the Court of Appeals had unreasonably, whimsically, and capriciously ignored
the ample evidence on record proving the fraud and deceit perpetrated on the petitioner by the
respondent. He stated that the appellate court failed to appreciate the findings of fact of the
lower court, which are generally binding on appellate courts. He also maintained that he is
entitled to damages and attorney's fees due to the deceit and machinations committed by the
respondent.
In his Memorandum, respondent Ruperto V. Tankeh averred that petitioner had chosen the
wrong remedy. He ought to have filed a special civil action of certiorari and not a Petition for
Review. Petitioner raised questions of fact, and not questions of law, and this required the
review or evaluation of evidence. However, this is not the function of this Court, as it is not a trier
of facts. He also contended that petitioner had voluntarily entered into the loan agreement and
the position with Sterling Shipping Lines, Inc. and that he did not fraudulently induce the
petitioner to enter into the contract.
Respondents Development Bank of the Philippines and Asset Privatization Trust also contended
that petitioner's mode of appeal had been wrong, and he had actually sought a special civil
action of certiorari. This alone merited its dismissal.
The main issue in this case is whether the Court of Appeals erred in finding that respondent
Rupert V. Tankeh did not commit fraud against the petitioner.
The Petition is partly granted.
Before disposing of the main issue in this case, this Court needs to address a procedural issue
raised by respondents. Collectively, respondents argue that the Petition is actually one of
certiorari under Rule 65 of the Rules of Court43 and not a Petition for Review on Certiorari under
Rule 45.44 Thus, petitioner’s failure to show that there was neither appeal nor any other plain,
speedy or adequate remedy merited the dismissal of the Complaint.
Contrary to respondent’s imputation, the remedy contemplated by petitioner is clearly that of a
Rule 45 Petition for Review. In Tagle v. Equitable PCI Bank,45 this Court made the distinction
between a Rule 45 Petition for Review on Certiorari and a Rule 65 Petition for Certiorari:
Certiorari is a remedy designed for the correction of errors of jurisdiction, not errors of
judgment.1âwphi1 In Pure Foods Corporation v. NLRC, we explained the simple reason for the
rule in this light: When a court exercises its jurisdiction, an error committed while so engaged
does not deprive it of the jurisdiction being exercised when the error is committed x x x.
Consequently, an error of judgment that the court may commit in the exercise of its jurisdiction is
not correctable through the original civil action of certiorari.
Even if the findings of the court are incorrect, as long as it has jurisdiction over the case, such
correction is normally beyond the province of certiorari. Where the error is not one of jurisdiction,
but of an error of law or fact a mistake of judgment, appeal is the remedy.
In this case, what petitioner seeks to rectify may be construed as errors of judgment of the Court
of Appeals. These errors pertain to the petitioner’s allegation that the appellate court failed to
uphold the findings of facts of the lower court. He does not impute any error with respect to the
Court of Appeals’ exercise of jurisdiction. As such, this Petition is simply a continuation of the
appellate process where a case is elevated from the trial court of origin, to the Court of Appeals,
and to this Court via Rule 45.
Contrary to respondents’ arguments, the allegations of petitioner that the Court of Appeals
"committed grave abuse of discretion"46 did not ipso facto render the intended remedy that of
certiorari under Rule 65 of the Rules of Court.47
In any case, even if the Petition is one for the special civil action of certiorari, this Court has the
discretion to treat a Rule 65 Petition for Certiorari as a Rule 45 Petition for Review on Certiorari.
This is allowed if (1) the Petition is filed within the reglementary period for filing a Petition for
review; (2) when errors of judgment are averred; and (3) when there is sufficient reason to justify
the relaxation of the rules.48 When this Court exercises this discretion, there is no need to
comply with the requirements provided for in Rule 65.
In this case, petitioner filed his Petition within the reglementary period of filing a Petition for
Review.49 His Petition assigns errors of judgment and appreciation of facts and law on the part
of the Court of Appeals. Thus, even if the Petition was designated as one that sought the
remedy of certiorari, this Court may exercise its discretion to treat it as a Petition for Review in
the interest of substantial justice.
We now proceed to the substantive issue, that of petitioner’s imputation of fraud on the part of
respondents. We are required by the circumstances of this case to review our doctrines of fraud
that are alleged to be present in contractual relations.
Types of Fraud in Contracts
Fraud is defined in Article 1338 of the Civil Code as:
x x x fraud when, through insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he would not have agreed to.
This is followed by the articles which provide legal examples and illustrations of fraud.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud. (n)
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and
the other party has relied on the former's special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
The distinction between fraud as a ground for rendering a contract voidable or as basis for an
award of damages is provided in Article 1344:
In order that fraud may make a contract voidable, it should be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages. (1270)
There are two types of fraud contemplated in the performance of contracts: dolo incidente or
incidental fraud and dolo causante or fraud serious enough to render a contract voidable.
In Geraldez v. Court of Appeals,50 this Court held that:
This fraud or dolo which is present or employed at the time of birth or perfection of a contract
may either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article
1338, are those deceptions or misrepresentations of a serious character employed by one party
and without which the other party would not have entered into the contract. Dolo incidente, or
incidental fraud which is referred to in Article 1344, are those which are not serious in character
and without which the other party would still have entered into the contract. Dolo causante
determines or is the essential cause of the consent, while dolo incidente refers only to some
particular or accident of the obligation. The effects of dolo causante are the nullity of the contract
and the indemnification of damages, and dolo incidente also obliges the person employing it to
pay damages.51
In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et al.,52 this Court elaborated on
the distinction between dolo causante and dolo incidente:
Fraud refers to all kinds of deception -- whether through insidious machination, manipulation,
concealment or misrepresentation -- that would lead an ordinarily prudent person into error after
taking the circumstances into account. In contracts, a fraud known as dolo causante or causal
fraud is basically a deception used by one party prior to or simultaneous with the contract, in
order to secure the consent of the other. Needless to say, the deceit employed must be serious.
In contradistinction, only some particular or accident of the obligation is referred to by incidental
fraud or dolo incidente, or that which is not serious in character and without which the other
party would have entered into the contract anyway.53
Under Article 1344, the fraud must be serious to annul or avoid a contract and render it voidable.
This fraud or deception must be so material that had it not been present, the defrauded party
would not have entered into the contract. In the recent case of Spouses Carmen S. Tongson
and Jose C. Tongson, et al., v. Emergency Pawnshop Bula, Inc.,54 this Court provided some
examples of what constituted dolo causante or causal fraud:
Some of the instances where this Court found the existence of causal fraud include: (1) when
the seller, who had no intention to part with her property, was "tricked into believing" that what
she signed were papers pertinent to her application for the reconstitution of her burned
certificate of title, not a deed of sale; (2) when the signature of the authorized corporate officer
was forged; or (3) when the seller was seriously ill, and died a week after signing the deed of
sale raising doubts on whether the seller could have read, or fully understood, the contents of
the documents he signed or of the consequences of his act.55 (Citations omitted)
However, Article 1344 also provides that if fraud is incidental, it follows that this type of fraud is
not serious enough so as to render the original contract voidable.
A classic example of dolo incidente is Woodhouse v. Halili.56 In this case, the plaintiff Charles
Woodhouse entered into a written agreement with the defendant Fortunato Halili to organize a
partnership for the bottling and distribution of soft drinks. However, the partnership did not come
into fruition, and the plaintiff filed a Complaint in order to execute the partnership. The defendant
filed a Counterclaim, alleging that the plaintiff had defrauded him because the latter was not
actually the owner of the franchise of a soft drink bottling operation. Thus, defendant sought the
nullification of the contract to enter into the partnership. This Court concluded that:
x x x from all the foregoing x x x plaintiff did actually represent to defendant that he was the
holder of the exclusive franchise. The defendant was made to believe, and he actually believed,
that plaintiff had the exclusive franchise. x x x The record abounds with circumstances indicative
that the fact that the principal consideration, the main cause that induced defendant to enter into
the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise
to bottle and distribute for the defendant or for the partnership. x x x The defendant was,
therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to be
secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise,
or the option thereto, at the time the contract was perfected. But while he had already lost his
option thereto (when the contract was entered into), the principal obligation that he assumed or
undertook was to secure said franchise for the partnership, as the bottler and distributor for the
Mission Dry Corporation. We declare, therefore, that if he was guilty of a false representation,
this was not the causal consideration, or the principal inducement, that led plaintiff to enter into
the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the
consideration or price plaintiff gave in exchange for the share of 30 percent granted him in the
net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the
net profits because he was transferring his exclusive franchise to the partnership. x x x.
Plaintiff had never been a bottler or a chemist; he never had experience in the production or
distribution of beverages. As a matter of fact, when the bottling plant being built, all that he
suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive
franchise did not vitiate defendant's consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits; in other words, by pretending that he had the
exclusive franchise and promising to transfer it to defendant, he obtained the consent of the
latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in article
1270 of the Spanish Civil Code, because it was used to get the other party's consent to a big
share in the profits, an incidental matter in the agreement.57
Thus, this Court held that the original agreement may not be declared null and void. This Court
also said that the plaintiff had been entitled to damages because of the refusal of the defendant
to enter into the partnership. However, the plaintiff was also held liable for damages to the
defendant for the misrepresentation that the former had the exclusive franchise to soft drink
bottling operations.
