III.

SUBJECT MATTER
A. REQUISITES OF A VALID SUBJECT MATTER: Articles 1459 1465

a.
G.R. No. L-4402 July 28, 1952

CANUTO MARTIN, petitioner, vs. MARIA REYES and PEDRO REVILLA, respondents. Delgado and Flores for petitioner. Ramon Diokono and Jose W. Diokno for respondents. BENGSON, J.: Coming from the Court of Appeals for revision, this litigation presents two principal question: the price at which the respondents were entitled to repurchase the property, and the exercise of such right within the period of redemption. Apparently issues of fact, they really depend upon legal points, as will presently be seen. According to the Court of Appeals, the respondents Pedro Revilla and Maria Reyes obtained from the La Previsora Filipina sometime before November 18, 1939 a loan of P6,500; and with the money, they the price of a lot, with improvements, which they paid had previously purchased from the Archibishop of Manila. And they mortgaged the property to La Previsora for the purpose of guaranteeing repayment of the debt in installments with interest at 12 per cent per annum. It turned out later that Monte de Piedad y Caja de Ahorros had obtained a judgment against Pedro Revilla for the sum of P45,000 and had levied execution therefor upon the property and its rentals. Apprised of this development, the La Previsora started foreclosure proceedings, alleging non-payment of its credit by the mortgagors. The conflicting interests were later the object of amicable settlement among the parties, as a result of which the herein respondents notarized the deed Exhibit E whereby in satisfaction of their obligations to La Previsora (then amounting to P8,204.60) they ceded the property to the said institutions, reserving the right to repurchase for P8,204.60 within sixty days. The deed was acknowledged on November 3, 1941. It seems that La Previsora at the same time, or immediately thereafter conveyed the property by Exhibit C to petitioner Canuto Martin, who then executed the document Exhibit D undertaking to allow respondents to repurchase the property within sixty days from October 31, 1941, but at the price of P14,000. This document Exhibit D was signed by Maria Reyes signifying her assent. At the trial she pleaded that the document, without

embodying their true agreement, had been obtained thru deceit and abuse of confidence. However, her assertions were not credited by the Court of Appeals. Nevertheless, that court declared the document void (Exhibit D) for the only reasons that it had been signed by Canuto Martin before acquiring ownership of the property by the cession of Maria Reyes and Pedro Revilla to the La Previsora, and from the latter to them. The Court noted that whereas Exhibit E was acknowledged before the notary on November 3, 1941, Exhibit Dbore the date October 30, 1941, a few days before. Wherefore the Court of Appeals held that the respondent's right to repurchase was to be found in Exhibit E, and that they had seasonably exercised such right. The validity of Exhibit D is the subject-matter of Martin's principal attack on the appellate court's judgment. The documents Exhibits C, D and E were undoubtedly part of the same amicable settlement. Acknowledgment of the document Exhibit E was delayed on account of the necessity of securing the approval of the Monte de Piedad y Caja de Ahorros. For that reason it bears the date November 3. The arrangements were obviously: (a) transfer to La Previsora with right to repurchase at P8,204.60; (b) transfer by La Previsora to Canuto Martin and (c) option to repurchase from Martin at P14,000. Why at P14,00, when it is admitted that Martin got the property at P7,000 from La Previsora the claims of Monte de Piedad arising from the attachment heretofore described. The Court of Appeals pronounced Exhibit D invalid because at the time of its execution, Martin had no title over the property. This is rather too technical a viewpoint. Remembering that Exhibit D constituted a part of the whole friendly settlement and could be considered as simultaneous with the other documents, specially the documents of transfer from Maria Reyes and La Previsora, the disparity of dates should imply no annulling consequences. At any rate, Exhibit D may be placed in the same category as a promise to convey land not yet owned by the vendor, obligation which may be enforced, according to the authorities: Property or goods which, at the time of the sale, are not owned by the seller, but which are thereafter to be acquired by him, cannot be the subject of an executed sale, but may be the subject of a contract for the future sale and delivery thereof, and it has been held that even though the contract is in the form of the present sale it will not pass the title, after the goods have been acquired, until the seller has done some act appropriating them to the contract. Such a contract of the

future sale and delivery of goods, which the seller has not in possession but which he intends to acquire by producing, manufacturing, or purchasing before the day of delivery, is valid as an executory contract to be fulfilled by acquiring and delivering the goods specified in the contract, even though the acquisition of the goods by the seller depends upon a contingency which may or may not happen. (55 Corpus Juris, 65). (Emphasis ours) It is not unusual for persons to agree to convey by a certain time, notwithstanding they have no title to the land at the time of the contract, and the validity of such agreement is upheld. In such cases, the vendor assume the risk of acquiring the title and making the conveyance, or responding in damages for the vendee's loss of his bargain, One having an option to purchase real estate has a legal right to enter into an executory contract to sell the property. Afortiori, it is not necessary that the vendor be the absolute owner of the property at the time he enters into agreement of sale because the owner of the land, is as much the subject of sale as is the land itself, and whenever one is so suited with reference to a tract of land that he can acquire the title thereto, either by the voluntary act of the parties holding the title, or by proceeding at law or in equity, he is in a position to make a valid agreement for the sale thereof, without disclosing the nature of his title. (55 American Jurisprudence, 480). (Emphasis ours) The above principles express the same the ideas in articles 1462 and 1459 of the New Civil Code. Therefore erroneous is the ruling that, because executed before Canuto Martin became the owner, Exhibit D, was null and void. Consequently, as Reyes voluntarily agreed under Exhibit D, to repurchase at P14,000, she should not repurchase at any other price. Now, have the respondents properly exercised their right to repurchase? The Court of Appeals stated that in December 1941, Maria Reyes accompanied by Marcela Mota de Malonso went to the office of La Previsora, not for the purpose of repurchasing the property, but to ask for extension of the period. Nevertheless, that Court opined that inasmuch as the complaint to compel repurchase had been filed on January 2, 1952 within the sixty-day period mentioned in Exhibit E, the vendors had preserved their redemption option. Upon a move to reconsider, the Court of Appeals amplified its decision saying,

In view of the refusal of Atty. Pete A. Revilla who was acting in behalf of appellee Canuto Martin, to receive any amount less than P14,000, nor to accept in behalf of the La Previsora Filipina, claiming that the latter's right were already ceded to appellee Canuto Martin, we hold that the question to the efficiency of the amount offered at the time is not as vital to the issue as the necessity of making one. . . . We find that the plaintiff Maria Reyes, accompanied to one Marcela Mota de Malonso did make an offer to redeem the property in the property days of December, 1941. Whether or not the amount they had on that occasion was sufficient to redeem the property at P8,204.60 or P10,204.60 is not vital to the preservation of the rights of the plaintiff's in view of the refusal to accept any amount less than P14,000. Having declared that Exhibit E was valid and that the repurchase had to be made at P14,000, we must necessarily conclude that under the above findings of the Court of Appeals the right to repurchase had not been preserved. Nevertheless, let us suppose for the moment that the rights of Revilla and Reyes are governed by Exhibit E only-not by Exhibit D. From the findings of the Court of Appeals it is to be deduced that in December Maria Reyes offered to redeem for less thanP8,204.60. The decision of the court of first instance says "all the money she had at that time was P7,000." Now then: the repurchase price was P8,204.60 (on the supposition that Exhibit E governs the parties' rights); Maria Reyes offered to repay in December P7,000 only. The fact that she was told Canuto Martin wanted P14,000, does not excuse her obligation to offer, within the time stipulated, the full price for the repurchase: P8,204.60. If it was her theory and position that she had a right to redeem from La Previsora in accordance with Exhibit E, she would have acted in accordance therewith by offering P8,204.60 to La Previsora entirely disregarding the demands of any other individual. Undoubtedly, she failed to offer that amount. Furthermore, there is no evidenceand the Court of Appeals did not findthat Pedro Revilla was actually authorized by La Previsora to refuse to repurchase at P8,204.60. Needless to add, the date of filing of the complaint is immaterial, so long as it is filed within the period of limitations, its purpose being to enforce a right which must be established within the time to repurchase. Wherefore with the declaration that option to repurchase, whether under Exhibit E or under

Exhibit D, had not been asserted to the proper time, we hereby absolve the petitioner Canuto Martin from the complaint. Costs against respondents. XXXXXXXXXXXXXXXXX

b. G.R. No. 74470 March 8, 1989

NATIONAL GRAINS AUTHORITY and WILLLAM CABAL, petitioners vs. THE INTERMEDIATE APPELLATE COURT and LEON SORIANO, respondents. Cordoba, Zapanta, Rola & Garcia for petitioner National Grains Authority. Plaridel Mar Israel for respondent Leon Soriano.

MEDIALDEA, J.: This is a petition for review of the decision (pp. 921, Rollo) of the Intermediate Appellate Court (now Court of Appeals) dated December 23, 1985 in A.C. G.R. CV No. 03812 entitled, "Leon Soriano, PlaintiffAppellee versus National Grains Authority and William Cabal, Defendants Appellants", which affirmed the decision of the Court of First Instance of Cagayan, in Civil Case No. 2754 and its resolution (p. 28, Rollo) dated April 17, 1986 which denied the Motion for Reconsideration filed therein. The antecedent facts of the instant case are as follows: Petitioner National Grains Authority (now National Food Authority, NFA for short) is a government agency created under Presidential Decree No. 4. One of its incidental functions is the buying of palay grains from qualified farmers. On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to the NFA, through William Cabal, the Provincial Manager of NFA stationed at Tuguegarao, Cagayan. He submitted the documents required by the NFA for pre-qualifying as a seller, namely: (1) Farmer's Information Sheet accomplished by Soriano and certified by a Bureau of Agricultural Extension (BAEX) technician, Napoleon Callangan, (2) Xerox copies of four (4) tax declarations of the riceland leased to him and copies of the lease contract between him and Judge Concepcion Salud, and (3) his Residence Tax Certificate. Private respondent Soriano's documents were processed and accordingly, he was given a quota of 2,640 cavans of palay. The quota noted in the Farmer's Information Sheet represented the maximum number of cavans of palay that Soriano may sell to the NFA. In the afternoon of August 23, 1979 and on the following day, August 24, 1979, Soriano delivered 630 cavans of palay. The palay delivered during these two days were not rebagged, classified and weighed. when Soriano demanded payment of the

630 cavans of palay, he was informed that its payment will be held in abeyance since Mr. Cabal was still investigating on an information he received that Soriano was not a bona tide farmer and the palay delivered by him was not produced from his farmland but was taken from the warehouse of a rice trader, Ben de Guzman. On August 28, 1979, Cabal wrote Soriano advising him to withdraw from the NFA warehouse the 630 cavans Soriano delivered stating that NFA cannot legally accept the said delivery on the basis of the subsequent certification of the BAEX technician, Napoleon Callangan that Soriano is not a bona fide farmer. Instead of withdrawing the 630 cavans of palay, private respondent Soriano insisted that the palay grains delivered be paid. He then filed a complaint for specific performance and/or collection of money with damages on November 2, 1979, against the National Food Authority and Mr. William Cabal, Provincial Manager of NFA with the Court of First Instance of Tuguegarao, and docketed as Civil Case No. 2754. Meanwhile, by agreement of the parties and upon order of the trial court, the 630 cavans of palay in question were withdrawn from the warehouse of NFA. An inventory was made by the sheriff as representative of the Court, a representative of Soriano and a representative of NFA (p. 13, Rollo). On September 30, 1982, the trial court rendered judgment ordering petitioner National Food Authority, its officers and agents to pay respondent Soriano (as plaintiff in Civil Case No. 2754) the amount of P 47,250.00 representing the unpaid price of the 630 cavans of palay plus legal interest thereof (p. 1-2, CA Decision). The dispositive portion reads as follows: WHEREFORE, the Court renders judgment in favor of the plaintiff and against the defendants National Grains Authority, and William Cabal and hereby orders: 1. The National Grains Authority, now the National Food Authority, its officers and agents, and Mr. William Cabal, the Provincial Manager of the National Grains Authority at the time of the filing of this case, assigned at Tuguegarao, Cagayan, whomsoever is his successors, to pay to the plaintiff Leon T. Soriano, the amount of P47,250.00, representing the unpaid price of the palay deliveries made by the plaintiff to the defendants consisting of 630 cavans at the rate Pl.50 per kilo of 50 kilos per cavan of palay; 2. That the defendants National Grains Authority, now National Food

Authority, its officer and/or agents, and Mr. William Cabal, the Provincial Manager of the National Grains Authority, at the time of the filing of this case assigned at Tuguegarao, Cagayan or whomsoever is his successors, are likewise ordered to pay the plaintiff Leon T. Soriano, the legal interest at the rate of TWELVE (12%) percent per annum, of the amount of P 47,250.00 from the filing of the complaint on November 20, 1979, up to the final payment of the price of P 47,250.00; 3. That the defendants National Grains Authority, now National Food Authority, or their agents and duly authorized representatives can now withdraw the total number of bags (630 bags with an excess of 13 bags) now on deposit in the bonded warehouse of Eng. Ben de Guzman at Tuguegarao, Cagayan pursuant to the order of this court, and as appearing in the written inventory dated October 10, 1980, (Exhibit F for the plaintiff and Exhibit 20 for the defendants) upon payment of the price of P 47,250.00 and TWELVE PERCENT (12%) legal interest to the plaintiff, 4. That the counterclaim of the defendants is hereby dismissed; 5. That there is no pronouncement as to the award of moral and exemplary damages and attorney's fees; and 6. That there is no pronouncement as to costs. SO ORDERED (pp. 9-10, Rollo) Petitioners' motion for reconsideration of the decision was denied on December 6, 1982. Petitioners' appealed the trial court's decision to the Intermediate Appellate Court. In a decision promulgated on December 23, 1986 (pp. 9-21, Rollo) the then Intermediate Appellate Court upheld the findings of the trial court and affirmed the decision ordering NFA and its officers to pay Soriano the price of the 630 cavans of rice plus interest. Petitioners' motion for reconsideration of the appellate court's decision was denied in a resolution dated April 17, 1986 (p. 28, Rollo). Hence, this petition for review filed by the National Food Authority and Mr. William Cabal on May 15, 1986 assailing the decision of the Intermediate

Appellate Court on the sole issue of whether or not there was a contract of sale in the case at bar. Petitioners contend that the 630 cavans of palay delivered by Soriano on August 23, 1979 was made only for purposes of having it offered for sale. Further, petitioners stated that the procedure then prevailing in matters of palay procurement from qualified farmers were: firstly, there is a rebagging wherein the palay is transferred from a private sack of a farmer to the NFA sack; secondly, after the rebagging has been undertaken, classification of the palay is made to determine its variety; thirdly, after the determination of its variety and convinced that it passed the quality standard, the same will be weighed to determine the number of kilos; and finally, it will be piled inside the warehouse after the preparation of the Warehouse Stock Receipt (WSP) indicating therein the number of kilos, the variety and the number of bags. Under this procedure, rebagging is the initial operative act signifying acceptance, and acceptance will be considered complete only after the preparation of the Warehouse Stock Receipt (WSR). When the 630 cavans of palay were brought by Soriano to the Carig warehouse of NFA they were only offered for sale. Since the same were not rebagged, classified and weighed in accordance with the palay procurement program of NFA, there was no acceptance of the offer which, to petitioners' mind is a clear case of solicitation or an unaccepted offer to sell. The petition is not impressed with merit. Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay therefore a price certain in money or its equivalent. A contract, on the other hand, is a meeting of minds between two (2) persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code of the Philippines). The essential requisites of contracts are: (1) consent of the contracting parties, (2) object certain which is the subject matter of the contract, and (3) cause of the obligation which is established (Art. 1318, Civil Code of the Philippines. In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano's farmland and the NFA was to pay the same depending upon its quality. The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides: ". . .. The fact that the quantity is not

determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties." In this case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans. In its memorandum (pp. 66-71, Rollo) dated December 4, 1986, petitioners further contend that there was no contract of sale because of the absence of an essential requisite in contracts, namely, consent. It cited Section 1319 of the Civil Code which states: "Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause which are to constitute the contract. ... " Following this line, petitioners contend that there was no consent because there was no acceptance of the 630 cavans of palay in question. The above contention of petitioner is not correct Sale is a consensual contract, " ... , there is perfection when there is consent upon the subject matter and price, even if neither is delivered." (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560) This is provided by Article 1475 of the Civil Code which states: Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. xxx The acceptance referred to which determines consent is the acceptance of the offer of one party by the other and not of the goods delivered as contended by petitioners. From the moment the contract of sale is perfected, it is incumbent upon the parties to comply with their mutual obligations or "the parties may reciprocally demand performance" thereof. (Article 1475, Civil Code, 2nd par.). The reason why NFA initially refused acceptance of the 630 cavans of palay delivered by Soriano is that it (NFA) cannot legally accept the said delivery because Soriano is allegedly not a bona fide farmer. The trial court and the appellate court found that Soriano was a bona fide farmer and therefore, he was qualified to sell palay grains to NFA. Both courts likewise agree that NFA's refusal to accept was without just cause. The above factual findings which are supported by the record should not be disturbed on appeal. ACCORDINGLY, the instant petition for review is DISMISSED. The assailed decision of the then

Intermediate Appellate Court Appeals) is affirmed. No costs.

(now

Court of

c. G.R. No. 126236 January 26, 2007

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DOMINGO REALTY, INC. and AYALA STEEL MANUFACTURING CO., INC., Petitioners, vs. COURT OF APPEALS and ANTONIO M. ACERO, Respondents. DECISION VELASCO, JR., J.: Good judgment comes from experience, and often experience comes from bad judgment. Rita Mae Brown The Case This Petition for Review on Certiorari, under Rule 45 of the Revised Rules of Court, seeks the reversal of the October 31, 1995 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 33407, entitled Antonio M. Acero v. Hon. Sofronio G. Sayo, et al., which annulled the December 7, 1987 Decision based on a Compromise Agreement among petitioner Domingo Realty, Inc. (Domingo Realty), respondent Antonio M. Acero, and defendant Luis Recato Dy in Civil Case No. 9581-P before the Pasay City Regional Trial Court (RTC), Branch CXI; and the August 28, 1996 Resolution2 of the CA which denied petitioners Motion for Reconsideration of its October 31, 1995 Decision. The Facts On November 19, 1981, petitioner Domingo Realty filed its November 15, 1981 Complaint3 with the Pasay City RTC against Antonio M. Acero, who conducted business under the firm name A.M. Acero Trading,4 David Victorio, John Doe, and Peter Doe, for recovery of possession of three (3) parcels of land located in Cupang, Muntinlupa, Metro Manila, covered by (1) Transfer Certificate of Title (TCT) No. (75600) S-107639-Land Records of Rizal; (2) TCT No. (67006) S-107640-Land Records of Rizal; and (3) TCT No. (67007) S-107643-Land Records of Rizal (the "subject properties"). The said lots have an aggregate area of 26,705 square meters, more or less, on a portion of which Acero had constructed a factory building for the manufacture of hollow blocks, as alleged by Domingo Realty. On January 4, 1982, defendants Acero and Victorio filed their December 21, 1981 Answer5 to the Complaint in Civil Case No. 9581-P. Acero alleged that he merely leased the land from his codefendant David Victorio, who, in turn, claimed to own the property on which the hollow blocks factory of Acero stood. In the Answer, Victorio assailed the validity of the TCTs of Domingo Realty,

alleging that the said TCTs emanated from spurious deeds of sale, and claimed that he and his predecessors-in-interest had been in possession of the property for more than 70 years. On December 3, 1987, Mariano Yu representing Domingo Realty, Luis Recato Dy6, and Antonio M. Acero, all assisted by counsels, executed a Compromise Agreement, which contained the following stipulations, to wit: 1. That defendants admit and recognize the ownership of the plaintiff over the property subject of this case, covered by TCT No. S107639 (75600), S-107643 (67007), and S107640 (67006) with a total area of 26,705 square meters; 2. That defendant Luis Recato Dy admits and recognizes that his title covered by TCT No. 108027 has been proven not to be genuine and that the area indicated therein is inside the property of the plaintiff; 3. That defendant Acero admits that the property he is presently occupying by way of lease is encroaching on a portion of the property of the plaintiff and assume[s] and undertakes to vacate, remove and clear any and all structures erected inside the property of the plaintiff by himself and other third parties, duly authorized and/or who have an existing agreement with defendant Acero, and shall deliver said portion of the property of the plaintiff free and clear of any unauthorized structures, shanties, occupants, squatters or lessees within a period of sixty (60) days from date of signing of this compromise agreement. Should defendant Acero fail in his obligation to vacate, remove and clear the structures erected inside the property of the plaintiff within the period of 60 days aforementioned, plaintiff shall be entitled to a writ of execution for the immediate demolition or removal of said structure to fully implement this agreement; and ejectment of all squatters and occupants and lessees, including the dependents to fully implement this agreement; 4. That plaintiff admits and recognizes that defendant Luis Recato Dy bought and occupied the property in good faith and for value whereas defendant Acero leased the portion of said property likewise in good faith and for value hereby waives absolutely and unconditionally all claims including attorneys fees against both defendants in all cases pending in any court whether by virtue of any judgment or under the present complaint and undertake to withdraw and/or move to dismiss the same under the spirit of this agreement;

5. That defendants likewise waive all claims for damages including attorneys fees against the plaintiff; 6. That plaintiff acknowledges the benefit done by defendant Luis Recato Dy on the property by incurring expenses in protecting and preserving the property by way of construction of perimeter fence and maintaining a caretaker therein and plaintiff has agreed to pay Luis Recato Dy the amount of P100,000.00 upon approval of this agreement by this Honorable Court.7 Acting on the Compromise Agreement, the Pasay City RTC rendered the December 7, 1987 Decision which adopted the aforequoted six (6) stipulations and approved the Compromise Agreement. To implement the said Decision, Domingo Realty filed its January 21, 1988 Motion8 asking the trial court for permission to conduct a re-survey of the subject properties, which was granted in the January 22, 1988 Order.9 On February 2, 1988, respondent Acero filed his January 29, 1988 Motion to Nullify the Compromise Agreement,10claiming that the January 22, 1988 Order authorizing the survey plan of petitioner Domingo Realty as the basis of a resurvey would violate the Compromise Agreement since the whole area he occupied would be adjudged as owned by the realty firm. On March 18, 1988, Acero filed a Motion to Resurvey,11 whereby it was alleged that the parties agreed to have the disputed lots re-surveyed by the Bureau of Lands. Thus, the trial court issued the March 21, 1988 Order12 directing the Director of Lands to conduct a re-survey of the subject properties. In his June 9, 1989 Report, Elpidio T. De Lara, Chief of the Technical Services Division of the Lands Management Section of the National Capital Region - Department of Environment and Natural Resources, submitted to the trial court Verification Survey Plan No. Vs-13-000135. In the said Verification Survey Plan, petitioners TCTs covered the entire land occupied by the respondents hollow block factory.13 On April 10, 1990, petitioner Ayala Steel Manufacturing Co., Inc. (Ayala Steel) filed its March 30, 1990 Motion for Substitution alleging that it had purchased the subject lots, attaching to the motion TCT Nos. 152528, 152529, and 152530 all in its name, as proof of purchase.14 The said motion was opposed by Acero claiming that "this case has already been terminated in accordance with the compromise agreement of the parties, hence, substitution will no longer be necessary and justified under the

circumstances."15 The motion was not resolved which explains why both transferor Domingo Realty and transferee Ayala Steel are co-petitioners in the instant petition. In its December 28, 1990 Order,16 the trial court directed Acero to conduct his own re-survey of the lots based on the technical description appearing in the TCTs of Domingo Realty and to have the resurvey plans approved by the Bureau of Lands. The Order resulted from Aceros contention that he occupied only 2,000 square meters of petitioners property. Acero employed the services of Engr. Eligio L. Cruz who came up with Verification Survey Plan No. Vs13-000185. However, when the said Verification Survey Plan was presented to the Bureau of Lands for approval, it was rejected because Engr. Cruz failed to comply with the requirements of the Bureau.17 On April 8, 1991, petitioners filed a Manifestation with Motion praying for the denial of respondents Motion to Nullify the Compromise Agreement and for the approval of Verification Survey Plan No. Vs13-000135 prepared by Engr. Lara of the Bureau of Lands. The Pasay City RTC issued the December 6, 1991 Order18 denying respondent Aceros Motion to Nullify the Compromise Agreement. As a consequence, petitioners filed a Motion for Execution on December 10, 1991.19 On January 6, 1992, respondent filed an undated Manifestation20 claiming, among others, that it was on record that the Compromise Agreement was only as to a portion of the land being occupied by respondent, which is about 2,000 square meters, more or less. He reiterated the same contentions in his December 21, 1991 Manifestation.21 On January 13, 1992, respondent filed a Motion to Modify Order Dated 6 December 91,22 claiming that the said Order modified the Compromise Agreement considering that it allegedly involved only 1,357 square meters and not the entire lot;23 and if not amended, the Order would deviate from the principle that "no man shall enrich himself at the expense of the other." In its January 15, 1992 Order,24 the trial court approved the issuance of a Writ of Execution to enforce the December 7, 1987 Decision. On February 3, 1992, respondent Acero subsequently filed a Motion for Reconsideration25 of the January 15, 1992 Order arguing that the Order was premature and that Verification Survey Plan No. Vs13-000135 violated the Compromise Agreement. On January 18, 1992, the Pasay City Hall was gutted by fire, destroying the records of the lower court, including those of this case. Thus, after reconstituting the records, the trial court issued the October 6, 1992 Order,26 reiterating its January 15,