To summarize, if there is fraud in the performance of the contract, then this fraud will give rise to
damages. If the fraud did not compel the imputing party to give his or her consent, it may not
serve as the basis to annul the contract, which exhibits dolo causante. However, the party
alleging the existence of fraud may prove the existence of dolo incidente.
This may make the party against whom fraud is alleged liable for damages.
Quantum of Evidence to Prove the Existence of Fraud and the Liability of the Parties
The Civil Code, however, does not mandate the quantum of evidence required to prove
actionable fraud, either for purposes of annulling a contract (dolo causante) or rendering a party
liable for damages (dolo incidente). The definition of fraud is different from the quantum of
evidence needed to prove the existence of fraud. Article 1338 provides the legal definition of
fraud. Articles 1339 to 1343 constitute the behavior and actions that, when in conformity with the
legal provision, may constitute fraud.
Jurisprudence has shown that in order to constitute fraud that provides basis to annul contracts,
it must fulfill two conditions. First, the fraud must be dolo causante or it must be fraud in
obtaining the consent of the party. Second, this fraud must be proven by clear and convincing
evidence. In Viloria v. Continental Airlines,58 this Court held that:
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the
making of the contract. In Samson v. Court of Appeals, causal fraud was defined as "a deception
employed by one party prior to or simultaneous to the contract in order to secure the consent of
the other." Also, fraud must be serious and its existence must be established by clear and
convincing evidence. (Citations omitted)59
In Viloria, this Court cited Sierra v. Court of Appeals60 stating that mere preponderance of
evidence will not suffice in proving fraud.
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which without them, he would not
have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not
have been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must be established by
full, clear, and convincing evidence, and not merely by a preponderance thereof. The deceit
must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a prudent person cannot be a ground for
nullity. The circumstances of each case should be considered, taking into account the personal
conditions of the victim."61
Thus, to annul a contract on the basis of dolo causante, the following must happen: First, the
deceit must be serious or sufficient to impress and lead an ordinarily prudent person to error. If
the allegedly fraudulent actions do not deceive a prudent person, given the circumstances, the
deceit here cannot be considered sufficient basis to nullify the contract. In order for the deceit to
be considered serious, it is necessary and essential to obtain the consent of the party imputing
fraud. To determine whether a person may be sufficiently deceived, the personal conditions and
other factual circumstances need to be considered.
Second, the standard of proof required is clear and convincing evidence. This standard of proof
is derived from American common law. It is less than proof beyond reasonable doubt (for
criminal cases) but greater than preponderance of evidence (for civil cases). The degree of
believability is higher than that of an ordinary civil case. Civil cases only require a
preponderance of evidence to meet the required burden of proof. However, when fraud is
alleged in an ordinary civil case involving contractual relations, an entirely different standard of
proof needs to be satisfied. The imputation of fraud in a civil case requires the presentation of
clear and convincing evidence. Mere allegations will not suffice to sustain the existence of fraud.
The burden of evidence rests on the part of the plaintiff or the party alleging fraud. The quantum
of evidence is such that fraud must be clearly and convincingly shown.
The Determination of the Existence of Fraud in the Present Case
We now determine the application of these doctrines regarding fraud to ascertain the liability, if
any, of the respondents.
Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo causante that
must be proven by clear and convincing evidence. It stands to reason that both dolo incidente
and dolo causante must be proven by clear and convincing evidence. The only question is
whether this fraud, when proven, may be the basis for making a contract voidable (dolo
causante), or for awarding damages (dolo incidente), or both.
Hence, there is a need to examine all the circumstances thoroughly and to assess the personal
circumstances of the party alleging fraud. This may require a review of the case facts and the
evidence on record.
In general, this Court is not a trier of facts. It makes its rulings based on applicable law and on
standing jurisprudence. The findings of the Court of Appeals are generally binding on this Court
provided that these are supported by the evidence on record. In the recent case of Medina v.
Court of Appeals,62 this Court held that:
It is axiomatic that a question of fact is not appropriate for a petition for review on certiorari under
Rule 45. This rule provides that the parties may raise only questions of law, because the
Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze again and
weigh the evidence introduced in and considered by the tribunals below. When supported by
substantial evidence, the findings of fact of the Court of Appeals are conclusive and binding on
the parties and are not reviewable by this Court, unless the case falls under any of the following
recognized exceptions: (1) When the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) When the inference made is manifestly mistaken, absurd or
impossible; (3) Where there is a grave abuse of discretion; (4) When the judgment is based on a
misapprehension of facts; (5) When the findings of fact are conflicting; (6) When the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee; (7) When the findings are contrary to those of the
trial court; (8) When the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) When the facts set forth in the petition as well as in the petitioner’s
main and reply briefs are not disputed by the respondents; and (10) When the findings of fact of
the Court of Appeals are premised on the supposed absence of evidence and contradicted by
the evidence on record. (Emphasis provided)63
The trial court and the Court of Appeals had appreciated the facts of this case differently.
The Court of Appeals was not correct in saying that petitioner could only raise fraud as a ground
to annul his participation in the contract as against respondent Rupert V. Tankeh, since the
petitioner did not make any categorical allegation that respondents Development Bank of the
Philippines, Sterling Shipping Lines, Inc., and Asset Privatization Trust had acted fraudulently.
Admittedly, it was only in the Petition before this Court that the petitioner had made the
allegation of a "well-orchestrated fraud"64 by the respondents. However, Rule 10, Section 5 of
the Rules of Civil Procedure provides that:
Amendment to conform to or authorize presentation of evidence. — When issues not raised by
the pleadings are tried with the express or implied consent of the parties they shall be treated in
all respects as if they had been raised in the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the evidence and to raise these issues may be
made upon motion of any party at any time, even after judgment; but failure to amend does not
effect the result of the trial of these issues. If evidence is objected to at the trial on the ground
that it is not within the issues made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the merits of the action and the
ends of substantial justice will be subserved thereby. The court may grant a continuance to
enable the amendment to be made. (5a)
In this case, the commission of fraud was an issue that had been tried with the implied consent
of the respondents, particularly Sterling Shipping Lines, Inc., Asset Privatization Trust,
Development Bank of the Philippines, and Arenas. Hence, although there is a lack of a
categorical allegation in the pleading, the courts may still be allowed to ascertain fraud.
The records will show why and how the petitioner agreed to enter into the contract with
respondent Ruperto V. Tankeh:
ATTY. VELAYO: How did you get involved in the business of the Sterling Shipping Lines,
Incorporated" [sic]
DR. TANKEH: Sometime in the year 1980, I was approached by Ruperto Tankeh mentioning to
me that he is operating a new shipping lines business and he is giving me free one thousand
shares (1,000) to be a director of this new business which is worth one million pesos
(₱1,000,000.00.),
ATTY. VELAYO: Are you related to Ruperto V. Tankeh?
DR. TANKEH: Yes, sir. He is my younger brother.
ATTY. VELAYO: Did you accept the offer?
DR. TANKEH: I accepted the offer based on his promise to me that I will be made a part of the
administration staff so that I can oversee the operation of the business plus my son, the eldest
one who is already a graduate lawyer with a couple of years of experience in the law firm of
Romulo Ozaeta Law Offices (TSN, April 28, 1988, pp. 10-11.).65
The Second Amended Complaint of petitioner is substantially reproduced below to ascertain the
claim:
2. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto V. Tankeh, plaintiff,
together with Vicente L. Arenas, Jr. and Jose Maria Vargas, signed a promissory note in favor of
the defendant DBP, wherein plaintiff bound himself to jointly and severally pay the DBP the
amount of the mortgage loan. This document insofar as plaintiff is concerned is a simulated
document considering that plaintiff was never a real stockholder of the Sterling Shipping Lines,
Inc.
3. That although plaintiff’s name appears in the records of Sterling Shipping Lines, Inc. as one of
its incorporators, the truth is that he had never invested any amount in said corporation and that
he had never been an actual member of said corporation. All the money supposedly invested by
him were put by defendant Ruperto V. Tankeh. Thus, all the shares of stock under his name in
fact belongs to Ruperto V. Tankeh. Plaintiff was invited to attend the board meeting of the
Sterling Shipping Lines, Inc. only once, which was for the sole purpose of introducing him to the
two directors of the DBP, namely, Mr. Jesus Macalinag and Mr. Gil Corpus. Thereafter he was
never invited again. Plaintiff was never compensated by the Sterling Shipping Lines, Inc. for his
being a so-called director and stockholder. It is clear therefore that the DBP knew all along that
plaintiff was not a true stockholder of the company.
4. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE FACT
THAT when the Sterling Shipping Lines, Inc. was organized in 1980, Ruperto V. Tankeh
promised plaintiff that he would be a part of the administration staff so that he could oversee the
operation of the company. He was also promised that his son, a lawyer, would be given a
position in the company. None of these promises was complied with. In fact, he was not even
allowed to find out the data about the income and expenses of the company.
5. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT THAT
PLAINTIFF WAS INVITED TO ATTEND THE BOARD MEETING OF THE STERLING
SHIPPING LINES, INC. ONLY ONCE, WHICH WAS FOR THE SOLE PUPOSE OF
INTRODUCING HIM TO THE TWO DIRECTORS OF THE DBP IN THE BOARD OF THE
STERLING SHIPPING LINES, INC., NAMELY, MR. JESUS MACALINAG AND MR. GIL
CORPUS. THEREAFTER HE WAS NEVER INVITED AGAIN. PLAINTIFF WAS NEVER
COMPENSATED BY THE STERLING SHIPPING LINES, INC. FOR HIS BEING A SO-CALLED
DIRECTOR AND STOCKHOLDER.
6. That in 1983, upon realizing that he was only being made a tool to realize the purposes of
Ruperto V. Tankeh, plaintiff officially informed the company by means of a letter dated June 15,
1983 addressed to the company that he has severed his connection with the company, and
demanded among others, that the company board of directors pass a resolution releasing him
from any liabilities especially with reference to the loan mortgage contract with the DBP and to
notify the DBP of his severance from the Sterling Shipping Lines, Inc.
8-A. THAT A WEEK AFTER SENDING THE ABOVE LETTER, PLAINTIFF MADE EARNEST
EFFORTS TOWARDS A COMPROMISE BETWEEN HIM AND HIS BROTHER RUPERTO V.
TANKEH, WHICH EFFORTS WERE SPURNED BY RUPERTO V. TANKEH, AND ALSO
AFTER THE NEWS OF THE SALE OF THE "STERLING ACE" WAS PUBLISHED AT THE
NEWSPAPER [sic], PLAINTIFF TRIED ALL EFFORTS TO CONTACT RUPERTO V. TANKEH
FOR THE PURPOSE OF ARRIVING AT SOME COMPROMISE, BUT DEFENDANT RUPERTO
V. TANKEH AVOIDED ALL CONTACTS [sic] WITH THE PLAINTIFF UNTIL HE WAS FORCED
TO SEEK LEGAL ASSISTANCE FROM HIS LAWYER.66
In his Answer, respondent Ruperto V. Tankeh stated that:
COMES NOW defendant RUPERTO V. TANKEH, through the undersigned counsel, and to the
Honorable Court, most respectfully alleges:
3. That paragraph 4 is admitted that herein answering defendant together with the plaintiff
signed the promissory note in favor of DBP but specifically denied that the same was done
through deceit and fraud of herein answering defendant the truth being that plaintiff signed said
promissory note voluntarily and with full knowledge of the consequences thereof; it is further
denied that said document is a simulated document as plaintiff was never a real stockholder of
the company, the truth being those alleged in the special and affirmative defenses;
4. That paragraphs 5,6,7,8 and 8-A are specifically denied specially the imputation of deceit and
fraud against herein answering defendant, the truth being those alleged in the special and
affirmative defenses;
SPECIAL AND AFFIRMATIVE DEFENSES x x x
8. The complaint states no cause of action as against herein answering defendant;
9. The Sterling Shipping Lines, Inc. was a legitimate company organized in accordance with the
laws of the Republic of the Philippines with the plaintiff as one of the incorporators;
10. Plaintiff as one of the incorporators and directors of the board was fully aware of the by-laws
of the company and if he attended the board meeting only once as alleged, the reason thereof
was known only to him;
11. The Sterling Shipping Lines, Inc. being a corporation acting through its board of directors,
herein answering defendant could not have promised plaintiff that he would be a part of the
administration staff;
12. As member of the board, plaintiff had all the access to the data and records of the company;
further, as alleged in the complaint, plaintiff has a son who is a lawyer who could have advised
him;
13. Assuming plaintiff wrote a letter to the company to sever his connection with the company,
he should have been aware that all he had to do was sell all his holdings in the company;
14. Herein answering defendant came to know only of plaintiff’s alleged predicament when he
received the summons and copy of the complaint; x x x.67
An assessment of the allegations in the pleadings and the findings of fact of both the trial court
and appellate court based on the evidence on record led to the conclusion that there had been
no dolo causante committed against the petitioner by Ruperto V. Tankeh.
The petitioner had given his consent to become a shareholder of the company without
contributing a single peso to pay for the shares of stock given to him by Ruperto V. Tankeh. This
fact was admitted by both petitioner and respondent in their respective pleadings submitted to
the lower court.
In his Amended Complaint,68 the petitioner admitted that "he had never invested any amount in
said corporation and that he had never been an actual member of said corporation. All the
money supposedly invested by him were put up by defendant Ruperto V. Tankeh."69 This fact
alone should have already alerted petitioner to the gravity of the obligation that he would be
undertaking as a member of the board of directors and the attendant circumstances that this
undertaking would entail. It also does not add any evidentiary weight to strengthen petitioner’s
claim of fraud. If anything, it only strengthens the position that petitioner’s consent was not
obtained through insidious words or deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of some exaggerations in trade which
negates fraud. It reads:
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent.
Given the standing and stature of the petitioner, he was in a position to ascertain more
information about the contract.
Songco v. Sellner70 serves as one of the key guidelines in ascertaining whether a party is guilty
of fraud in obtaining the consent of the party claiming that fraud existed. The plaintiff Lamberto
Songco sought to recover earnings from a promissory note that defendant George Sellner had
made out to him for payment of Songco’s sugar cane production. Sellner claimed that he had
refused to pay because Songco had promised that the crop would yield 3,000 piculs of sugar,
when in fact, only 2,017 piculs of sugar had been produced. This Court held that Sellner would
still be liable to pay the promissory note, as follows:
Notwithstanding the fact that Songco's statement as to the probable output of his crop was
disingenuous and uncandid, we nevertheless think that Sellner was bound and that he must pay
the price stipulated. The representation in question can only be considered matter of opinion as
the cane was still standing in the field, and the quantity of the sugar it would produce could not
be known with certainty until it should be harvested and milled. Undoubtedly Songco had better
experience and better information on which to form an opinion on this question than Sellner.
Nevertheless the latter could judge with his own eyes as to the character of the cane, and it is
shown that he measured the fields and ascertained that they contained 96 1/2 hectares.
The law allows considerable latitude to seller's statements, or dealer's talk; and experience
teaches that it is exceedingly risky to accept it at its face value. The refusal of the seller to
warrant his estimate should have admonished the purchaser that that estimate was put forth as
a mere opinion; and we will not now hold the seller to a liability equal to that which would have
been created by a warranty, if one had been given.
It is not every false representation relating to the subject matter of a contract which will render it
void. It must be as to matters of fact substantially affecting the buyer's interest, not as to matters
of opinion, judgment, probability, or expectation. (Long vs. Woodman, 58 Me., 52; Hazard vs.
Irwin, 18 Pick. [Mass.], 95; Gordon vs. Parmelee, 2 Allen [Mass.], 212; Williamson vs.
McFadden, 23 Fla., 143, 11 Am. St. Rep., 345.) When the purchaser undertakes to make an
investigation of his own, and the seller does nothing to prevent this investigation from being as
full as he chooses to make it, the purchaser cannot afterwards allege that the seller made
misrepresentations. (National Cash Register Co. vs. Townsend, 137 N. C., 652, 70 L. R. A., 349;
Williamson vs. Holt, 147 N. C., 515.)
We are aware that where one party to a contract, having special or expert knowledge, takes
advantage of the ignorance of another to impose upon him, the false representation may afford
ground for relief, though otherwise the injured party would be bound. But we do not think that the
fact that Songco was an experienced farmer, while Sellner was, as he claims, a mere novice in
the business, brings this case within that exception.71
The following facts show that petitioner was fully aware of the magnitude of his undertaking:
First, petitioner was fully aware of the financial reverses that Sterling Shipping Lines, Inc. had
been undergoing, and he took great pains to release himself from the obligation.
Second, his background as a doctor, as a bank organizer, and as a businessman with
experience in the textile business and real estate should have apprised him of the irregularity in
the contract that he would be undertaking. This meant that at the time petitioner gave his
consent to become a part of the corporation, he had been fully aware of the circumstances and
the risks of his participation. Intent is determined by the acts.
Finally, the records showed that petitioner had been fully aware of the effect of his signing the
promissory note. The bare assertion that he was not privy to the records cannot counteract the
fact that petitioner himself had admitted that after he had severed ties with his brother, he had
written a letter seeking to reach an amicable settlement with respondent Rupert V. Tankeh.
Petitioner’s actions defied his claim of a complete lack of awareness regarding the
circumstances and the contract he had been entering.
The required standard of proof – clear and convincing evidence – was not met. There was no
dolo causante or fraud used to obtain the petitioner’s consent to enter into the contract.
Petitioner had the opportunity to become aware of the facts that attended the signing of the
promissory note. He even admitted that he has a lawyer-son who the petitioner had hoped
would assist him in the administration of Sterling Shipping Lines, Inc. The totality of the facts on
record belies petitioner’s claim that fraud was used to obtain his consent to the contract given
his personal circumstances and the applicable law.
However, in refusing to allow petitioner to participate in the management of the business,
respondent Ruperto V. Tankeh was liable for the commission of incidental fraud. In Geraldez,
this Court defined incidental fraud as "those which are not serious in character and without
which the other party would still have entered into the contract."72
Although there was no fraud that had been undertaken to obtain petitioner’s consent, there was
fraud in the performance of the contract. The records showed that petitioner had been unjustly
excluded from participating in the management of the affairs of the corporation. This exclusion
from the management in the affairs of Sterling Shipping Lines, Inc. constituted fraud incidental to
the performance of the obligation.
This can be concluded from the following circumstances.
First, respondent raised in his Answer that petitioner "could not have promised plaintiff that he
would be a part of the administration staff"73 since petitioner had been fully aware that, as a
corporation, Sterling Shipping Lines, Inc. acted through its board of directors. Respondent
admitted that petitioner had been "an incorporator and member of the board of directors"74 and
that petitioner "was fully aware of the by-laws of the company."75 It was incumbent upon
respondent to act in good faith and to ensure that petitioner would not be excluded from the
affairs of Sterling Shipping Lines, Inc. After all, respondent asserted that petitioner had entered
into the contract voluntarily and with full consent.