1992 Order and ordering the issuance of a Writ of Execution. On October 23, 1992, respondent filed a Manifestation and Compliance,27 alleging that Verification Survey Plan No. Vs-13-000185 had been approved by the Regional Director of the DENR; thus, he moved for the annulment of the October 6, 1992 Order granting the Writ of Execution in favor of petitioners. Given the conflicting Verification Survey Plans of the parties, the trial court issued the October 11, 1993 Order28 requiring the Bureau of Lands Director to determine which of the two survey plans was correct. Subsequently, Regional Technical Director Eriberto V. Almazan of the Land Registration Authority issued the November 24, 1993 Order29 cancelling Verification Survey Plan No. Vs-13-000185, submitted by Engineer Eligio Cruz, who was hired by respondent Acero, and declared Verification Survey Plan No. Vs-13-000135, submitted by Engineer Lara of the Bureau of Lands, as the correct Plan. Thereafter, petitioners filed their January 12, 1994 Ex-parte Manifestation with Motion,30 praying for the implementation of the Writ of Execution against the disputed lands, which was granted in the January 12, 1994 Order.31 Respondents Motion for Reconsideration32 of the January 12, 1994 Order was denied in the February 1, 1994 Order33 of the Pasay City RTC. Aggrieved, respondent Acero filed before the CA his February 23, 1994 Petition for Certiorari and Mandamus with Urgent Prayer for Issuance of a Temporary Restraining Order,34 under Rule 65 of the Rules of Court, against petitioners and Judge Sofronio G. Sayo as presiding judge of the lower court. In the petition, respondent sought to nullify and set aside the RTC Orders dated December 6, 1991, January 15, 1992, October 6, 1992, January 12, 1994, and February 1, 1994, all of which pertain to the execution of the December 7, 1987 Decision on the Compromise Agreement. Significantly, respondent did not seek the annulment of said judgment but merely reiterated the issue that under the Compromise Agreement, he would only be vacating a portion of the property he was occupying. The Ruling of the Court of Appeals On October 31, 1995, the CA promulgated the assailed Decision, the fallo of which reads: IN VIEW OF THE FOREGOING, the petition for certiorari is GRANTED and the Orders of respondent court dated December 6, 1991, January 15, 1992, October 6, 1992, and January 12, 1994,

and February 1, 1994 are SET ASIDE. In the interest of justice, and consistent with the views expressed by this Court, the Compromise Judgment dated December 7, 1987 of respondent court is likewise SET ASIDE. Respondent Court is likewise directed to proceed with the hearing of Civil Case No. 9581-P on the merits and determine, once and for all, the respective proprietary rights of the litigants thereto. SO ORDERED.35 In discarding the December 7, 1987 Decision based on the Compromise Agreement, the appellate court ratiocinated that David Victorio, the alleged lessor of Acero, was not a party to the Compromise Agreement; thus, there would always remain the probability that he might eventually resurface and assail the Compromise Agreement, giving rise to another suit. Moreover, the CA found the Compromise Agreement vague, not having stipulated a mutually agreed upon surveyor, "who would survey the properties using as a basis, survey plans acceptable to both, and to thereafter submit a report to the court."36 Likewise, the CA sustained Aceros belief that he would only have to vacate a portion of the property he was presently occupying, which was tantamount to a mistake that served as basis for the nullification of the Compromise Agreement entered into. On January 17, 1996, petitioners filed a Motion for Reconsideration37 of the adverse Decision, which was consequently rejected in the CAs August 28, 1996 Resolution. Thus, the instant petition is in our hands. The Issues The issues as stated in the petition are as follows: 1. The respondent Court of Appeals erred in nullifying and setting aside judgment on Compromise Agreement and the Compromise Agreement itself as well as the subsequent orders of the court a quo though there is no motion to set aside the judgment on the Compromise Agreement before the court a quo on the ground of fraud, mistake or duress; 2. The respondent Court of Appeals erred in nullifying and setting aside the judgment on Compromise Agreement and the Compromise Agreement itself as well as the subsequent Orders of the Court of quo [sic] though in the Petition for Certiorari and Mandamus before respondent Court of Appeals, private respondent argued that judgment on Compromise Agreement is final, executory, immutable and unalterable;

3. The respondent Court of Appeals erred in nullifying and setting aside Judgment on Compromise Agreement and the Compromise Agreement itself as well as the subsequent Orders of the Court a quo based on fraud or mistake though said issues were not raised before the Court a quo, and no evidence was introduced to substantiate fraud or mistake before the court a quo; 4. The respondent Court of Appeals erred when it ruled that the non-inclusion of one of the parties in this case, and the vagueness of the Compromise Agreement are grounds to nullify and set aside the Compromise Agreement; and 5. The respondent Court of Appeals erred when it entertained the Petition for Certiorari and Mandamus though it was filed beyond reasonable time if not barred by laches.38 Restated, the issues are: I. WHETHER THE PETITION BEFORE THE COURT OF APPEALS WAS FILED OUT OF TIME OR BARRED BY LACHES; II. WHETHER THE NON-INCLUSION OF DAVID VICTORIO WOULD NULLIFY THE COMPROMISE AGREEMENT; III. WHETHER THE JUDGMENT ON COMPROMISE AGREEMENT SHOULD BE SET ASIDE ON THE GROUND OF VAGUENESS; AND IV. WHETHER THE JUDGMENT ON COMPROMISE AGREEMENT SHOULD BE SET ASIDE ON THE GROUND OF MISTAKE. The Courts Ruling The petition is meritorious. The preliminary issue involves the query of what proper remedy is available to a party who believes that his consent in a compromise agreement was vitiated by mistake upon which a judgment was rendered by a court of law. There is no question that a contract where the consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable under Article 1330 of the Civil Code. If the contract

assumes the form of a Compromise Agreement between the parties in a civil case, then a judgment rendered on the basis of such covenant is final, unappealable, and immediately executory. If one of the parties claims that his consent was obtained through fraud, mistake, or duress, he must file a motion with the trial court that approved the compromise agreement to reconsider the judgment and nullify or set aside said contract on any of the said grounds for annulment of contract within 15 days from notice of judgment. Under Rule 37, said party can either file a motion for new trial or reconsideration. A party can file a motion for new trial based on fraud, accident or mistake, excusable negligence, or newly discovered evidence. On the other hand, a party may decide to seek the recall or modification of the judgment by means of a motion for reconsideration on the ground that "the decision or final order is contrary to law" if the consent was procured through fraud, mistake, or duress. Thus, the motion for a new trial or motion for reconsideration is the readily available remedy for a party to challenge a judgment if the 15-day period from receipt of judgment for taking an appeal has not yet expired. This motion is the most plain, speedy, and adequate remedy in law to assail a judgment based on a compromise agreement which, even if it is immediately executory, can still be annulled for vices of consent or forgery.39 Prior to the effectivity of the 1997 Rules of Civil Procedure on July 1, 1997, an order denying a motion for new trial or reconsideration was not appealable since the judgment in the case is not yet final. The remedy is to appeal from the challenged decision and the denial of the motion for reconsideration or new trial is assigned as an error in the appeal.40Under the present [1997] Rules of Civil Procedure, the same rule was maintained that the order denying said motion is still unappealable and the rule is still to appeal from the judgment and not from the order rejecting the motion for reconsideration/new trial. If the 15-day period for taking an appeal has lapsed, then the aggrieved party can avail of Rule 38 by filing a petition for relief from judgment which should be done within 60 days after the petitioner learns of the judgment, but not more than six (6) months after such judgment or final order was entered. Prior to the effectivity of the 1997 Rules of Civil Procedure in 1997, if the court denies the petition under Rule 38, the remedy is to appeal from the order of denial and not from the judgment since said decision has already become final and already unappealable.41 However, in the appeal from said order, the appellant may likewise assail the judgment. Under the 1997 Rules of Civil Procedure, the aggrieved party can no longer appeal from the order denying the petition since this is proscribed under Section 1 of Rule 41. The remedy of the party is to file a special civil action

for certiorari under Rule 65 from the order rejecting the petition for relief from judgment. The records of the case reveal the following: 1. December 3, 1987 the parties signed the Compromise Agreement; 2. December 7, 1987 a decision/judgment was rendered based on the December 3, 1987 Compromise Agreement; 3. February 2, 1988 Acero filed a Motion to Nullify the Compromise Agreement; 4. December 6, 1991 the trial court denied Aceros Motion to Nullify the Compromise Agreement; 5. December 11, 1991 defendant Acero received the December 6, 1991 Order which denied said motion;42 6. December 26, 1991 the 15-day period to appeal to the CA expired by the failure of defendant Acero to file an appeal with said appellate court; 7. January 15, 1992 the trial court issued the Order which granted petitioners motion for the issuance of a Writ of Execution; 8. October 6, 1992 the trial court reiterated its January 15, 1992 Order directing the issuance of a Writ of Execution after the records of the case were lost in a fire that gutted the Pasay City Hall; 9. January 12, 1994 the trial court issued the Order which directed the implementation of the Writ of Execution prayed for by petitioners; 10. February 1, 1994 the trial court issued the Order which denied respondents Motion for Reconsideration of its January 12, 1994 Order; and 11. April 4, 1994 Acero filed with the CA a petition for certiorari in CA-G.R. SP No. 33407 entitled Antonio M. Acero v. Domingo Realty, Inc., et al. In his undated Manifestation, respondent Acero admitted having received a copy of the December 7, 1987 Decision on December 11, 1987. However, it was only on February 2, 1988 when he filed a Motion to Nullify the Compromise Agreement which was discarded for lack of merit by the trial court on December 6, 1991. If the Motion to Nullify the Compromise Agreement is treated as a motion for reconsideration and/or for new trial, then Acero should have filed an appeal from the December 7, 1987 Decision and assigned as error the December

6, 1991 Order denying said motion pursuant to the rules existing prior to the 1997 Rules of Civil Procedure. He failed to file such appeal but instead filed a petition for certiorari under Rule 65 with the CA on April 4, 1994. This is prejudicial to respondent Acero as the special civil action of certiorari is not the proper remedy. If the aggrieved party does not interpose a timely appeal from the adverse decision, a special civil action for certiorari is not available as a substitute for a lost appeal.43 What respondent Acero should have done was to file a petition for relief from judgment when he became aware that he lost his right of appeal on December 26, 1991. Even with this approach, defendant Acero was also remiss. In sum, the petition for certiorari instituted by respondent Acero with the CA is a wrong remedy; a simple appeal to the CA would have sufficed. Since the certiorari action is an improper legal action, the petition should have been rejected outright by the CA. Assuming arguendo that a petition for certiorari with the CA is the appropriate remedy, still, said petition was filed out of time. The petition before the CA was filed prior to the effectivity of the 1997 Rules of Court when there was still no prescribed period within which to file said petition, unlike in the present Section 4 of Rule 65 wherein a Petition for Certiorari and Mandamus must be filed within 60 days from notice of the judgment, final order, or resolution appealed from, or of the denial of the petitioners motion for new trial or reconsideration after notice of judgment. Section 4, Rule 65 previously read: Section 4. Where petition filed.The petition may be filed in the Supreme Court, or, if it relates to the acts or omissions of an inferior court, or of a corporation, board or officer or person, in a Court of First Instance having jurisdiction thereof. It may also be filed in the Court of Appeals if it is in aid of its appellate jurisdiction. Petitions for certiorari under Rules 43, 44 and 45 shall be filed with the Supreme Court. Before the 1997 Rules of Civil Procedure became effective on July 1, 1997, the yardstick to determine the timeliness of a petition for certiorari under Rule 65 was the reasonableness of the time that had elapsed from receipt of notice of the assailed order/s of the trial court up to the filing of the appeal with the CA.44 In a number of cases, the Court ruled that reasonable time can be pegged at three (3) months.45 In the present case, the Order denying the Motion to Nullify the Compromise Agreement was issued on December 6, 1991. The petition for certiorari was

filed on April 4, 1994. The period of two (2) years and four (4) months cannot be considered fair and reasonable. With respect to the January 15, 1992 Order granting the writ of execution and the October 6, 1992 Order directing the issuance of the writ, it is evident that the petition before the CA was filed more than three (3) months after the receipt by respondent Acero of said orders and the filing of the petition is likewise unreasonably delayed. On the second issue, petitioners assail the ruling of the appellate court that David Victorio who is claimed to be the lessor of Acero, and who is impleaded as a defendant in Civil Case No. 9581-P, was not made a party to the Compromise Agreement and hence, he may later "assail the compromise agreement as not binding upon him, thereby giving rise to another suit."46 We find merit in petitioners position. The CA was unable to cite a law or jurisprudence that supports the annulment of a compromise agreement if one of the parties in a case is not included in the settlement. The only legal effect of the non-inclusion of a party in a compromise agreement is that said party cannot be bound by the terms of the agreement. The Compromise Agreement shall however be "valid and binding as to the parties who signed thereto."47 The issue of ownership between petitioners and David Victorio can be threshed out by the trial court in Civil Case No. 9581-P. The proper thing to do is to remand the case for continuation of the proceedings between petitioners and defendant David Victorio but not to annul the partial judgment between petitioners and respondent Acero which has been pending execution for 20 years. With regard to the third issue, petitioners assail the ruling of the CA that the Compromise Agreement is vague as there is still a need to determine the exact metes and bounds of the encroachment on the petitioners lot. The object of a contract, in order to be considered as "certain," need not specify such object with absolute certainty. It is enough that the object is determinable in order for it to be considered as "certain." Article 1349 of the Civil Code provides: Article 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. In the instant case, the title over the subject property contains a technical description that provides the metes and bounds of the property of

petitioners. Such technical description is the final determinant of the extent of the property of petitioners. Thus, the area of petitioners property is determinable based on the technical descriptions contained in the TCTs. Notably, the determination made by the Bureau of Landsthat Verification Survey Plan No. Vs-13000135 is the correct Planis controlling and shall prevail over Verification Survey Plan No. Vs-13000185 submitted by Acero. Findings of fact by administrative agencies, having acquired expertise in their field of specialization, must be given great weight by this Court.48 Even if the exact area of encroachment is not specified in the agreement, it can still be determined from the technical description of the title of plaintiff which defendant Acero admitted to be correct. Thus, the object of the Compromise Agreement is considered determinate and specific. Moreover, "vagueness" is defined in Blacks Law Dictionary as: "indefinite, uncertain; not susceptible of being understood." A perusal of the entire Compromise Agreement will negate any contention that there is vagueness in its provisions. It must be remembered that in the interpretation of contracts, an instrument must be construed so as to give effect to all the provisions of these contracts.49 Thus, the Compromise Agreement must be considered as a whole. The alleged vagueness revolves around the term "portion" in paragraph three (3) of the Compromise Agreement,50 taken together with paragraph one (1) which we quote: 1. That defendants admit and recognize the ownership of the plaintiff over the property subject of this case, covered by TCT No. S-107639 (75600), S-107643 (67007), and S-107640 (67006) with a total area of 26,705 square meters; xxxx 3. That defendant Acero admits that the property he is presently occupying by way of lease is encroaching on a portion of the property of the plaintiff and assume and undertakes to vacate, remove and clear any and all structures erected inside the property of the plaintiff by himself and other third parties, duly authorized and/or who have an existing agreement with defendant Acero, and shall deliver said portion of the property of the plaintiff free and clear of any unauthorized structures, shanties, occupants, squatters or lessees within a period of sixty (60) days from date of signing of this compromise agreement. Should defendant Acero fail in his obligation to vacate, remove and clear the structures erected inside the property of the plaintiff within the period of 60 days afore-mentioned, plaintiff shall be entitled to a writ of execution for the immediate demolition or