Second, respondent claimed that if petitioner was intent on severing his connection with the
company, all that petitioner had to do was to sell all his holdings in the company. Clearly, the
respondent did not consider the fact that the sale of the shares of stock alone did not free
petitioner from his liability to Development Bank of the Philippines or Asset Privatization Trust,
since the latter had signed the promissory and had still been liable for the loan. A sale of
petitioners’ shares of stock would not have negated the petitioner’s responsibility to pay for the
loan.
Third, respondent Ruperto V. Tankeh did not rebuff petitioner’s claim that the latter only received
news about the sale of the vessel M/V Sterling Ace through the media and not as one of the
board members or directors of Sterling Shipping Lines, Inc.
All in all, respondent Ruperto V. Tankeh’s bare assertion that petitioner had access to the
records cannot discredit the fact that the petitioner had been effectively deprived of the
opportunity to actually engage in the operations of Sterling Shipping Lines, Inc. Petitioner had a
reasonable expectation that the same level of engagement would be present for the duration of
their working relationship. This would include an undertaking in good faith by respondent
Ruperto V. Tankeh to be transparent with his brother that he would not automatically be made
part of the company’s administration.
However, this Court finds there is nothing to support the assertion that Sterling Shipping Lines,
Inc. and Arenas committed incidental fraud and must be held liable. Sterling Shipping Lines, Inc.
acted through its board of directors, and the liability of respondent Tankeh cannot be imposed
on Sterling Shipping Lines, Inc. The shipping line has a separate and distinct personality from its
officers, and petitioner’s assertion that the corporation conspired with the respondent Ruperto V.
Tankeh to defraud him is not supported by the evidence and the records of the case.
As for Arenas, in Lim Tanhu v. Remolete,76 this Court held that:
In all instances where a common cause of action is alleged against several defendants, some of
whom answer and the others do not, the latter or those in default acquire a vested right not only
to own the defense interposed in the answer of their co-defendant or co-defendants not in
default but also to expect a result of the litigation totally common with them in kind and in
amount whether favorable or unfavorable. The substantive unity of the plaintiffs’ cause against
all the defendants is carried through to its adjective phase as ineluctably demanded by the
homogeneity and indivisibility of justice itself.77
As such, despite Arenas’ failure to submit his Answer to the Complaint or his declaration of
default, his liability or lack thereof is concomitant with the liability attributed to his co-defendants
or co-respondents. However, unlike respondent Ruperto V. Tankeh’s liability, there is no action
or series of actions that may be attributed to Arenas that may lead to an inference that he was
liable for incidental fraud. In so far as the required evidence for both Sterling Shipping Lines, Inc.
and Arenas is concerned, there is no basis to justify the claim of incidental fraud.
In addition, respondents Development Bank of the Philippines and Asset Privatization Trust or
Privatization and Management Office cannot be held liable for fraud. Incidental fraud cannot be
attributed to the execution of their actions, which were undertaken pursuant to their mandated
functions under the law. "Absent convincing evidence to the contrary, the presumption of
regularity in the performance of official functions has to be upheld."78
The Obligation to Pay Damages
As such, respondent Ruperto V. Tankeh is liable to his older brother, petitioner Alejandro, for
damages. The obligation to pay damages to petitioner is based on several provisions of the Civil
Code.
Article 1157 enumerates the sources of obligations.
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
This enumeration does not preclude the possibility that a single action may serve as the source
of several obligations to pay damages in accordance with the Civil Code. Thus, the liability of
respondent Ruperto V. Tankeh is based on the law, under Article 1344, which provides that the
commission of incidental fraud obliges the person employing it to pay damages.
In addition to this obligation as the result of the contract between petitioner and respondents,
there was also a patent abuse of right on the part of respondent Tankeh. This abuse of right is
included in Articles 19 and 21 of the Civil Code which provide that:
Article 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to another in manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
Respondent Ruperto V. Tankeh abused his right to pursue undertakings in the interest of his
business operations. This is because of his failure to at least act in good faith and be transparent
with petitioner regarding Sterling Shipping Lines, Inc.’s daily operations.
In National Power Corporation v. Heirs of Macabangkit Sangkay,79 this Court held that:
When a right is exercised in a manner not conformable with the norms enshrined in Article 19
and like provisions on human relations in the Civil Code, and the exercise results to [sic] the
damage of [sic] another, a legal wrong is committed and the wrongdoer is held responsible.80
The damage, loss, and injury done to petitioner are shown by the following circumstances.
First, petitioner was informed by Development Bank of the Philippines that it would still pursue
his liability for the payment of the promissory note. This would not have happened if petitioner
had allowed himself to be fully apprised of Sterling Shipping Lines, Inc.’s financial straits and if
he felt that he could still participate in the company’s operations. There is no evidence that
respondent Ruperto V. Tankeh showed an earnest effort to at least allow the possibility of
making petitioner part of the administration a reality. The respondent was the brother of the
petitioner and was also the primary party that compelled petitioner Alejandro Tankeh to be
solidarily bound to the promissory note. Ruperto V. Tankeh should have done his best to ensure
that he had exerted the diligence to comply with the obligations attendant to the participation of
petitioner.
Second, respondent Ruperto V. Tankeh’s refusal to enter into an agreement or settlement with
petitioner after the latter’s discovery of the sale of the M/V Sterling Ace was an action that
constituted bad faith. Due to Ruperto’s refusal, his brother, petitioner Alejandro, became
solidarily liable for an obligation that the latter could have avoided if he had been given an
opportunity to participate in the operations of Sterling Shipping Lines, Inc. The simple sale of all
of petitioner’s shares would not have solved petitioner’s problems, as it would not have negated
his liability under the terms of the promissory note.
Finally, petitioner is still bound to the creditors of Sterling Shipping Lines, Inc., namely, public
respondents Development Bank of the Philippines and Asset Privatization Trust. This is an
additional financial burden for petitioner. Nothing in the records suggested the possibility that
Development Bank of the Philippines or Asset Privatization Trust through the Privatization
Management Office will not pursue or is precluded from pursuing its claim against the petitioner.
Although petitioner Alejandro voluntarily signed the promissory note and became a stockholder
and board member, respondent should have treated him with fairness, transparency, and
consideration to minimize the risk of incurring grave financial reverses.
In Francisco v. Ferrer,81 this Court ruled that moral damages may be awarded on the following
bases:
To recover moral damages in an action for breach of contract, the breach must be palpably
wanton, reckless, malicious, in bad faith, oppressive or abusive.
Under the provisions of this law, in culpa contractual or breach of contract, moral damages may
be recovered when the defendant acted in bad faith or was guilty of gross negligence
(amounting to bad faith) or in wanton disregard of his contractual obligation and, exceptionally,
when the act of breach of contract itself is constitutive of tort resulting in physical injuries.
Moral damages may be awarded in breaches of contracts where the defendant acted
fraudulently or in bad faith.
Bad faith does not simply connote bad judgment or negligence, it imports a dishonest purpose or
some moral obliquity and conscious doing of a wrong, a breach of known duty through some
motive or interest or ill will that partakes of the nature of fraud.
The person claiming moral damages must prove the existence of bad faith by clear and
convincing evidence for the law always presumes good faith. It is not enough that one merely
suffered sleepless nights, mental anguish, serious anxiety as the result of the actuations of the
other party. Invariably such action must be shown to have been willfully done in bad faith or will
ill motive. Mere allegations of besmirched reputation, embarrassment and sleepless nights are
insufficient to warrant an award for moral damages. It must be shown that the proximate cause
thereof was the unlawful act or omission of the [private respondent] petitioners.
An award of moral damages would require certain conditions to be met, to wit: (1) first, there
must be an injury, whether physical, mental or psychological, clearly sustained by the claimant;
(2) second, there must be culpable act or omission factually established; (3) third, the wrongful
act or omission of the defendant is the proximate cause of the injury sustained by the claimant;
and (4) fourth, the award of damages is predicated on any of the cases stated in Article 2219 of
the Civil Code. (Citations omitted)82
In this case, the four elements cited in Francisco are present. First, petitioner suffered an injury
due to the mental duress of being bound to such an onerous debt to Development Bank of the
Philippines and Asset Privatization Trust. Second, the wrongful acts of undue exclusion done by
respondent Ruperto V. Tankeh clearly fulfilled the same requirement. Third, the proximate cause
of his injury was the failure of respondent Ruperto V. Tankeh to comply with his obligation to
allow petitioner to either participate in the business or to fulfill his fiduciary responsibilities with
candor and good faith. Finally, Article 221983 of the Civil Code provides that moral damages
may be awarded in case of acts and actions referred to in Article 21, which, as stated, had been
found to be attributed to respondent Ruperto V. Tankeh.
In the Appellant’s Brief,84 petitioner asked the Court of Appeals to demand from respondents,
except from respondent Asset Privatization Trust, the amount of five million pesos
(₱5,000,000.00). This Court finds that the amount of five hundred thousand pesos
(₱500,000.00) is a sufficient amount of moral damages.
In addition to moral damages, this Court may also impose the payment of exemplary
damages.1âwphi1 Exemplary damages are discussed in Article 2229 of the Civil Code, as
follows:
ART. 2229. Exemplary or corrective damages are imposed, by way of example or correction of
the public good, in addition to moral, temperate, liquidated or compensatory damages.