removal of said structure to fully implement this agreement; and ejectment of all squatters and occupants and lessees, including the dependents to fully implement this agreement. (Emphasis supplied.) Respondent harps on their contention that the term "portion" in paragraph 3 of the Compromise Agreement refers to the property which they are occupying. Respondents interpretation of paragraph 3 of the Compromise Agreement is mistaken as it is anchored on his belief that the encroachment on the property of petitioners is only a portion and not the entire lot he is occupying. This is apparent from his Supplement to his Petition for Certiorari and Mandamus where he explained: Petitioner [Acero] entered into this agreement because of his well-founded belief and conviction that a portion of the property he is occupying encroaches only a portion of the property of private respondent. In fine, only a portion of the property petitioner is occupying (not all of it) encroaches on a portion of the property of private respondent.51 This contention is incorrect. The agreement is clear that respondent Acero admitted that "the property he is presently occupying by way of lease is encroaching on a portion of the property of the plaintiff." Thus, whether it is only a portion or the entire lot Acero is leasing that will be affected by the agreement is of no importance. What controls is the encroachment on the lot of petitioner Domingo Realty regardless of whether the entire lot or only a portion occupied by Acero will be covered by the encroachment. While it may be the honest belief of respondent Acero that only a portion of the lot he is occupying encroaches on the 26,705-square meter lot of petitioner Domingo Realty and later, Ayala Steel, the Court finds that the true and real agreement between the parties is that any encroachment by respondent Acero on the lot of petitioners will be surrendered to the latter. This is apparent from the undertaking in paragraph 3 that defendant Acero "undertakes to vacate, remove and clear any and all structures erected inside the property of the plaintiff." This prestation results from the admission against the interest of respondent Acero that he "admits and recognizes the ownership of the plaintiff (Domingo Realty)" over the subject lot. The controlling word therefore is "encroachment" whether it involves a portion of or the entire lot claimed by defendant David Victorio. To reiterate, the word "portion" refers to petitioners lot and not that of Aceros. Contrary to the disposition of the CA, we rule that the terms of the Compromise Agreement are clear and leave no doubt upon the intent of the parties that respondent Acero will vacate, remove, and clear any and all structures erected inside petitioners property, the ownership of which is not denied by him. The literal meaning of the stipulations in the Compromise Agreement

will control under Article 1370 of the Civil Code. Thus, the alleged vagueness in the object of the agreement cannot be made an excuse for its nullification. Finally, with regard to the fourth issue, petitioners question the finding of the CA that the compromise judgment can be set aside on the ground of mistake under Article 2038 of the Civil Code, because respondent Acero gave his consent to the Compromise Agreement in good faith that he would only vacate a portion of his lot in favor of petitioner Domingo Realty. We rule otherwise. Articles 2038 and 1330 of the Civil Code allow a party to a contract, on the ground of mistake, to nullify a compromise agreement, viz: Article 2038. A compromise in which there is mistake, fraud, violence, intimidation, undue influence, or falsity of documents, is subject to the provisions of Article 1330 of this Code. Article 1330. A contract where the consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable (emphasis supplied). "Mistake" has been defined as a "misunderstanding of the meaning or implication of something" or "a wrong action or statement proceeding from a faulty judgment x x x."52 Article 1333 of the Civil Code of the Philippines however states that "there is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract." Under this provision of law, it is presumed that the parties to a contract know and understand the import of their agreement. Thus, civil law expert Arturo M. Tolentino opined that: To invalidate consent, the error must be excusable. It must be real error, and not one that could have been avoided by the party alleging it. The error must arise from facts unknown to him. He cannot allege an error which refers to a fact known to him, or which he should have known by ordinary diligent examination of the facts. An error so patent and obvious that nobody could have made it, or one which could have been avoided by ordinary prudence, cannot be invoked by the one who made it in order to annul his contract. A mistake that is caused by manifest negligence cannot invalidate a juridical act.53 (Emphasis supplied.) Prior to the execution of the Compromise Agreement, respondent Acero was already aware of the technical description of the titled lots of petitioner Domingo Realty and more so, of the boundaries and area of the lot he leased from David Victorio. Before consenting to the agreement,

he could have simply hired a geodetic engineer to conduct a verification survey and determine the actual encroachment of the area he was leasing on the titled lot of petitioner Domingo Realty. Had he undertaken such a precautionary measure, he would have known that the entire area he was occupying intruded into the titled lot of petitioners and possibly, he would not have signed the agreement. In this factual milieu, respondent Acero could have easily averted the alleged mistake in the contract; but through palpable neglect, he failed to undertake the measures expected of a person of ordinary prudence. Without doubt, this kind of mistake cannot be resorted to by respondent Acero as a ground to nullify an otherwise clear, legal, and valid agreement, even though the document may become adverse and even ruinous to his business. Moreover, respondent failed to state in the Compromise Agreement that he intended to vacate only a portion of the property he was leasing. Such provision being beneficial to respondent, he, in the exercise of the proper diligence required, should have made sure that such matter was specified in the Compromise Agreement. Respondent Aceros failure to have the said stipulation incorporated in the Compromise Agreement is negligence on his part and insufficient to abrogate said agreement. In Torres v. Court of Appeals,54 which was also cited in LL and Company Development and AgroIndustrial Corporation v. Huang Chao Chun,55 it was held that: Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to all necessary consequences thereof, as follows: ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and insisted on the provisions they wanted. Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations. They cannot now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms.

The mere fact that the Compromise Agreement favors one party does not render it invalid. We ruled in Amarante v. Court of Appeals that: Compromises are generally to be favored and cannot be set aside if the parties acted in good faith and made reciprocal concessions to each other in order to terminate a case. This holds true even if all the gains appear to be on one side and all the sacrifices on the other (emphasis supplied).56 One final note. While the Court can commiserate with respondent Acero in his sad plight, nonetheless we have no power to make or alter contracts in order to save him from the adverse stipulations in the Compromise Agreement. Hopefully this case will serve as a precaution to prospective parties to a contract involving titled lands for them to exercise the diligence of a reasonably prudent person by undertaking measures to ensure the legality of the title and the accurate metes and bounds of the lot embraced in the title. It is advisable that such parties (1) verify the origin, history, authenticity, and validity of the title with the Office of the Register of Deeds and the Land Registration Authority; (2) engage the services of a competent and reliable geodetic engineer to verify the boundary, metes, and bounds of the lot subject of said title based on the technical description in the said title and the approved survey plan in the Land Management Bureau; (3) conduct an actual ocular inspection of the lot; (4) inquire from the owners and possessors of adjoining lots with respect to the true and legal ownership of the lot in question; (5) put up signs that said lot is being purchased, leased, or encumbered; and (6) undertake such other measures to make the general public aware that said lot will be subject to alienation, lease, or encumbrance by the parties. Respondent Acero, for all his woes, may have a legal recourse against lessor David Victorio who inveigled him to lease the lot which turned out to be owned by another. WHEREFORE, the petition is hereby GRANTED and the assailed Decision and Resolution of the CA are REVERSED. The questioned Orders of the Pasay City RTC dated December 6, 1991, January 15, 1992, October 6, 1992, January 12, 1994, and February 1, 1994, including the Decision dated December 7, 1987, are AFFIRMED. The case is remanded to the Pasay RTC, Branch III for further proceedings with respect to petitioner Domingo Realtys November 15, 1981 Complaint57 against one of the defendants, David Victorio. No costs.

B. PARTICULAR KINDS a.
G.R. No. L-24732 April 30, 1968

PIO SIAN MELLIZA, petitioner, vs. CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents. Cornelio P. Ravena for petitioner. Office of the Solicitor General for respondents. BENGZON, J.P., J.: Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in Iloilo City registered in her name under Original Certificate of Title No. 3462. Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters. On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot 1214, to serve as site for the municipal hall. 1 The donation was however revoked by the parties for the reason that the area donated was found inadequate to meet the requirements of the development plan of the municipality, the so-called "Arellano Plan". 2 Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As approved by the Bureau of Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot 1214-B; Lot 1214-B-2, with 6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B-13, with 4,135 square meters, became Lot 1214-D. On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the following: Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS (P6,422.00), moneda filipina que por la presente declaro haber recibido a mi entera satisfaccion del Gobierno Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a dicho Gobierno Municipal de Iloilo los lotes y porciones de los mismos que a continuacion se especifican a saber: el lote No. 5 en toda su extension; una porcion de 7669 metros cuadrados del lote No. 2, cuya porcion esta designada como sublotes Nos. 2-B y 2-C del piano de subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una porcion de 10,788 metros cuadrados del lote No. 1214

XXXXXXXXXXXXXXXXXXXXXXX

 cuya porcion esta designada como sublotes Nos. 1214-B-2 y 1214-B-3 del mismo plano de subdivision. Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta difinitiva, y que para la mejor identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el Gobierno Municipal de Iloilo para la construccion de avenidas, parques y City Hall site del Municipal Government Center de iloilo, segun el plano Arellano. On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva who thereafter obtained her own registered title thereto, under Transfer Certificate of Title No. 18178. Remedios in turn on November 4, 1946 transferred her rights to said portion of land to Pio Sian Melliza, who obtained Transfer Certificate of Title No. 2492 thereover in his name. Annotated at the back of Pio Sian Melliza's title certificate was the following: ... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-B-2 and 1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated November 15, 1932.... On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site together with the building thereon, to the University of the Philippines (Iloilo branch). The site donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square meters, more or less. Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City did not have funds (p. 9, Appellant's Brief.) The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D. On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value. The defendants answered, contending that Lot 1214-B was included in the public instrument executed by Juliana Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial, the Court of First Instance rendered its decision on August 15, 1957, dismissing the

complaint. Said court ruled that the instrument executed by Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B. In support of this conclusion, it referred to the portion of the instrument stating: Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta difinitiva, y que para la major identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el Gobierno municipal de Iloilo para la construccion de avenidas, parques y City Hall site del Municipal Government Center de Iloilo, segun el plano Arellano. and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such other portions of lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it held that Iloilo City had the right to donate Lot 1214-B to the U.P. Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of Appeals affirmed the interpretation of the Court of First Instance, that the portion of Lot 1214 sold by Juliana Melliza was not limited to the 10,788 square meters specifically mentioned but included whatever was needed for the construction of avenues, parks and the city hall site. Nonetheless, it ordered the remand of the case for reception of evidence to determine the area actually taken by Iloilo City for the construction of avenues, parks and for city hall site. The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the public instrument is clear that only Lots Nos. 1214C and 1214-D with a total area of 10,788 square meters were the portions of Lot 1214 included in the sale; that the purpose of the second paragraph, relied upon for a contrary interpretation, was only to better identify the lots sold and none other; and that to follow the interpretation accorded the deed of sale by the Court of Appeals and the Court of First Instance would render the contract invalid because the law requires as an essential element of sale, a "determinate" object (Art. 1445, now 1448, Civil Code). Appellees, on the other hand, contend that the present appeal improperly raises only questions of fact. And, further, they argue that the parties to the document in question really intended to include Lot 1214-B therein, as shown by the silence of the vendor after Iloilo City exercised ownership thereover; that not to include it would have been absurd, because said lot is contiguous to the others admittedly included in the conveyance, lying directly in front of the city hall, separating that building from Lots 1214-C and 1214-D, which were included therein. And, finally, appellees argue that

the sale's object was determinate, because it could be ascertained, at the time of the execution of the contract, what lots were needed by Iloilo municipality for avenues, parks and city hall site "according to the Arellano Plan", since the Arellano plan was then already in existence. The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932. And interpretation of such contract involves a question of law, since the contract is in the nature of law as between the parties and their successorsin-interest. At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was included, in the instrument subsequently executed by Juliana Melliza of her remaining interest in Lot 1214 to Remedios Sian Villanueva, who in turn sold what she thereunder had acquired, to Pio Sian Melliza. It should be stressed, also, that the sale to Remedios Sian Villanueva from which Pio Sian Melliza derived title did not specifically designate Lot 1214-B, but only such portions of Lot 1214 as were not included in the previous sale to Iloilo municipality (Stipulation of Facts, par. 5, Record on Appeal, p. 23). And thus, if said Lot 1214-B had been included in the prior conveyance to Iloilo municipality, then it was excluded from the sale to Remedios Sian Villanueva and, later, to Pio Sian Melliza. The point at issue here is then the true intention of the parties as to the object of the public instrument Exhibit "D". Said issue revolves on the paragraph of the public instrument aforequoted and its purpose, i.e., whether it was intended merely to further describe the lots already specifically mentioned, or whether it was intended to cover other lots not yet specifically mentioned. First of all, there is no question that the paramount intention of the parties was to provide Iloilo municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with its avenues and parks. For this matter, a previous donation for this purpose between the same parties was revoked by them, because of inadequacy of the area of the lot donated. Secondly, reading the public instrument in toto, with special reference to the paragraphs describing the lots included in the sale, shows that said instrument describes four parcels of land by their lot numbers and area; and then it goes on to further describe, not only those lots already mentioned, but the lots object of the sale, by stating that said lots are the ones needed for the construction of the city hall site, avenues and parks according to the Arellano plan. If the parties intended merely to cover the specified lots Lots 2, 5, 1214-C and 1214-D, there would scarcely have

been any need for the next paragraph, since these lots are already plainly and very clearly described by their respective lot number and area. Said next paragraph does not really add to the clear description that was already given to them in the previous one. It is therefore the more reasonable interpretation, to view it as describing those other portions of land contiguous to the lots aforementioned that, by reference to the Arellano plan, will be found needed for the purpose at hand, the construction of the city hall site. Appellant however challenges this view on the ground that the description of said other lots in the aforequoted second paragraph of the public instrument would thereby be legally insufficient, because the object would allegedly not be determinate as required by law. Such contention fails on several counts. The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement that the lots object of the sale are the ones needed for city hall site, avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further agreement of the parties. The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city hall site on November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under said Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not fixed until 1935, and thus it could not be a basis for determining the lots sold on November 15, 1932. Appellant however fails to consider that the area needed under that plan for city hall site was then already known; that the specific mention of some of the lots covered by the sale in effect fixed the corresponding location of the city hall site under the plan; that, therefore, considering the said lots specifically mentioned in the public instrument Exhibit "D", and the projected city hall site, with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of the portions of land contiguous to those specifically named, were needed for the construction of the city hall site. And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D, admittedly covered by the public instrument. It is stipulated that, after execution of the contract Exhibit "D", the Municipality of Iloilo possessed it

together with the other lots sold. It sits practically in the heart of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the notary public of the public instrument. As such, he was aware of its terms. Said instrument was also registered with the Register of Deeds and such registration was annotated at the back of the corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that Pio Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of them; that knowing so, he should have examined the Arellano plan in relation to the public instrument Exhibit "D"; that, furthermore, he should have taken notice of the possession first by the Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot 1214-B as part of the city hall site conveyed under that public instrument, and raised proper objections thereto if it was his position that the same was not included in the same. The fact remains that, instead, for twenty long years, Pio Sian Melliza and his predecessors-in-interest, did not object to said possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as laches, estoppel, and equity, said lot must necessarily be deemed included in the conveyance in favor of Iloilo municipality, now Iloilo City. WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First Instance, and the complaint in this case is dismissed. No costs. So ordered. XXXXXXXXXXXXXXXXXXXXXXX

b. G.R. No. L-36902 January 30, 1982 LUIS PICHEL, petitioner, vs. PRUDENCIO ALONZO, respondent.