Exemplary damages are further discussed in Articles 2233 and 2234, particularly regarding the
pre-requisites of ascertaining moral damages and the fact that it is discretionary upon this Court
to award them or not:
ART. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide
whether or not they should be adjudicated.
ART. 2234. While the amount of the exemplary damages need not be proven, the plaintiff must
show that he is entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded x x x
The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties
from the commission of a similar offense. The case of People v. Rante85 citing People v.
Dalisay86 held that:
Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended
to serve as a deterrent to serious wrong doings, and as a vindication of undue sufferings and
wanton invasion of the rights of an injured or a punishment for those guilty of outrageous
conduct. These terms are generally, but not always, used interchangeably. In common law,
there is preference in the use of exemplary damages when the award is to account for injury to
feelings and for the sense of indignity and humiliation suffered by a person as a result of an
injury that has been maliciously and wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible conduct of the defendant—
associated with such circumstances as willfulness, wantonness, malice, gross negligence or
recklessness, oppression, insult or fraud or gross fraud—that intensifies the injury. The terms
punitive or vindictive damages are often used to refer to those species of damages that may be
awarded against a person to punish him for his outrageous conduct. In either case, these
damages are intended in good measure to deter the wrongdoer and others like him from similar
conduct in the future.87
To justify an award for exemplary damages, the wrongful act must be accompanied by bad faith,
and an award of damages would be allowed only if the guilty party acted in a wanton, fraudulent,
reckless or malevolent manner.88 In this case, this Court finds that respondent Ruperto V.
Tankeh acted in a fraudulent manner through the finding of dolo incidente due to his failure to
act in a manner consistent with propriety, good morals, and prudence.
Since exemplary damages ensure that future litigants or parties are enjoined from acting in a
similarly malevolent manner, it is incumbent upon this Court to impose the damages in such a
way that will serve as a categorical warning and will show that wanton actions will be dealt with
in a similar manner. This Court finds that the amount of two hundred thousand pesos
(₱200,000.00) is sufficient for this purpose.
In sum, this Court must act in the best interests of all future litigants by establishing and applying
clearly defined standards and guidelines to ascertain the existence of fraud.
WHEREFORE, this Petition is PARTIALLY GRANTED. The Decision of the Court of Appeals as
to the assailed Decision in so far as the finding of fraud is SUSTAINED with the MODIFICATION
that respondent RUPERTO V. TANKEH be ordered to pay moral damages in the amount of
FIVE HUNDRED THOUSAND PESOS (₱500,000.00) and the amount of TWO HUNDRED
THOUSAND PESOS (₱200,000.00) by way of exemplary damages.
SO ORDERED.
PNB v. Philippine Vegetable Oil
G.R. No. L-25400 January 14, 1927
This appeal involves the legal right of the Philippine National Bank to obtain a judgment against
the Philippine Vegetable Oil Co., Inc., for P15,812,454, and to foreclose a mortgage on the
property of the Philippine Vegetable Oil Co., Inc., for P17,000,000, and the legal right of Phil. C.
Whitaker as intervenor to obtain a judgment declaring the mortgage which the Philippine
National Bank seeks to foreclose to be without force and effect, requiring an accounting from the
Philippine National Bank of the sales of the property and assets of the Philippine Vegetable Oil
Co., Inc., and ordering the Philippine Vegetable Oil Co., Inc., and the Philippine National Bank to
pay him the sum of P4,424,418.37.
In 1920, the Philippine Vegetable Oil Co., Inc., which will hereafter be called the Vegetable Oil
Company, found itself in financial straits. It was in debt to the extent of approximately
P30,000,000. The Philippine National Bank was the largest creditor. The Vegetable Oil
Company owed the bank P17,000,000. Over P13,000,000 were due the other creditors. The
Philippine National Bank was secured principally by a real and chattel mortgage for P3,500,000.
On January 10, 1921, the Vegetable Oil Company executed another chattel mortgage in favor of
the bank on its vessels Tankerville and H. S. Everett to guarantee the payment of sums not to
exceed P4,000,000.
This was the precarious situation which in the latter part of 1920 and the early part of 1921
confronted the Vegetable Oil Company, its General Manager Phil. C. Whitaker, the Philippine
National Bank, and the various creditors of the Vegetable Oil Company. Bankruptcy was
imminent. On January 1, 1921, Mr. Whitaker made his first offer to pledge certain private
properties to secure the creditors of the Oil Company (Intervenor's Exhibit 1). In February of the
same year, a creditors' meeting was held. At the instance of Mr. Whitaker but inspired to such
action by the bank, a receiver for the Vegetable Oil Company was appointed by the Court of
First Instance of Manila on March 11, 1921. (Case No. 19644, Court of First Instance of Manila.)
During the period when a receiver was in control of the property of the Vegetable Oil Company,
a number of events occurred. The first was the agreement perfected by the Vegetable Oil
Company, Mr. Whitaker, and some of the creditors of the Oil Company on June 27, 1921, the
creditors transferred to Mr. Whitaker a part of their claims against the Vegetable Oil Company in
consideration of the execution by Mr. Whitaker of a trust deed of his property. The Philippine
National Bank was not a direct party to the agreement although the officials of the bank had full
knowledge of its accomplishment and the general manager of the bank placed his O. K. at the
end of the final draft. (Intervenor's Exhibit 10.) The next move of the bank was to obtain a new
mortgage from the Vegetable Oil Company on February 20, 1922. Shortly thereafter, on
February 28, 1922, the receivership for the Vegetable Oil Company was terminated. The bank
suspended the operation of the Vegetable Oil Company in May, 1922, and definitely closed the
Oil Company's plant on August 14, 1922.
Out of the foregoing facts which are not in dispute and others which are in dispute, arose the
action of the Philippine National Bank of May 7, 1924, to foreclose its mortgage on the property
of the Vegetable Oil Company. The Vegetable Oil Company on its part countered with certain
special defenses which need not be described and with the interposition of a counterclaim for
P6,000,000. Phil. C. Whitaker presented a complaint in intervention. The judgment rendered
was in favor of the plaintiff and against the defendant which was ordered to pay the sum of
P15,787,454.54, representing the liquidation between the plaintiff and the defendant, with legal
interest beginning with May 8, 1923, together with P25,000 attorney's fees, and costs, with the
addition of the usual order to foreclose the mortgage. The counterclaim of the defendant and the
complaint in intervention were dismissed.
The trial judge in his decision announced and answered three questions, viz: (1) Whether the
execution of the mortgage, Exhibit A of the plaintiff, was the free act of the defendant; (2)
whether this mortgage was null and without force because at the time of its execution all the
property of the defendant was under the control of a receiver appointed by the court and neither
the approval of the receiver nor of the court had been obtained; and (3) whether the plaintiff had
failed to comply with the contract, that it was alleged to have celebrated with the defendant and
the intervenor, that it would furnish funds to the defendant so that it could continue operating its
factory. Much the same analysis of the issues is made by the intervenor as appellant. The first
error, in relation with the sixth error of the assignment of errors, concerns the holding that the
mortgage, Exhibit A, has been legally and validly executed by the Philippine Vegetable Oil Co.,
Inc. The second, third, fourth, and fifth errors, in relation with the sixth error of the assignment of
errors, concern the holding that the Philippine National Bank had not bound itself to finance the
operation of the Philippine Vegetable Oil Co., Inc. In this later connection, the main point at issue
between the Philippine National Bank and Phil. C. Whitaker as disclosed by the amended
answer of the Philippine National Bank to the complaint in intervention, and the opening
sentence of the memorandum for intervenor-appellant filed in this court, is whether the
Philippine National Bank ever made any contract binding the bank to provide the necessary
operating capital to the Philippine Vegetable Oil Co., Inc., and whether Mr. Whitaker has
established his right to recover damages from the bank by reason of the latter's alleged refusal
to finance the operation of the Philippine Vegetable Oil Co., Inc. It results, therefore, in the
appeal dividing into two main subjects, the first, the validity of the Philippine National Bank-
Philippine Vegetable Oil Co., Inc., mortgage of February 20, 1922, and second, the alleged
agreement of the Philippine Vegetable Oil Co., Inc. These two topics we propose to discuss
separately and in order. Parenthetically, it may be said that our mode of approach will be to
sweep aside technicalities and to resolve in a broad and liberal manner the various perplexing
questions which are before the court.
I. Validity of the Philippine National Bank — Philippine Vegetable Oil Co., Inc., mortgage of
February 10, 1922.
At the outset, the appellee challenges the right of Phil. C. Whitaker as intervenor to ask that the
mortgage contract executed by the Vegetable Oil Company be declared null and void. Appellee
is right as to the premises. The Vegetable Oil Company is the defendant. The corporation has
not appealed. At the same time, it is evident that Phil. C. Whitaker was one of the largest
individual stockholders of the Vegetable Oil Company, and was until the inauguration of the
receivership, exercising control over and dictating the policy of that company. Out of twenty-
eight thousand shares of the Vegetable Oil Company, Mr. Whitaker was the owner of 5,893 fully
paid shares of the par value of P100 each. He it was who asked for the appointment of the
receiver. He it was who was the leading figure in the negotiations between the Vegetable Oil
Company, the Philippine National Bank, and the other creditors. He it was who pledged his own
property to the extent of over P4,000,000 in an endeavor to assist in the rehabilitation of the
Vegetable Oil Company. He is in juriously affected by the mortgage. In truth, Mr. Whitaker is
more vitally interested in the outcome of this case than is the Vegetable Oil Company.