GUERRERO, J.: This is a petition to review on certiorari the decision of the Court of First Instance of Basilan City dated January 5, 1973 in Civil Case No. 820 entitled "Prudencio Alonzo, plaintiff, vs. Luis Pichel, defendant." This case originated in the lower Court as an action for the annulment of a "Deed of Sale" dated August 14, 1968 and executed by Prudencio Alonzo, as vendor, in favor of Luis Pichel, as vendee, involving property awarded to the former by the Philippine Government under Republic Act No. 477. Pertinent portions of the document sued upon read as follows: That the VENDOR for and in consideration of the sum of FOUR THOUSAND TWO HUNDRED PESOS (P4,200.00), Philippine Currency, in hand paid by the VENDEE to the entire satisfaction of the VENDOR, the VENDOR hereby sells transfers, and conveys, by way of absolute sale, all the coconut fruits of his coconut land, designated as Lot No. 21 - Subdivision Plan No. Psd32465, situated at Balactasan Plantation, Lamitan, Basilan City, Philippines; That for the herein sale of the coconut fruits are for all the fruits on the aforementioned parcel of land presently found therein as well as for future fruits to be produced on the said parcel of land during the years period; which shag commence to run as of SEPTEMBER 15,1968; up to JANUARY 1, 1976 (sic); That the delivery of the subject matter of the Deed of Sale shall be from time to time and at the expense of the VENDEE who shall do the harvesting and gathering of the fruits; That the Vendor's right, title, interest and participation herein conveyed is of his own exclusive and absolute property, free from any liens and encumbrances and he warrants to

the Vendee good title thereto and to defend the same against any and all claims of all persons whomsoever. 1 After the pre-trial conference, the Court a quo issued an Order dated November 9, 1972 which in part read thus: The following facts are admitted by the parties: Plaintiff Prudencio Alonzo was awarded by the Government that parcel of land designated as Lot No. 21 of Subdivision Plan Psd 32465 of Balactasan, Lamitan, Basilan City in accordance with Republic Act No. 477. The award was cancelled by the Board of Liquidators on January 27, 1965 on the ground that, previous thereto, plaintiff was proved to have alienated the land to another, in violation of law. In 197 2, plaintiff's rights to the land were reinstated. On August 14, 1968, plaintiff and his wife sold to defendant an the fruits of the coconut trees which may be harvested in the land in question for the period, September 15, 1968 to January 1, 1976, in consideration of P4,200.00. Even as of the date of sale, however, the land was still under lease to one, Ramon Sua, and it was the agreement that part of the consideration of the sale, in the sum of P3,650.00, was to be paid by defendant directly to Ramon Sua so as to release the land from the clutches of the latter. Pending said payment plaintiff refused to snow the defendant to make any harvest. In July 1972, defendant for the first time since the execution of the deed of sale in his favor, caused the harvest of the fruit of the coconut trees in the land. xxx xxx xxx Considering the foregoing, two issues appear posed by the complaint and the answer which must needs be tested in the crucible of a trial on the merits, and they are: First. Whether or nor defendant actually paid to plaintiff the full sum of P4,200.00 upon execution of the deed of sale. Second. Is the deed of sale, Exhibit 'A', the prohibited encumbrance

contemplated in Section Republic Act No. 477? 2

of

Anent the first issue, counsel for plaintiff Alonzo subsequently 'stipulated and agreed that his client ... admits fun payment thereof by defendant. 3 The remaining issue being one of law, the Court below considered the case submitted for summary judgment on the basis of the pleadings of the parties, and the admission of facts and documentary evidence presented at the pre-trial conference. The lower court rendered its decision now under review, holding that although the agreement in question is denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor's land, it actually is, for all legal intents and purposes, a contract of lease of the land itself. According to the Court: ... the sale aforestated has given defendant complete control and enjoyment of the improvements of the land. That the contract is consensual; that its purpose is to allow the enjoyment or use of a thing; that it is onerous because rent or price certain is stipulated; and that the enjoyment or use of the thing certain is stipulated to be for a certain and definite period of time, are characteristics which admit of no other conclusion. ... The provisions of the contract itself and its 4 characteristics govern its nature. The Court, therefore, concluded that the deed of sale in question is an encumbrance prohibited by Republic Act No. 477 which provides thus: Sec. 8. Except in favor of the Government or any of its branches, units, or institutions, land acquired under the provisions of this Act or any permanent improvements thereon shall not be thereon and for a term of ten years from and after the date of issuance of the certificate of title, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of such period. Any occupant or applicant of lands under this Act who transfers whatever rights he has acquired on said lands and/or on the improvements thereon before the date of the award or signature of the contract of sale, shall not be entitled to apply for another piece of agricultural land or urban, homesite or residential lot, as the case may be,

from the National Abaca and Other Fibers Corporation; and such transfer shall be considered null and void.5 The dispositive portion of the lower Court's decision states: WHEREFORE, it is the judgment of this Court that the deed of sale, Exhibit 'A', should be, as it is, hereby declared nun and void; that plaintiff be, as he is, ordered to pay back to defendant the consideration of the sale in the sum of P4,200.00 the same to bear legal interest from the date of the filing of the complaint until paid; that defendant shall pay to the plaintiff the sum of P500.00 as attorney's fees. Costs against the defendant. 6 Before going into the issues raised by the instant Petition, the matter of whether, under the admitted facts of this case, the respondent had the right or authority to execute the "Deed of Sale" in 1968, his award over Lot No. 21 having been cancelled previously by the Board of Liquidators on January 27, 1965, must be clarified. The case in point is Ras vs. Sua 7wherein it was categorically stated by this Court that a cancellation of an award granted pursuant to the provisions of Republic Act No. 477 does not automatically divest the awardee of his rights to the land. Such cancellation does not result in the immediate reversion of the property subject of the award, to the State. Speaking through Mr. Justice J.B.L. Reyes, this Court ruled that "until and unless an appropriate proceeding for reversion is instituted by the State, and its reacquisition of the ownership and possession of the land decreed by a competent court, the grantee cannot be said to have been divested of whatever right that he may have over the same property." 8 There is nothing in the record to show that at any time after the supposed cancellation of herein respondent's award on January 27, 1965, reversion proceedings against Lot No. 21 were instituted by the State. Instead, the admitted fact is that the award was reinstated in 1972. Applying the doctrine announced in the above-cited Ras case, therefore, herein respondent is not deemed to have lost any of his rights as grantee of Lot No. 21 under Republic Act No. 477 during the period material to the case at bar, i.e., from the cancellation of the award in 1965 to its reinstatement in 1972. Within said period, respondent could exercise all the rights pertaining to a grantee with respect to Lot No. 21. This brings Us to the issues raised by the instant Petition. In his Brief, petitioner contends that the lower Court erred:

1. In resorting to construction and interpretation of the deed of sale in question where the terms thereof are clear and unambiguous and leave no doubt as to the intention of the parties; 2. In declaring granting without admitting that an interpretation is necessary the deed of sale in question to be a contract of lease over the land itself where the respondent himself waived and abandoned his claim that said deed did not express the true agreement of the parties, and on the contrary, respondent admitted at the pre-trial that his agreement with petitioner was one of sale of the fruits of the coconut trees on the land; 3. In deciding a question which was not in issue when it declared the deed of sale in question to be a contract of lease over Lot 21; 4. In declaring furthermore the deed of sale in question to be a contract of lease over the land itself on the basis of facts which were not proved in evidence; 5. In not holding that the deed of sale, Exhibit "A" and "2", expresses a valid contract of sale; 6. In not deciding squarely and to the point the issue as to whether or not the deed of sale in question is an encumbrance on the land and its improvements prohibited by Section 8 of Republic Act 477; and 7. In awarding respondent attorney's fees even granting, without admitting, that the deed of sale in question is violative of Section 8 of Republic Act 477. The first five assigned errors are interrelated, hence, We shall consider them together. To begin with, We agree with petitioner that construction or interpretation of the document in question is not called for. A perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain meaning thereof should be observed. Such is the mandate of the Civil Code of the Philippines which provides that: Art. 1370. If the terms of a contract are clear and leave no doubt upon

the intention of the contracting parties, the literal meaning of its stipulation shall control ... . Pursuant to the afore-quoted legal provision, the first and fundamental duty of the courts is the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible. 9 Simply and directly stated, the "Deed of Sale dated August 14, 1968 is precisely what it purports to be. It is a document evidencing the agreement of herein parties for the sale of coconut fruits of Lot No. 21, and not for the lease of the land itself as found by the lower Court. In clear and express terms, the document defines the object of the contract thus: "the herein sale of the coconut fruits are for an the fruits on the aforementioned parcel of land during the years ...(from) SEPTEMBER 15, 1968; up to JANUARY 1, 1976." Moreover, as petitioner correctly asserts, the document in question expresses a valid contract of sale. It has the essential elements of a contract of sale as defined under Article 1485 of the New Civil Code which provides thus: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. The subject matter of the contract of sale in question are the fruits of the coconut trees on the land during the years from September 15, 1968 up to January 1, 1976, which subject matter is a determinate thing. Under Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale. And in Sibal vs. Valdez, 50 Phil. 512, pending crops which have potential existence may be the subject matter of the sale. Here, the Supreme Court, citing Mechem on Sales and American cases said which have potential existence may be the subject matter of sale. Here, the Supreme Court, citing Mechem on Sales and American cases said: Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am.

St. Rep. 63) Things of this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually possess. He may make a valid sale of the wine that a vineyard is expected to produce; or the grain a field may grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon sheep; or what may be taken at the next case of a fisherman's net; or fruits to grow; or young animals not yet in existence; or the goodwill of a trade and the like. The thing sold, however, must be specific and Identified. They must be also owned at the time by the vendor. (Hull vs. Hull 48 Conn. 250 (40 Am. Rep., 165) (pp. 522-523). We do not agree with the trial court that the contract executed by and between the parties is "actually a contract of lease of the land and the coconut trees there." (CFI Decision, p. 62, Records). The Court's holding that the contract in question fits the definition of a lease of things wherein one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain and for a period which may be definite or indefinite (Art. 1643, Civil Code of the Philippines) is erroneous. The essential difference between a contract of sale and a lease of things is that the delivery of the thing sold transfers ownership, while in lease no such transfer of ownership results as the rights of the lessee are limited to the use and enjoyment of the thing leased. In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held: Since according to article 1543 of the same Code the contract of lease is defined as the giving or the concession of the enjoyment or use of a thing for a specified time and fixed price, and since such contract is a form of enjoyment of the property, it is evident that it must be regarded as one of the means of enjoyment referred to in said article 398, inasmuch as the terms enjoyment, use, and benefit involve the same and analogous meaning relative to the general utility of which a given thing is capable. (104 Jurisprudencia Civil, 443) In concluding that the possession and enjoyment of the coconut trees can therefore be said to be the possession and enjoyment of the land itself because the defendant-lessee in order to enjoy his right under the contract, he actually takes possession of the land, at least during harvest time,

gather all of the fruits of the coconut trees in the land, and gain exclusive use thereof without the interference or intervention of the plaintiff-lessor such that said plaintiff-lessor is excluded in fact from the land during the period aforesaid, the trial court erred. The contract was clearly a "sale of the coconut fruits." The vendor sold, transferred and conveyed "by way of absolute sale, all the coconut fruits of his land," thereby divesting himself of all ownership or dominion over the fruits during the seven-year period. The possession and enjoyment of the coconut trees cannot be said to be the possession and enjoyment of the land itself because these rights are distinct and separate from each other, the first pertaining to the accessory or improvements (coconut trees) while the second, to the principal (the land). A transfer of the accessory or improvement is not a transfer of the principal. It is the other way around, the accessory follows the principal. Hence, the sale of the nuts cannot be interpreted nor construed to be a lease of the trees, much less extended further to include the lease of the land itself. The real and pivotal issue of this case which is taken up in petitioner's sixth assignment of error and as already stated above, refers to the validity of the "Deed of Sale", as such contract of sale, vis-a-vis the provisions of Sec. 8, R.A. No. 477. The lower Court did not rule on this question, having reached the conclusion that the contract at bar was one of lease. It was from the context of a lease contract that the Court below determined the applicability of Sec. 8, R.A. No. 477, to the instant case. Resolving now this principal issue, We find after a close and careful examination of the terms of the first paragraph of Section 8 hereinabove quoted, that the grantee of a parcel of land under R.A. No. 477 is not prohibited from alienating or disposing of the natural and/or industrial fruits of the land awarded to him. What the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent improvements thereon. Permanent improvements on a parcel of land are things incorporated or attached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land which is characterized by fixity, immutability or immovability. Houses, buildings, machinery, animal houses, trees and plants would fall under the category of permanent improvements, the alienation or encumbrance of which is prohibited by R.A. No. 477. While coconut trees are permanent improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severed from the trees, to be used, enjoyed, sold or otherwise disposed of by the owner of the land. Herein respondents, as the grantee of Lot No. 21 from the Government, had the right and prerogative to sell the coconut fruits of the trees growing on the property.