Conceivably if the mortgage had been the free act of the Vegetable Oil Company, it could not be
heard to allege its own fraud, and only a creditor could take advantage of the fraud to intervene
to avoid the conveyance.
We find no merit in appellee's objection and pass on to consider the main question on its merits.
The mortgage, Exhibit A, was executed on February 20, 1922, by "Philippine Vegetable Oil Co.,
Inc., By E. G. Abry, Secretary-Treasurer" "Philippine National Bank By E. W. Wilson, General
Manager." E. G. Abry, according to his testimony, was employed as secretary-treasurer of the
Vegetable Oil Company after a conference with Mr. Wilson and continued in this position during
the period when the Vegetable Oil Company was under the control either of a receiver or of the
bank. The other signature to the instrument was that of E. W. Wilson, General Manager of the
Philippine National Bank.
At this time, E. W. Wilson and Miguel Cuaderno, a Director of the Philippine National Bank, were
serving as Directors of the Vegetable Oil Company. Messrs. Wilson had on July 26, 1921, in a
letter to Mr. Whitaker relative to the reorganization of the Vegetable Oil Company, suggested the
resignation of two members of the Board of Directors so that the bank might "have rather a close
working relationship with the Philippine Vegetable Oil Co." (Intervenor's Exhibit 4). The
resolution of the Board of Directors of September 2, 1921, naming Messrs. Wilson and
Cuaderno "to represent the Philippine National Bank in the Board of Directors of the Philippine
Vegetable Oil Co. as members thereof" did so with the understanding "that neither one of them
has any interest other than that of the bank's in the Philippine Vegetable Oil Co., and that in
accepting these directorships they are doing it solely for the bank." According to the testimony of
Major Randall, Mr. Wilson became President of the Vegetable Oil Company on September 12,
1921.
It has been said that the mortgage was executed on February 20, 1922. That is undeniable. The
allegation of the plaintiff's complaint is "That the defendant, on the 20th day of February, 1922,
duly executed to the plaintiff a mortgage." The mortgage in question recites: "This mortgage,
executed at the City of Manila, Philippine Islands, this twentieth day of February, nineteen
hundred and twenty-two." However, the mortgage was not ratified before a notary public until
March 8, 1922, and was not recorded in the registry of property until March 21, 1922.
To add one more date, it will be recalled that the receivership ended on February 28, 1922. In
other words, as partially interpretative of the situation, the mortgage was executed by the
Philippine National Bank, through its General Manager, and another corporation before the
termination of the receivership of the said corporation, but was not acknowledged or recorded
until after the termination of the receivership.
In the complaint of Phil. C. Whitaker filed in the Court of First Instance of Manila in which it was
prayed that a receiver be appointed to take charge of the Philippine Vegetable Oil Co., Inc., it
was alleged "that the largest individual creditor of said corporation is the Philippine National
Bank, the indebtedness to which amounts to approximately P16,000,000, a portion of which
indebtedness is secured by mortgage on the major part of the assets of the corporation." The
order of the court appointing a receiver contained a similar recital. The Philippine National Bank
held the mortgage mentioned, and possibly two others not mentioned, when the receivership
proceedings were initiated.
It must be evident to all that the Philippine National Bank could legally secure no new mortgage
by the accomplishment of documents between its officials and the officials of the Vegetable Oil
Company while the property of the latter company was in custodia legis. The Vegetable Oil
Company was then inhibited absolutely from giving a mortgage on its property. The receiver was
not a party to the mortgage. The court had not authorized the receiver to consent to the
execution of a new mortgage. Whether the court could have done so is doubtful, but that it would
have thus consented is hardly debatable, considering that it would desire to protect the rights of
all the creditors and not the rights of one particular creditor. The legal conclusion is axiomatic.
(Code of Civil Procedure, secs. 173 et seq., Compañia General de Tabaccos vs. Gauzon and
Pomar [1911], 20 Phil., 261.)
To all this the appellee as well as the trial court have answered that while it is true that the
document was executed on February 20, 1922, at a time when the properties of the mortgagor
were under receivership, the mortgage was not acknowledged before a notary public until March
8, 1922, after the court had determined that the necessity for a receiver no longer existed. But
the additional fact remains that while the mortgage could not have been executed without the
dissolution of the receivership, such dissolution was apparently secured through representations
made to the court by counsel for the bank that the bank would continue to finance the operations
of the Vegetable Oil Company (See testimony of Judge Simplicio del Rosario). Instead of so
doing, the bank within less than two months after the mortgage was recorded, withdrew its
support from the Vegetable Oil Company, and in effect closed its establishment. Also it must not
be forgotten that the hands of other creditors were tied pursuant to the creditors' agreement of
June 27, 1921.
To place emphasis on the outstanding facts, it must be repeated that the mortgage was
executed while a receiver was in charge of the Vegetable Oil Company. A mortgage
accomplished at such a time by the corporation under receivership and a creditor would be a
nullity. The mortgage was definitely perfected subsequent to the lifting of the receivership
pursuant to implied promises that the bank would continue to operate the Vegetable Oil
Company. It was then accomplished when the Philippine National Bank was a dominating
influence in the affairs of the Vegetable Oil Company. On the one hand was the Philippine
National Bank in person. On the other hand was the Philippine National Bank by proxy. Under
such circumstances, it would be unconscionable to allow the bank, after the hands of the other
creditors were tied, virtually to appropriate to itself all the property of the Vegetable Oil
Company.
Whether we consider the action taken as not expressing the free will of the Vegetable Oil
Company, or as disclosing undue influence on the part of the Philippine National Bank in
procuring the mortgage, or as constituting deceit under the civil law, or whether we go still
further and classify the facts as constructive fraud, the result is the same. The mortgage is
clearly voidable.
The setting aside of the mortgage of February 20, 1922, will not necessarily result in the
Philippine National Bank being left without security. It is our understanding that before the
receivership was thought of, the bank was the holder of three mortgages on the property of the
Vegetable Oil Company, the first dated April 11, 1919, for an uncertain amount; the second,
dated November 18, 1920, for P3,500,000; and the third, dated January 10, 1921, for
P4,000,000. These mortgages remain in effect and may be foreclosed.
Addressing ourselves directly to the first two questions discussed in the decision of the trial court
and to the first and sixth errors assigned by the intervenor as appellant, we rule that the
Philippine National Bank-Philippine Vegetable Co., Inc., mortgage of February 20, 1922, has not
been legally executed by the Philippine Vegetable Oil Co., Inc.
II. Alleged agreement of the Philippine National Bank to finance the Philippine Vegetable Oil Co.,
Inc.
Before it need be decided if the intervenor has a right to recover damages from either the
plaintiff or the defendant because of the plaintiff's refusal to finance the operations of the
defendant, it must be determined if the Philippine National Bank ever entered into any valid
agreement by which it bound itself to provide the necessary operating capital of the Philippine
Vegetable Oil Co., Inc. The question presents both legal and factual aspects. The legal inquiry
relates to the applicability or non-applicability of the Statute of Frauds as found in section 335 of
our Code of Civil Procedure. The question of fact goes on the assumption that the oral evidence
can be received without violating the Statute of Frauds and then, of course, comes down to the
weighing of the evidence.
The broad view is that the Statute of Frauds applies only to agreements not to be performed on
either side within a year from the making thereof. Agreements to be fully performed on one side
within the year are taken out of the operation of the statute. As intervenor's theory proceeds on
the assumption that Mr. Whitaker has entirely performed his part of the agreement, equity would
argue that all evidence be admitted to prove the alleged agreement. Surely since the Statute of
Frauds was enacted for the purpose of preventing frauds, it should not be made the instrument
to further them.
As preliminary to a presentation of the evidence, it is well to have an understanding of the
applicable law. The Charter of the Philippine National Bank, Act No. 2612, section 20, as
amended by Act No. 2938, provides that "The General Manager of the Bank, shall, among
others, have the following powers and duties: . . . (b) To make, with advice and consent of the
board of directors, all contracts on beheld of the said bank and to enter into all necessary
obligations by this Act required or permitted." Predicated on our general liberal point of view, we
feel free to take into consideration the applicable law although no special defense to this effect
was interposed by the Philippine National Bank to intervenor's complaint.
Let us now look into the evidence in detail. We may properly begin with the applicable
resolutions of the Board of Directors of the Philippine National Bank.
In the minutes of the Board of Directors of the Philippine National Bank of October 4, 1921, is
found the following:
Philippine Vegetable Oil Co. — On motion of Director Westerhouse, duly seconded, the
following resolution was adopted by the Board: Be it resolved, that the General Manager be, and
he is, hereby authorized to finance the operation of the Philippine Vegetable Oil Co. under the
Receivership to the extent of P500,000 to be secured by copra and oil and to be further secured
by P500,000 pledged by Phil. C. Whitaker in his creditor's agreement.
Under date of October 28, 1921, is found the following:
The following additional loans with which to buy more copra were approved by the Board, at the
recommendation of the Oil Factory Committee. Philippine Vegetable Oil Co. F. W. Carpenter,
Receiver, P. V. O., P200,000.