By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla organizations and other qualified persons were given the opportunity to acquire government lands by purchase, taking into account their limited means. It was intended for these persons to make good and productive use of the lands awarded to them, not only to enable them to improve their standard of living, but likewise to help provide for the annual payments to the Government of the purchase price of the lots awarded to them. Section 8 was included, as stated by the Court a quo, to protect the grantees from themselves and the incursions of opportunists who prey on their misery and poverty." It is there to insure that the grantees themselves benefit from their respective lots, to the exclusion of other persons. The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the contrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and productive, thus making it possible for him and his family to be economically self-sufficient and to lead a respectable life. At the same time, the Government is assured of payment on the annual installments on the land. We agree with herein petitioner that it could not have been the intention of the legislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation wherein the grantee would not be able to receive and enjoy the fruits of the property in the real and complete sense. Respondent through counsel, in his Answer to the Petition contends that even granting arguendo that he executed a deed of sale of the coconut fruits, he has the "privilege to change his mind and claim it as (an) implied lease," and he has the "legitimate right" to file an action for annulment "which no law can stop." He claims it is his "sole construction of the meaning of the transaction that should prevail and not petitioner. (sic). 10 Respondent's counsel either misapplies the law or is trying too hard and going too far to defend his client's hopeless cause. Suffice it to say that respondent-grantee, after having received the consideration for the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the prejudice of petitioner who contracted in good faith and for a consideration. The issue raised by the seventh assignment of error as to the propriety of the award of attorney's fees made by the lower Court need not be passed upon, such award having been apparently based on the erroneous finding and conclusion that the contract at bar is one of lease. We shall limit Ourselves to the question of whether or not in accordance with Our ruling in this case, respondent is entitled to an award of attorney's fees. The Civil Code provides that:

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; (2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmen's compensation and employer's liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. In all cases, the attorney's fees and expenses of litigation must be reasonable. We find that none of the legal grounds enumerated above exists to justify or warrant the grant of attorney's fees to herein respondent. IN VIEW OF THE FOREGOING, the judgment of the lower Court is hereby set aside and another one is entered dismissing the Complaint. Without costs. XXXXXXXXXXXXXXXXXXXXX

IV. OBLIGATIONS OF THE SELLER TO TRANSFER OWNERSHIP

A. SALE BY A PERSON NOT THE OWNER AT TIME OF DELIVERY a.
G.R. No. 131679 February 1, 2000

CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners, vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents. MENDOZA, J.: This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR CV No. 42315 and the order dated December 9, 1997 denying petitioners' motion for reconsideration. The following facts are not in dispute. Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are banking institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property was sold to CDB as the highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB consolidated title to the property in its name. TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.1wphi1.nt On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed by Lim and Gatpandan, states in part: We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon City for P300,000.00 under the following terms and conditions: (1) 10% Option Money; (2) Balance payable in cash; (3) Provided that the property shall be cleared of illegal occupants or tenants.

Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However, after some time following up the sale, Lim discovered that the subject property was originally registered in the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No. 91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the same title he mortgaged to CDB and from which the latter's title (TCT No. 355588) was derived. It appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court, Branch 83, Quezon City, for the cancellation of his son's title. On March 23, 1984, the trial court rendered a decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision has since become final and executory. Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company, FEBTC, on their ability to sell the subject property, Lim, joined by her husband, filed on August 29, 1989 an action for specific performance and damages against petitioners in the Regional Trial Court, Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the complaint was amended by impleading the Register of Deeds of Quezon City as an additional defendant. On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1) there was a perfected contract of sale between Lim and CDB, contrary to the latter's contention that the written offer to purchase and the payment of P30,000.00 were merely pre-conditions to the sale and still subject to the approval of FEBTC; (2) performance by CDB of its obligation under the perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite the impossibility of performance, because they could not credibly disclaim knowledge of the cancellation of Rodolfo Guansing's title without the admitting their failure to discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are liable for damages for the prejudice caused against the Lims.3 Based on the foregoing findings, the trial court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It also ordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorney's fees, and the costs of the suit.4

Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion was denied by the appellate court on December 9, 1997. Hence, this petition. Petitioners contend that 1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were aware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in Civil Case No. Q-39732. 2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit of THIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil Code. 3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages, exemplary damages, attorney's fees and costs of suit. I. At the outset, it is necessary to determine the legal relation, if any, of the parties. Petitioners deny that a contract of sale was ever perfected between them and private respondent Lolita Chan Lim. They contend that Lim's letter-offer clearly states that the sum of P30,000,00 was given as option money, not as earnest money.5 They thus conclude that the contract between CDB and Lim was merely an option contract, not a contract of sale. The contention has no merit. Contracts are not defined by the parries thereto but by principles of law.6 In determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting parties.7 In the case at bar, the sum of P30,000.00, although denominated in the offer to purchase as "option money," is actually in the nature of earnest money or down payment when considered with the other terms of the offer. In Carceler v. Court of Appeals,8 we explained the nature of an option contract, viz. An option contract is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract, it binds the party who has given the option not to enter into the principal contract with any other person during the period; designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct from the contract to which the

parties may enter upon the consummation of the option. An option contract is therefore a contract separate from and preparatory to a contract of sale which, if perfected, does not result in the perfection or consummation of the sale. Only when the option is exercised may a sale be perfected. In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for the payment only of the balance of the purchase price, implying that the "option money" forms part of the purchase price. This is precisely the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale, partially consummated as to the payment of the price. Moreover, the following findings of the trial court based on the testimony of the witnesses establish that CDB accepted Lim's offer to purchase: It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as good and no longer subject to a final approval. In his testimony for the defendants on February 13, 1992, FEBTC's Leomar Guzman stated that he was then in the Acquired Assets Department of FEBTC wherein plaintiffs' offer to purchase was endorsed thereto by Myoresco Abadilla, CDB's senior vice-president, with a recommendation that the necessary petition for writ of possession be filed in the proper court; that the recommendation was in accord with one of the conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p. 12); that, in compliance with the request, a petition for writ of possession was thereafter filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which was not a normal procedure, and neither did the banks return the amount of P30,000.00 to the plaintiffs.9 Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was perfected and, indeed, partially executed because of the partial payment of the purchase price. There is, however, a serious legal obstacle to such sale, rendering it impossible for CDB to perform its obligation as seller to deliver and transfer ownership of the property. Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not have. In applying this precept to a contract of sale, a distinction must be kept in mind between the "perfection" and "consummation" stages of the contract.

A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.10 It is, therefore, not required that, at the perfection stage, the seller be the owner of the thing sold or even that such subject matter of the sale exists at that point in time.11 Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer. It is at the consummation stage where the principle of nemo dat quod non habet applies. In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the subject land were no longer the owners of the same because of a prior sale.13 Again, in Nool v. Court of Appeals,14 we ruled that a contract of repurchase, in which the seller does not have any title to the property sold, is invalid: We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals rules that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos v. Court of Appeals, where the Court held: Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code provides that (a) contract which is the direct result of a previous illegal contract, is also void and inexistent. We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself

recognizes a sale where the goods are to be acquired . . . by the seller after the perfection of the contract of sale, clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. In the present case, however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code: Those which contemplate an impossible service. Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [subject of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible.15 In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which, the property had been awarded to CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed. A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the reason Art. 208516 of the Civil Code, in providing for the essential requisites of the contract of mortgage and pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan. There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title.17 The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any

encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title. This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make a detailed investigation of the history of the title of the property given as security before accepting a mortgage. We are not convinced, however, that under the circumstances of this case, CDB can be considered a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagor's title, they cannot be excused from the duty of exercising the due diligence required of banking institutions. In Tomas v. Tomas,18 we noted that it is standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are real owners thereof, noting that banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, for their business is affected with public interest. We held thus: We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent original registered owner who obtained his certificate of title through perfectly legal and regular proceedings, than one who obtains his certificate from a totally void one, as to prevail over judicial pronouncements to the effect that one dealing with a registered land, such as a purchaser, is under no obligation to look beyond the certificate of title of the vendor, for in the latter case, good faith has yet to be established by the vendee or transferee, being the most essential condition, coupled with valuable consideration, to entitle him to respect for his newly acquired title even as against the holder of an earlier and perfectly valid title. There might be circumstances apparent on the face of the certificate of title which could excite suspicion as to prompt inquiry, such as when the transfer is not by virtue of a voluntary act of the original registered owner, as in the instant case, where it was by means of a selfexecuted deed of extra-judicial settlement, a fact which should be noted on the face of Eusebia Tomas certificate of title. Failing to make such inquiry would hardly be consistent with any pretense of good faith, which the appellant bank invokes to claim the right to be protected as a mortgagee, and for the reversal of the judgment rendered against it by the lower court.19 In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of Rodolfo Guansing's title. It appears that Rodolfo

Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had waived all his rights thereto. This self-executed deed should have placed CDB on guard against any possible defect in or question as to the mortgagor's title. Moreover, the alleged ocular inspection report20 by CDB's representative was never formally offered in evidence. Indeed, petitioners admit that they are aware that the subject land was being occupied by persons other than Rodolfo Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of Rodolfo.21 II. The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was at fault for the nullity of the contract. Both the trial court and the appellate court found petitioners guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to pay the 10% option money, CDB already knew that it was no longer the owner of the said property, its title having been cancelled.22 Petitioners contend that: (1) such finding of the appellate court is founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was a party in the case where the mortgagor's title was cancelled; (3) CDB is not privy to any problem among the Guansings; and (4) the final decision cancelling the mortgagor's title was not annotated in the latter's title. As a rule, only questions of law may be raised in a petition for review, except in circumstances where questions of fact may be properly raised.23 Here, while petitioners raise these factual issues, they have not sufficiently shown that the instant case falls under any of the exceptions to the above rule. We are thus bound by the findings of fact of the appellate court. In any case, we are convinced of petitioners' negligence in approving the mortgage application of Rodolfo Guansing. III. We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of the Civil Code provides: If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: xxx xxx xxx

demand the return of what he has given without any obligation to comply with his promise. Private respondents are thus entitled to recover the P30,000,00 option money paid by them. Moreover, since the filing of the action for damages against petitioners amounted to a demand by respondents for the return of their money, interest thereon at the legal rate should be computed from August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners accepted the payment. This is in accord with our ruling in Castillo v. Abalayan24 that in case of avoid sale, the seller has no right whatsoever to keep the money paid by virtue thereof and should refund it, with interest at the legal rate, computed from the date of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the return of what he has given" clearly implies that without such prior demand, the obligation to return what was given does not become legally demandable. Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages may be recovered even if a bank's negligence is not attended with malice and bad faith. We find, however, that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages are only intended to alleviate the moral suffering undergone by private respondent, not to enrich them at the expenses of the petitioners.26 Accordingly, the award of moral damages must be reduced to P50,000.00. Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorney's fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to P20,000.00. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the award of damages as above stated.1wphi1.nt XXXXXXXXXXXXXXX

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may

b. G.R. No. 136054 September 5, 2001

HEIRS OF SEVERINA SAN MIGUEL, namely: MAGNO LAPINA, PACENCIA LAPINA, MARCELO LAPINA, SEVERINO LAPINA, ROSARIO LAPINA, FRANCISCO LAPINA, CELIA LAPINA assisted by husband RODOLFO TOLEDO,petitioners, vs. THE HONORABLE COURT OF APPEALS, DOMINADOR SAN MIGUEL, GUILLERMO F. SAN ARTEMIO F. SAN MIGUEL, PACIENCIA F. SAN MIGUEL, CELESTINO, assisted by husband, ANTERO CELESTINO, represented by their Attorney-in-Fact ENRICO CELESTINO, AUGUSTO SAN MIGUEL, ANTONIO SAN MIGUEL, RODOLFO SAN MIGUEL, CONRADO SAN MIGUEL and LUCITA SAN MIGUEL, respondents. PARDO, J.: The Case The case is a petition for review on certiorari1 of the decision of the Court of Appeals,2 affirming that of the Regional Trial Court, Cavite, Branch 19, Bacoor3 ordering petitioners, Heirs of Severina San Miguel (hereafter, "Severina's heirs") to surrender to respondents Dominador San Miguel, et al. (hereafter, "Dominador, et al."), Transfer Certificate of Title No. 223511 and further directing Severina's heirs to pay for the capital gains and related expenses for the transfer of the two (2) lots to Dominador, et al. The Facts This case involves a parcel of land originally claimed by Severina San Miguel (petitioners' predecessorin-interest, hereafter, "Severina"). The land is situated in Panapan, Bacoor, Cavite with an area of six hundred thirty two square meters (632 sq. m.), more or less. Without Severina's knowledge, Dominador managed to cause the subdivision of the land into three (3) lots, to wit:4 "LRC Psu-1312 - with an area of 108 square meters; "LRC Psu-1313 - Lot 1, with an area of 299 square meters; "LRC Psu-1313 - Lot 2, with an area of 225 square meters." On September 25, 1974, Dominador, et al. filed a petition with the Court of First Instance, Cavite, as a land registration court, to issue title over Lots 1 and 2 of LRC Psu-1313, in their names.5