Under date of December 5, 1921, is found the following:
After a long discussion and careful deliberation, and on motion of Director Westerhouse, duly
seconded by Director Seaver, the following was unanimously approved by the Board: To protect
the large investments of the Bank, it is the sense of the Board of Directors to continue financing
the operation under receivership of the Philippine Vegetable Oil Co., the Philippine
Manufacturing Co., the Cristobal Oil Co., and the Santa Ana Oil Mills, in as modest and
economical way as is consistent with conditions, the General Manager to report and secure the
approval of the Board for necessary credits from time to time, and that the Board also
recommends that the Oil Committee continue studying the advisability of financing the operation
of other oil mills indebted to the Bank.
Other portions of the minutes of the Board of Directors disclose that the Board authorized
advances to the Vegetable Oil Company to the extent of more than P1,000,000.
Logically, our review of the evidence should stop here. No contract entered into by the General
Manager of the Bank would be valid unless made with the advice and consent of its Board of
Directors. What the Board of Directors had decreed was that the Vegetable Oil Company be
financed under the receivership to the extent of P500,000, a sum which was later increased. The
Board not alone specified the amounts of the loans but cautiously added that the General
Manager "report and secure the approval of the Board for necessary credits from time to time."
There was no indication in any action taken by the Board of Directors that it had ever consented
to an agreement for practically unlimited backing of the Vegetable Oil Company, or that it had
ratified any such promise made by its General Manager.
Out of consideration for the parties, however, we will go further and will examine the remaining
evidence.
Passing in review intervenor's exhibits, we first notice Mr. Whitaker's letter to the Hongkong and
Shanghai Banking Corporation of January 1, 1921. He there confirms his undertaking to assume
an obligation to pledge and mortgage specified personal holdings. The offer is made "contingent
upon its acceptance by the other unsecured creditors . . . . A further condition to the foregoing
offer is that the banks parties to the proposed arrangement supply, subject to the approval of
their representatives on the Board of Directors of the P. V. O. Co., funds sufficient to enable the
P. V. O. Co., to continue its operations during the full term for which my personal secured
undertaking remains in effect." The condition named related to all the banks and not the
Philippine National Bank. (Intervenor's Exhibit 1.) The trust deed by Mr. Whitaker in favor of H.
C. Stanford makes the purposes and uses among others "To secure the Philippine National
Bank against such losses as it may sustain, not exceeding a total of P500,000, on such sums as
it shall, from time to time and within three years from July 1, 1921, advance to the Philippine
Vegetable Oil Company to enable the latter to resume business and continue the manufacture of
vegetable oil." This recital is specific as to P500,000 and is general as to further advances, and
is made in a document to which the Philippine National Bank was not a party. (Intervenor's
Exhibit 2.) The creditors' agreement is of similar tenor. (Intervenor's 3.) One of the paragraphs in
the preamble of the power of attorney from the Roman Catholic Archbishop of Manila to Phil. C.
Whitaker mentioned that Mr. Whitaker "has also arranged with the Philippine National Bank for
the funds necessary to enable said Oil Company to resume its business and continue in the
manufacture of vegetable oil." Although this proxy may have been procured at the instance of
the Philippine National Bank, yet obviously it did not bind the officials of the bank. (Intervenor's
Exhibit 5.) The letter of Mr. Wilson as General Manager of the Philippine National Bank of June
8, 1921, addressed to Mr. Whitaker stated: "I see no good reason why you should use your
property to secure unsecured obligations, and not provide for the operation of the plant." Merely
a friendly warning. (Intervenor's Exhibit 8.) Mr. Wilson's letter to Mr. Whitaker to enabled the
Bank to put its securities in first-class shape. In order to do this, however, it was necessary for it
to furnish certain money for operating the plant, and an additional mortgage was executed. . . . It
is my judgment that it was good business for the Philippine National Bank to operate the plant as
long as it had the P500,000 guarantee. However, the bank put into the undertaking a great deal
more money than it originally intended. Then, too, the guarantee was not as good as we
thought, because the first lien on the property was not being paid off as rapidly as we thought it
would be." Here was merely an expression of gratification regarding the additional mortgage and
emphasis on the P500,000 guarantee. (Intervenor's Exhibit 7.) We discover nothing further of
interest in the exhibits.
The only oral testimony in point is that given by A. D. Gibbs and Phil. C. Whitaker. Mr. Gibbs,
testifying as to a meeting of the creditors of the Vegetable Oil Company, said: "Mr. Wilson stated
in substance that if the negotiations which were then pending between Mr. Whitaker and the
other creditors, whereby the other creditors were to refrain from throwing the P. V. O. Co. into
insolvency or from bringing action against it, could be carried out, that his bank would finance
the P. V. O. Co., and keep it in operation." Mr. Whitaker, testifying as to the same meeting, said:
Mr. Wilson stated that he had looked into the affairs of the P. V. O. as far as the short time he
had permitted, and that the P. V. O. had evidently made good money in the past and if allowed
to resume would make good again in the future, that the P. N. B., as the largest creditor,
contemplated financing a resumption of the company's operations if the company could be kept
out of insolvency." Giving to this testimony its broadest effect, we still discover no definite
agreement binding on the bank but only a general intimation proffered by the General Manager
of the Bank in conference that his bank contemplated financing the operations of the Vegetable
Oil Company.
That is all the evidence, documentary and oral, at all pertinent to the issue. We are clear that
taking it entirely into consideration it discloses no binding promise, tacit or express, made by the
Philippine National Bank to continue indefinitely its backing of the Vegetable Oil Company.
Mr. Whitaker was in no way personally responsible for any part of the obligations of the
Vegetable Oil Company. Nevertheless, he signed the creditors' agreement. That was a
praiseworthy act. We sympathize with him in the situation in which he finds himself. The various
creditors have a large amount of his property. The Philippine National Bank has taken over the
assets of the Vegetable Oil Company. The latter company has ceased operations. Mr. Whitaker
has not made himself the successor in interest of the Vegetable Oil Company and so cannot
recover from it in these proceedings. But sympathy cannot be transmuted into legal
authoritativeness. If Mr. Whitaker has any other remedy, that is for him to determine. Here we
cannot give him redress for he has not made out his case except insofar as he has been
successful in overturning the last mortgage of the Philippine National Bank on the property of the
Vegetable Oil Company.
III. Result
We announce the following conclusions:
(1) Plaintiff is entitled to a money judgment against the defendant for P14,183,679.37 with legal
interest thereon beginning with May 8, 1924. Exhibit C — 1 shows that after May 6, 1924, when
Exhibit B — 1 was formulated, two further payments were made on the promissory note for
P16,869,975.59, which further reduced the principal from P15,760,312.85 as totaled in Exhibit B
— 1 to P14,183,679.37 as evidenced by Exhibit C — 1. As interest has already been charged up
to May 7, 1924, legal interest should begin to run from that date instead of from May 8, 1923, as
fixed by the trial court.
(2) The Philippine National Bank-Philippine Vegetable Oil Co., mortgage of February 20, 1922,
has not been legally executed by the Philippine Vegetable Oil Co., Inc., and consequently
cannot be given effect. But the prior mortgages held by the Philippine National Bank of April 11,
1919, November 18, 1920, and January 10, 1921, remain in force and may be foreclosed.
(3) The Philippine National Bank will obviously have a preferred claim when the three mortgages
above mentioned shall be foreclosed. The remainder of the assets of the Philippine Vegetable
Oil Co., Inc., if any, should then be applied to the payment pro rata of the unsecured claims,
among them that of Mr. Whitaker and the unsecured part of the debt to the Philippine National
Bank. Intervenor Whitaker is entitled to an accounting of the proceeds of the Vegetable Oil
Company's properties caused to be sold by the Philippine National Bank and of the business
operations of the Vegetable Oil Company since March 11, 1921.
(4) Intervenor Whitaker has failed to establish an agreement binding the Philippine National
Bank to provide the necessary operating capital to the Vegetable Oil Company, and so is not
entitled to recover damages from the Philippine National Bank. Nor can intervenor Whitaker
recover P4,424,418.37 from the Vegetable Oil Company since he is not the legatee of the
assets of that company. The trial judge accordingly committed no error in dismissing intervenor's
complaint.
(5) No pronouncement is made with reference to intervenor Whitaker's possible rights in
connection with the creditors' agreement since that agreement is not here in question and the
parties thereto are not before the court.
The case will be remanded to the lower court for the entry of judgment and further proceedings
as herein indicated. Judgment affirmed in part and reversed in part, without special finding as to
costs in either instance.
Leonardo v CA
G.R. No. L-51263 February 28, 1983
Petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No. 43476-R,
promulgated on February 21, 1979, reversing the judgment of the Court of First Instance of Rizal
in favor of petitioner:
(a) Declaring plaintiff Cresenciano Leonardo as the great grandson and heir of deceased
FRANCISCA REYES, entitled to one-half share in the estate of said deceased, jointly with
defendant Maria Cailles;
(b) Declaring the properties, subject of this complaint, to be the properties of the deceased
FRANCISCA REYES and not of defendants Maria Cailles and James Bracewen
(c) Declaring null and void any sale of these properties by defendant Maria Cailles in so far as
the share of Cresenciano Leonardo are affected;
(d) Ordering the partition within 30 days from the finality of this decision, of the properties subject
of this litigation, between defendant Maria Cailles and plaintiff Cresenciano Leonardo, share and
share alike;
(e) Ordering defendants Maria Cailles and James Bracewell, within 30 days from the finality of
this decision, to render an accounting of the fruits of the properties, and 30 days thereafter to
pay to plaintiff Cresenciano Leonardo his one-half share thereof with interest of 6% per annum;
(f) Ordering defendants Maria Cailles and James to pay jointly and severally plaintiff
Cresenciano Leonardo the amount of P2,000.00 as attorney's fees;
(g) Ordering defendants to pay the costs; and
(h) Dismissing defendants' counterclaim. 1
From the record, it appears that Francisca Reyes who died intestate on July 12, 1942 was
survived by two (2) daughters, Maria and Silvestra Cailles and a grandson, Sotero Leonardo, the
son of her daughter, Pascuala Cailles who predeceased her. Sotero Leonardo died in 1944,
while Silvestra Cailles died in 1949 without any issue.