On July 19, 1977, the Land Registration Commission (hereafter "LRC") rendered a decision directing the issuance of Original Certificate of Title No. 0-1816 in the names of Dominador, et al. On or about August 22, 1978, Severina filed with the Court of First Instance of Cavite a petition for review of the decision alleging that the land registration proceedings were fraudulently concealed by Dominador from her.6 On December 27, 1982, the court resolved to set aside the decision of July 19, 1977, and declared Original Certificate of Title No. 0-1816 as null and void. On July 13, 1987, the Register of Deeds of Cavite issued Transfer Certificate of Title No. T-223511 in the names of Severina and her heirs.7 On February 15, 1990, the trial court issued an order in favor of Severina's heirs, to wit:8 "WHEREFORE, as prayed for, let the writ of possession previously issued in favor of petitioner Severina San Miguel be implemented." However, the writ was returned unsatisfied. On November 28, 1991, the trial court ordered:9 "WHEREFORE, as prayed for, let an alias writ of demolition be issued in favor of petitioners, Severina San Miguel." Again, the writ was not satisfied. On August 6, 1993, Severina's heirs, decided not to pursue the writs of possession and demolition and entered into a compromise with Dominador, et al. According to the compromise, Severina's heirs were to sell the subject lots10 to Dominador, et al. for one and a half million pesos (P1.5 M) with the delivery of Transfer Certificate of Title No. T223511(hereafter, "the certificate of title") conditioned upon the purchase of another lot 11 which was not yet titled at an additional sum of three hundred thousand pesos (P300,000.00). The salient features of the compromise (hereafter "kasunduan") are:12 "5. Na ang Lot 1 at Lot 2, plano LRC Psu1313 na binabanggit sa itaas na ipinagkasundo ng mga tagapagmana ni Severina San Miguel na kilala sa kasulatang ito sa taguring LAPINA (representing Severina's heirs), na ilipat sa pangalan nina SAN MIGUEL (representing Dominador's heirs) alang alang sa halagang ISANG MILYON AT LIMANG DAANG LIBONG PISO (P1,500,000.00) na babayaran nina SAN MIGUEL kina LAPINA;

"6. Na si LAPINA at SAN MIGUEL ay nagkakasundo na ang lote na sakop ng plano LRC-Psu-1312, may sukat na 108 metro cuadrado ay ipagbibili na rin kina SAN MIGUEL sa halagang TATLONG DAANG LIBONG PISO (P300,000.00); "7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu-1312 ay sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa paghahabol ng sino mang tao; "8. Na ang nasabing halaga na TATLONG DAANG LIBONG PISO (P300,000.00) ay babayaran nina SAN MIGUEL kina LAPINA sa loob ng dalawang (2) buwan mula sa petsa ng kasulatang ito at kung hindi mabayaran nina SAN MIGUEL ang nasabing halaga sa takdang panahon ay mawawalan ng kabuluhan ang kasulatang ito; "9. Na sina LAPINA at SAN MIGUEL ay nagkakadunso (sic) rin na ang owner's copy ng Transfer Certificate of Title No. T-223511 na sumasakop sa Lots 1 at 2, plano LRC Psu1313 ay ilalagay lamang nina LAPINA kina SAN MIGUEL pagkatapos mabayaran ang nabanggit na P300,000.00" On the same day, on August 6, 1993, pursuant to the kasunduan, Severina's heirs and Dominador, et al. executed a deed of sale designated as "kasulatan sa bilihan ng lupa."13 On November 16, 1993, Dominador, et al. filed with the trial court,14 Branch 19, Bacoor, Cavite, a motion praying that Severina's heirs deliver the owner's copy of the certificate of title to them.15 In time, Severina's heirs opposed the motion stressing that under the kasunduan, the certificate of title would only be surrendered upon Dominador, et al.'s payment of the amount of three hundred thousand pesos (P300,000.00) within two months from August 6, 1993, which was not complied with.16 Dominador, et al. admitted non-payment of three hundred thousand pesos (P300,000.00) for the reason that Severina's heirs have not presented any proof of ownership over the untitled parcel of land covered by LRC-Psu-1312. Apparently, the parcel of land is declared in the name of a third party, a certain Emiliano Eugenio.17 Dominador, et al. prayed that compliance with the kasunduan be deferred until such time that Severina's heirs could produce proof of ownership over the parcel of land.18

Severina's heirs countered that the arguments of Dominador, et al. were untenable in light of the provision in thekasunduan where Dominador, et al. admitted their ownership over the parcel of land, hence dispensing with the requirement that they produce actual proof of title over it.19 Specifically, they called the trial court's attention to the following statement in the kasunduan:20 "7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu-1312 ay sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa paghahabol ng sino mang tao;" According to Severina's heirs, since Dominador, et al. have not paid the amount of three hundred thousand pesos (P300,000.00), then they were justified in withholding release of the certificate of title.21 The trial court conducted no hearing and then rendered judgment based on the pleadings and memoranda submitted by the parties. The Trial Court's Ruling On June 27, 1994, the trial court issued an order to wit:22 "WHEREFORE, finding the Motion to Order to be impressed with merit, the defendantsoppositors-vendors Heirs of Severina San Miguel are hereby ordered to surrender to the movant-plaintiffs-vendees-Heirs of Dominador San Miguel the Transfer Certificates of Title No. 223511 and for herein defendants-oppositors-vendors to pay for the capital gains and related expenses for the transfer of the two lots subject of the sale to herein movantsplaintiffs-vendees-Heirs of Dominador San Miguel." "SO ORDERED." On July 25, 1994, Severina's heirs filed with the trial court a motion for reconsideration of the aforequoted order.23 On January 23, 1995, the trial court denied the motion for reconsideration for lack of merit and further ordered:24 "x x x . . . Considering that the Lots 1 and 2 covered by TCT No. T-223511 had already been paid since August 6, 1993 by the plaintiffs-vendees Dominador San Miguel, et al. (Vide, Kasulatan sa Bilihan ng Lupa, Rollo, pp. 174-176), herein defendants-vendorsHeirs of Severina San Miguel is hereby ordered (sic) to deliver the aforesaid title to

the former (Dominador San Miguel, et al.) within thirty (30) days from receipt of this order. In case the defendants-vendors-Heirs of Severina San Miguel fail and refuse to do the same, then the Register of Deeds of Cavite is ordered to immediately cancel TCT No. T-223511 in the name of Severina San Miguel and issue another one in the name of plaintiffs Dominador San Miguel, et al. "Also send a copy of this Order to the Register of Deeds of the Province of Cavite, Trece Martires City, for her information and guidance. "SO ORDERED." On February 7, 1995, Severina's heirs appealed the orders to the Court of Appeals.25 The Court of Appeals' Ruling On June 29, 1998, the Court of Appeals promulgated a decision denying the appeal, and affirming the decision of the trial court. The Court of Appeals added that the other matters raised in the petition were "extraneous" to the kasunduan.26 The Court of Appeals upheld the validity of the contract of sale and sustained the parties' freedom to contract. The Court of Appeals decided, thus:27 "WHEREFORE, the decision appealed from is hereby AFFIRMED. "SO ORDERED." On August 4, 1998, Severina's heirs filed with the Court of Appeals a motion for reconsideration of the above decision.28On October 14, 1998, the Court of Appeals denied the motion for reconsideration for lack of merit.29 Hence, this appeal.30 The Issues Severina's heirs submit that the Court of Appeals erred and committed grave abuse of discretion: First, when it held that the kasunduan had no effect on the "kasulatan sa bilihan ng lupa." Second, when it ordered them to surrender the certificate of title to Dominador, et al., despite non-compliance with their prior obligations stipulated under the kasunduan.Third, when it did not find that the kasunduan was null and void for having been entered into by Dominador, et al. fraudulently and in bad faith.31 We find the above issues raised by Severina's heirs to be factual. The question whether the prerequisites to justify release of the certificate of title to Dominador, et al. have been complied with is a question of fact.32

However, we sift through the arguments and identify the main legal issue, which is whether Dominador, et al. may be compelled to pay the three hundred thousand pesos (P300,000.00) as agreed upon in the kasunduan (as a pre-requisite for the release of the certificate of title), despite Severina's heirs' lack of evidence of ownership over the parcel of land covered by LRC Psu-1312. The Court's Ruling We resolve the issue in the negative, and find the petition without merit. Severina's heirs anchor their claim on the kasunduan, stressing on their freedom to stipulate and the binding effect of contracts. This argument is misplaced.33 The Civil Code provides: ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient provided they are not contrary to law, morals, good customs, public order or public policy (italics ours). It is basic that the law is deemed written into every contract.34 Although a contract is the law between the parties, the provisions of positive law which regulate contracts are deemed written therein and shall limit and govern the relations between the parties.35 The Civil Code provisions on "sales" state: ARTICLE 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay a price certain in money or its equivalent. . . . ARTICLE 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. ARTICLE 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of sale (emphasis ours). True, in contracts of sale, the vendor need not possess title to the thing sold at the perfection of the contract.36 However, the vendor must possess title and must be able to transfer title at the time of delivery. In a contract of sale, title only passes to the vendee upon full payment of the stipulated consideration, or upon delivery of the thing sold.37 Under the facts of the case, Severina's heirs are not in a position to transfer title. Without passing on the question of who actually owned the land covered by LRC Psu -1312, we note that there is no proof of ownership in favor of Severina's heirs. In fact, it is a certain Emiliano Eugenio, who holds a tax declaration over the said land in his name.38 Though tax declarations do not prove

ownership of the property of the declarant, tax declarations and receipts can be strong evidence of ownership of land when accompanied by possession for a period sufficient for 39 prescription. Severina's heirs have nothing to counter this document. Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severina's heirs' unjust enrichment.40 Basic is the principle in law, "Niguno non deue enriquecerse tortizamente condano de otro."41 The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or promised.42 In Nool v. Court of Appeals,43 we held that if the sellers cannot deliver the object of the sale to the buyers, such contract may be deemed to be inoperative. By analogy, such a contract may fall under Article 1405, No. 5 of the Civil Code, to wit: ARTICLE 1405. The following contracts are inexistent and void from the beginning: . . . (5) Those which contemplate an impossible service. xxx xxx xxx

B. SALE BY A PERSON HAVING A VOIDABLE TITLE: Articles 1506-1559 a. G.R. No. 116635 July 24, 1997 CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner, vs. COURT OF APPEALS, ANACLETO NOOL and EMILIA NEBRE, respondents.

PANGANIBAN, J.: A contract of repurchase arising out of a contract of sale where the seller did not have any title to the property "sold" is not valid. Since nothing was sold, then there is also nothing to repurchase. Statement of the Case This postulate is explained by this Court as it resolves this petition for review on certiorari assailing the January 20, 1993 Decision 1 of Respondent Court of Appeals 2 in CAG.R. CV No. 36473, affirming the decision 3 of the trial court 4 which disposed as follows: 5 WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of action, and hereby: 1. Declaring the private writing, Exhibit "C", to be an option to sell, not binding and considered validly withdrawn by the defendants for want of consideration; 2. Ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus interest thereon at the legal rate, from the time of filing of defendants' counterclaim until the same is fully paid; 3. Ordering the plaintiffs to deliver peaceful possession of the two hectares mentioned in paragraph 7 of the complaint and in paragraph 31 of

Severina's heirs insist that delivery of the certificate of title is predicated on a condition payment of three hundred thousand pesos (P300,000.00) to cover the sale of Lot 3 of LRO Psu 1312. We find this argument not meritorious. The condition cannot be honored for reasons afore-discussed. Article 1183 of the Civil Code provides that, "Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid, x x x" Hence, the non-payment of the three hundred thousand pesos (P300,000.00) is not a valid justification for refusal to deliver the certificate of title. Besides, we note that the certificate of title covers Lots 1 and 2 of LRC Psu-1313, which were fully paid for by Dominador, et al. Therefore, Severina's heirs are bound to deliver the certificate of title covering the lots. The Fallo WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 48430 is AFFIRMED in toto. No costs. XXXXXXXXXXXXXXXXXXXXXXXXX

defendants' answer (counterclaim); 4. Ordering the plaintiffs to pay reasonable rents on said two hectares at P5,000.00 per annumor at P2,500.00 per cropping from the time of judicial demand mentioned in paragraph 2 of the dispositive portion of this decision, until the said two hectares shall have been delivered to the defendants; and 5. To pay the costs. SO ORDERED. The Antecedent Facts The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as follows: Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1 hectare. It was formerly owned by Victorino Nool and covered by Transfer Certificate of Title No. T-74950. With an area of 3.0880 hectares, the other parcel was previously owned by Francisco Nool under Transfer Certificate of Title No. T-100945. Both parcel's are situated in San Manuel, Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera, now the appellants, seek recovery of the aforementioned parcels of land from the defendants, Anacleto Nool, a younger brother of Conchita, and Emilia Nebre, now the appellees. In their complaint, plaintiffappellants alleged inter alia that they are the owners of subject parcels of land, and they bought the same from Conchita's other brothers, Victorino Nool and Francisco Nool; that as plaintiffs were in dire need of money, they obtained a loan from the Ilagan Branch of the Development Bank of the Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said parcels of land, which were still registered in the names of Victorino Nool and Francisco Nool, at the time, and for the failure of

plaintiffs to pay the said loan, including interest and surcharges, totaling P56,000.00, the mortgage was foreclosed; that within the period of redemption, plaintiffs contacted defendant Anacleto Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of the two (2) parcels of land in question were transferred to Anacleto Nool; that as part of their arrangement or understanding, Anacleto Nool agreed to buy from plaintiff Conchita Nool the two (2) parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance of P14,000.00, plaintiffs were to regain possession of the two (2) hectares of land, which amounts defendants failed to pay, and the same day the said arrangement 6 was made; another covenant 7 was entered into by the parties, whereby defendants agreed to return to plaintiffs the lands in question, at anytime the latter have the necessary amount; that plaintiffs asked the defendants to return the same but despite the intervention of the Barangay Captain of their place, defendants refused to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to court for relief. In their Answer, defendantsappellees theorized that they acquired the lands in question from the Development Bank of the Philippines, through negotiated sale, and were misled by plaintiffs when defendant Anacleto Nool signed the private writing, agreeing to return subject lands when plaintiffs have the money to redeem the same; defendant Anacleto having been made to believe, then, that his sister, Conchita, still had the right to redeem the said properties. The pivot of inquiry here, as aptly observed below, is the nature and significance of the private document, marked Exhibit "D" for plaintiffs, which document has not been denied by the defendants, as defendants even averred in their Answer that they gave an advance payment of P30,000.00 therefor, and acknowledged that they had a balance of P14,000.00 to complete