On October 29, 1964, petitioner Cresenciano Leonardo, claiming to be the son of the late Sotero
Leonardo, filed a complaint for ownership of properties, sum of money and accounting in the
Court of First Instance of Rizal seeking judgment (1) to be declared one of the lawful heirs of the
deceased Francisca Reyes, entitled to one-half share in the estate of said deceased jointly with
defendant, private respondent herein, Maria Cailles, (2) to have the properties left by said
Francisca Reyes, described in the complaint, partitioned between him and defendant Maria
Cailles, and (3) to have an accounting of all the income derived from said properties from the
time defendants took possession thereof until said accounting shall have been made, delivering
to him his share therein with legal interest.
Answering the complaint, private respondent Maria Cailles asserted exclusive ownership over
the subject properties and alleged that petitioner is an illegitimate child who cannot succeed by
right of representation. For his part, the other defendant, private respondent James Bracewell,
claimed that said properties are now his by virtue of a valid and legal deed of sale which Maria
Cailles had subsequently executed in his favor. These properties were allegedly mortgaged to
respondent Rural Bank of Paranaque, Inc. sometime in September 1963.
After hearing on the merits, the trial court rendered judgment in favor of the petitioner, the
dispositive portion of which was earlier quoted, finding the evidence of the private respondent
insufficient to prove ownership of the properties in suit.
From said judgment, private respondents appealed to the Court of Appeals which, as already
stated, reversed the decision of the trial court, thereby dismissing petitioner's complaint,
reconsideration having been denied by the appellate court, this petition for review was filed of
the following assignment of errors:
I allegedly represents the share of his father,
RESPONDENT COURT ERRED IN HOLDING THAT PROPERTIES IN QUESTION ARE THE
EXCLUSIVE PROPERTIES OF PRIVATE RESPONDENTS.
II
RESPONDENT COURT ERRED IN HOLDING THAT PETITIONER HAS NOT ESTABLISHED
HIS FILIATION.
III
RESPONDENT COURT ERRED IN HOLDING THAT PETITIONER, AS THE GREAT
GRANDSON OF FRANCISCA REYES, HAS NO LEGAL RIGHT TO INHERIT BY
REPRESENTATION.
To begin with, the Court of Appeals found the subject properties to be the exclusive properties of
the private respondents.
There being two properties in this case both will be discussed separately, as each has its own
distinct factual setting. The first was bought in 1908 by Maria Cailles under a deed of sale (Exh.
'60'), which describes it as follows:
. . . radicada en la calle Desposorio de este dicho Municipio dentro de los limites y linderos
siquientes: Por la derecha a la entrada el solar de Teodorico Reyes por la izquierda el solar de
Maria Calesa (Cailles) arriba citada por la espalda la via ferrea del Railroad Co., y la frente la
dicha calle Desposorio
After declaring it in her name, Maria Cailles paid the realty taxes starting from 1918 up to 1948.
Thereafter as she and her son Narciso Bracewell, left for Nueva Ecija, Francisca Reyes
managed the property and paid the realty tax of the land. However, for unexplained reasons,
she paid and declared the same in her own name. Because of this, plaintiff decided to run after
this property, erroneously thinking that as the great grandson of Francisca Reyes, he had some
proprietary right over the same.
The second parcel on the other hand, was purchased by Maria Cailles in 1917 under a deed of
sale (Exh. '3') which describes the property as follows:
. . . una parcela de terreno destinado al beneficio de la sal, que linda por Norte con la linea
Ferrea y Salinar de Narciso Mayuga, por Este con los de Narciso Mayuga y Domingo Lozada,
por Sur con los de Domingo Lozada y Fruto Silverio y por Oeste con el de Fruto Silverio y Linea
Ferrea de una extension superficial de 1229.00 metros cuadrados.
After declaring it in her name, Maria Cailles likewise paid the realty tax in 1917 and continued
paying the same up to 1948. Thereafter when she and her son, Narciso Bracewell, established
their residence in Nueva Ecija, Francisco Reyes administered the property and like in the first
case, declared in 1949 the property in her own name. Thinking that the property is the property
of Francisca Reyes, plaintiff filed the instant complaint, claiming a portion thereof as the same
As earlier stated, the court a quo decided the case in favor of the plaintiff principally because
defendants' evidence do not sufficiently show that the 2 properties which they bought in 1908
and 1917, are the same as the properties sought by the plaintiff.
Carefully going over the evidence, We believe that the trial judge misinterpreted the evidence as
to the identification of the lands in question.
To begin with, the deed of sale (Exh. '60') of 1908 clearly states that the land sold to Maria
Cailles is en la cane Desposorio in Las Pinas Rizal which was bounded by adjoining lands
owned by persons living at the time, including the railroad track of the Manila Railroad Co. ('la
via ferrea del Railroad Co.')
With the exception of the area which was not disclosed in the deed, the description fits the land
now being sought by the plaintiff, as this property is also located in Desposorio St. and is
bounded by the M.R.R. Co.
With these natural boundaries, there is indeed an assurance that the property described in the
deed and in the tax declaration is one and the same property.
The change of owners of the adjoining lands is immaterial since several decades have already That is likewise a factual finding which may not be disturbed in this petition for review in the
passed between the deed and the declaration and 'during that period, many changes of abode absence of a clear showing that said finding is not supported by substantial evidence, or that
would likely have occurred. there was a grave abuse of discretion on the part of the court making the finding of fact.

Besides, it is a fact that defendants have only one property in Desposorio St. and they have paid Referring to the third assignment of error, even if it is true that petitioner is the child of Sotero
the realty taxes of this property from May 29, 1914 up to May 28, 1948. Hence, there is no Leonardo, still he cannot, by right of representation, claim a share of the estate left by the
reason to doubt that this property is the same, if not Identical to the property in Desposorio St. deceased Francisca Reyes considering that, as found again by the Court of Appeals, he was
which is now being sought after by the plaintiff. born outside wedlock as shown by the fact that when he was born on September 13, 1938, his
alleged putative father and mother were not yet married, and what is more, his alleged father's
With respect to the other parcel which Maria Cailles bought from Tranquilino Mateo in 1917, it is first marriage was still subsisting. At most, petitioner would be an illegitimate child who has no
true that there is no similar boundaries to be relied upon. It is however undeniable that after right to inherit ab intestato from the legitimate children and relatives of his father, like the
declaring it in her name, Maria Cailles began paying the realty taxes thereon on July 24, 1917 deceased Francisca Reyes. (Article 992, Civil Code of the Philippines.)
until 1948. (Reference to Exhibits omitted.)2
WHEREFORE, the decision of the Court of Appeals sought to be reviewed in this petition is
Petitioner takes issue with the appellate court on the above findings of fact, forgetting that since hereby affirmed, with costs against the petitioner.
the present petition is one for review on certiorari, only questions of law may be raised. It is a
well-established rule laid down by this Court in numerous cases that findings of facts by the SO ORDERED.
Court of Appeals are, generally, final and conclusive upon this Court. The exceptions are: (1)
when the conclusion is a finding grounded entirely on speculation; (2) when the inference made
is manifestly mistaken, absurd or impossible; (3) when there is a grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; and (5) when the Court of Appeals,
in making its findings, went beyond the issues of the case and the same are contrary to the
submission of both appellant and appellee. 3 None of the above exceptions, however, exists in
the case at bar, hence, there is no reason to disturb the findings of facts of the Court of Appeals.

Anent the second assignment of error, the Court of Appeals made the following findings:

Going to the issue of filiation, plaintiff claims that he is the son of Sotero Leonardo, the son of
one of the daughters (Pascuala) of Francisca Reyes. He further alleges that since Pascuala
predeceased Francisca Reyes, and that his father, Sotero, who subsequently died in 1944,
survived Francisca Reyes, plaintiff can consequently succeed to the estate of Francisca Reyes
by right of representation.

In support of his claim, plaintiff submitted in evidence his alleged birth certificate showing that his
father is Sotero Leonardo, married to Socorro Timbol, his alleged mother.

Since his supposed right will either rise or fall on the proper evaluation of this vital evidence, We
have minutely scrutinized the same, looking for that vital link connecting him to the family tree of
the deceased Francisca Reyes. However, this piece of evidence does not in any way lend
credence to his tale.

This is because the name of the child described in the birth certificate is not that of the plaintiff
but a certain 'Alfredo Leonardo' who was born on September 13, 1938 to Sotero Leonardo and
Socorro Timbol. Other than his bare allegation, plaintiff did not submit any durable evidence
showing that the 'Alfredo Leonardo' mentioned in the birth certificate is no other than he himself.
Thus, even without taking time and space to go into further details, We may safely conclude that
plaintiff failed to prove his filiation which is a fundamental requisite in this action where he is
claiming to be an heir in the inheritance in question. 4