their payment. On this crucial issue, the lower court adjudged the said private writing (Exhibit "D") as an option to sell not binding upon and considered the same validly withdrawn by defendants for want of consideration; and decided the case in the manner above-mentioned. There is no quibble over the fact that the two (2) parcels of land in dispute were mortgaged to the Development Bank of the Philippines, to secure a loan obtained by plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For the non-payment of said loan, the mortgage was foreclosed and in the process, ownership of the mortgaged lands was consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP became the absolute owner of the two parcels of land, defendants negotiated with DBP and succeeded in buying the same. By virtue of such sale by DBP in favor of defendants, the titles of DBP were cancelled and the corresponding Transfer Certificates of Title (Annexes "C" and "D" to the Complaint) issued to the 8 defendants. It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the oneyear redemption period was from March 16, 1982 up to March 15, 1983 and that the mortgagors' right of redemption was not exercised within this period. 9 Hence, DBP became the absolute owner of said parcels of land for which it was issued new certificates of title, both entered on May 23, 1983 by the Registry of Deeds for the Province of Isabela. 10 About two years thereafter, on April 1, 1985, DBP entered into a Deed of Conditional Sale 11 involving the same parcels of land with Private Respondent Anacleto Nool as vendee. Subsequently, the latter was issued new certificates of title on February 8, 1988. 12 The Court of Appeals ruled: 13 WHEREFORE, finding no reversible error infirming it, the appealed Judgment is hereby AFFIRMED in toto. No pronouncement as to costs. The Issues Petitioners impute to Respondent Court the following alleged "errors": 1. The Honorable Court of Appeals, Second Division has misapplied the legal import or meaning of Exhibit

"C" in a way contrary to law and existing jurisprudence in stating that it has no binding effect between the parties and considered validly withdrawn by defendants-appellees for want of consideration. 2. The Honorable Court of Appeals, Second Division has miserably failed to give legal significance to the actual possession and cultivation and appropriating exclusively the palay harvest of the two (2) hectares land pending the payment of the remaining balance of fourteen thousand pesos (P14,000.00) by defendants-appellees as indicated in Exhibit "C". 3. The Honorable Court of Appeals has seriously erred in affirming the decision of the lower court by awarding the payment of rents per annum and the return of P30,000.00 and not allowing the plaintiffsappellants to re-acquire the four (4) hectares, more or less upon payment of one hundred thousand pesos (P100,000.00) as shown in Exhibit "D". 14 The Court's Ruling The petition is bereft of merit. First Issue: Are Exhibits "C" and "D" Valid and Enforceable? The petitioner-spouses plead for the enforcement of their agreement with private respondents as contained in Exhibits "C" and "D," and seek damages for the latter's alleged breach thereof. In Exhibit C, which was a private handwritten document labeled by the parties as Resibo ti Katulagan or Receipt of Agreement, the petitioners appear to have "sold" to private respondents the parcels of land in controversy covered by TCT No. T-74950 and TCT No. T-100945. On the other hand, Exhibit D, which was also a private handwritten document in Ilocano and labeled as Kasuratan, private respondents agreed that Conchita Nool "can acquire back or repurchase later on said land when she has the money." 15 In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by her co-petitioner-husband) invokes Article 1370 of the Civil Code which mandates that "(i)f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." Hence, petitioners contend that the Court of Appeals erred in affirming the trial court's finding and conclusion

that said Exhibits C and D were "not merely voidable but utterly void and inexistent." We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos vs. Court of Appeals, 16 where the Court held: Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. 17 Verily, Article 1422 of the Civil Code provides that "(a) contract which is the direct result of a previous illegal contract, is also void and inexistent." We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. 18 Moreover, the Civil Code 19 itself recognizes a sale where the goods are to be "acquired . . . by the seller after the perfection of the contract of sale," clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. In the present case however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative 20 and may thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code: "Those which contemplate an impossible service." Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible. Furthermore, Article 1505 of the Civil Code provides that "where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his

conduct precluded from denying the seller's authority to sell." Here, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Jurisprudence, on the other hand, teaches us that "a person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer." 21 No one can give what he does not have nono dat quod non habet. On the other hand, Exhibit D presupposes that petitioners could repurchase the property that they "sold" to private respondents. As petitioners "sold" nothing, it follows that they can also "repurchase" nothing. Nothing sold, nothing to repurchase. In this light, the contract of repurchase is also inoperative and by the same analogy, void. Contract of Dependent on Validity of Sale Repurchase

As borne out by the evidence on record, the private respondents bought the two parcels of land directly from DBP on April 1, 1985 after discovering that petitioners did not own said property, the subject of Exhibits C and D executed on November 30, 1984. Petitioners, however, claim that they can exercise their alleged right to "repurchase" the property, after private respondents had acquired the same from DBP. 22 We cannot accede to this, for it clearly contravenes the intention of the parties and the nature of their agreement. Exhibit D reads: WRITING

That I, Anacleto Nool have bought from my sister Conchita Nool a land an area of four hectares (4 has.) in the value of One Hundred Thousand (100,000.00) Pesos. It is our agreement as brother and sister that she canacquire back or repurchase later on said land when she has the money. [Emphasis supplied]. As proof of this agreement we sign as brother and sister this written document this day of Nov. 30, 1984, at District 4, San Manuel, Isabela.

S g d A N A One "repurchases" only what one has previouslyC sold. In other words, the right to repurchaseL presupposes a valid contract of sale betweenE the same parties. Undisputedly, private respondentsT acquired title to the property from DBP, and notO from petitioners. N Assuming arguendo that Exhibit D is separate andO distinct from Exhibit C and is not affected by theO nullity of the latter, still petitioners do not therebyL acquire a right to repurchase the property. In that scenario, Exhibit D ceases to be a "right to repurchase" ancillary and incidental to the contract of sale; rather, it becomes an accepted unilateral promise to sell. Article 1479 of the Civil Code, however, provides that "an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." In the present case, the alleged written contract of repurchase contained in Exhibit D is bereft of any consideration distinct from the price. Accordingly, as an independent contract, it cannot bind private respondents. The ruling in Diamante vs. CA 24 supports this. In that case, the Court through Mr. Justice Hilario G. Davide, Jr. explained: Article 1601 of the Civil Code S provides: g Conventional redemption shall taked place when the vendor reserves the right to repurchase the thing sold,C with the obligation to comply witho the provisions of article 1616 andn other stipulations which may havec been agreed upon. h i In Villarica, et al. Vs. Court oft Appeals, et al., decided on 29a November 1968, or barely seven (7) days before the respondent CourtN promulgated its decisions in thiso case, this Court, interpreting theo above Article, held: l The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can not longer reserve the right to repurchase, and any right thereafter granted the

Sgd Emilio Paron Witness

vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case. ... In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in 1927, this Court had already ruled that "an agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the vendor the right to purchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. In that case the vendor has nor reserved to himself the right to repurchase. In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found another occasion to apply the foregoing principle. Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by Article 1479 of the Civil Code which reads as follows: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. Right to Repurchase Based Homestead or Trust Non-Existent on

date of conveyance." Assuming the applicability of this statutory provision to the case at bar, it is indisputable that Private Respondent Anacleto Nool already repurchased from DBP the contested properties. Hence, there was no more right of repurchase that his sister Conchita or brothers Victorino and Francisco could exercise. The properties were already owned by an heir of the homestead grantee and the rationale of the provision to keep homestead lands within the family of the grantee was thus fulfilled. 27 The claim of a trust relation is likewise without merit. The records show that private respondents did not purchase the contested properties from DBP in trust for petitioners. The former, as previously mentioned, in fact bought the land from DBP upon realization that the latter could not validly sell the same. Obviously, petitioners bought it for themselves. There is no evidence at all in the records that they bought the land in trust for private respondents. The fact that Anacleto Nool was the younger brother of Conchita Nool and that they signed a contract of repurchase, which as discussed earlier was void, does not prove the existence of an implied trust in favor of petitioners. Second Issue: No Estoppel in Impugning the Validity of Void Contracts Petitioners argue that "when Anacleto Nool took the possession of the two hectares, more or less, and let the other two hectares to be occupied and cultivated by plaintiffs-appellant, Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed upon and his actuation is within the ambit of estoppel . . . 28 We disagree. The private respondents cannot be estopped from raising the defense of nullity of contract, specially in this case where they acted in good faith, believing that indeed petitioners could sell the two parcels of land in question. Article 1410 of the Civil Code mandates that "(t)he action or defense for the declaration of the inexistence of a contract does not prescribe." It is a well-settled doctrine that "as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or it is against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what public policy by law seeks to preserve." 29Thus, it is immaterial that private respondents initially acted to implement the contract of sale, believing in good faith that the same was valid. We stress that a contract void at inception cannot be validated by ratification or prescription and certainly cannot be binding on or enforceable against private respondents. 30 Third Issue: Return of P30,000.00 with Interest and Payment of Rent Petitioners further argue that it would be a "miscarriage of justice" to order them (1) to return the sum of P30,000.00 to private respondents when

Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land Act 25 and (2) an implied trust relation as "brother and sister." 26 The Court notes that Victorino Nool and Francisco Nool mortgaged the land to DBP. The brothers, together with Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to repurchase the two parcels of land under Sec. 119 of the Public Land Act which provides that "(e)very conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within a period of five years from the

allegedly it was Private Respondent Anacleto Nool who owed the former a balance of P14,000.00 and (2) to order petitioners to pay rent when they "were allowed to cultivate the said two hectares." 31 We are not persuaded. Based on the previous discussion, the balance of P14,000.00 under the void contract of sale may not be enforced. Petitioners are the ones who have an obligation to return what they unduly and improperly received by reason of the invalid contract of sale. Since they cannot legally give title to what they "sold," they cannot keep the money paid for the object of the sale. It is basic that "(e)very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same." 32 Thus, if a void contract has already "been performed, the restoration of what has been given is in order." 33 Corollarily and as aptly ordered by respondent appellate court, interest thereon will run only from the time of private respondents' demand for the return of this amount in their counterclaim. 34 In the same vein, petitioners' possession and cultivation of the two hectares are anchored on private respondents' tolerance. Clearly, the latter's tolerance ceased upon their counterclaim and demand on the former to vacate. Hence, their right to possess and cultivate the land ipso facto ceased. WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals affirming that of the trial court is hereby AFFIRMED. XXXXXXXXXXXXXXXXXX

V. PRICE A. MEANING OF PRICE: Articles 1469 1474 a. INCHAUSTI AND CO., plaintiff-appellant, vs. ELLIS CROMWELL, Collector of Internal Revenue, defendant-appellee.

Haussermann, Cohn & Fisher, for appellant. Acting Attorney-General Harvey, for appellee.

MORELAND, J.:

This is an appeal by the plaintiff from a judgment of the Court of First Instance of the city of Manila, the Hon. Simplicio del Rosario presiding, dismissing the complaint upon the merits after trial, without costs.

The facts presented to this court are agreed upon by both parties, consisting, in so far as they are material to a decision of the case, in the following:

III. That the plaintiff firm for many years past has been and now is engaged in the business of buying and selling at wholesale hemp, both for its own account and on commission.

IV. That it is customary to sell hemp in bales which are made by compressing the loose fiber by means of presses, covering two sides of the bale with matting, and fastening it by means of strips of rattan; that the operation of bailing hemp is designated among merchants by the word "prensaje."

V. That in all sales of hemp by the plaintiff firm, whether for its own account or on commission for others, the price is quoted to the buyer at so much per picul, no mention being made of bailing; but with the tacit understanding, unless otherwise expressly agreed, that the hemp will be delivered in bales and that, according to the custom prevailing

among hemp merchants and dealers in the Philippine Islands, a charge, the amount of which depends upon the then prevailing rate, is to be made against the buyer under the denomination of "prensaje." That this charge is made in the same manner in all cases, even when the operation of bailing was performed by the plaintiff or by its principal long before the contract of sale was made. Two specimens of the ordinary form of account used in these operations are hereunto appended, marked Exhibits A and B, respectively, and made a part hereof.

XI. That the plaintiff has always paid to the defendant or to his predecessor in the office of the Collector of Internal Revenue the tax collectible under the provisions of section 139 of Act No. 1189 upon the selling price expressly agreed upon for all hemp sold by the plaintiff firm both for its own account and on commission, but has not, until compelled to do so as hereinafter stated, paid the said tax upon sums received from the purchaser of such hemp under the denomination of "prensaje."

VI. That the amount of the charge made against hemp buyers by the plaintiff firm and other sellers of hemp under the denomination of "prensaje" during the period involved in this litigation was P1.75 per bale; that the average cost of the rattan and matting used on each bale of hemp is fifteen (15) centavos and that the average total cost of bailing hemp is one (1) peso per bale.

VII. That insurance companies in the Philippine Islands, in estimating the insurable value of hemp always add to the quoted price of same the charge made by the seller under the denomination of "prensaje."

XII. That of the 29th day of April, 1910, the defendant, acting in his official capacity as Collector of Internal Revenue of the Philippine Islands, made demand in writing upon the plaintiff firm for the payment within the period of five (5) days of the sum of P1,370.68 as a tax of one third of one per cent on the sums of money mentioned in Paragraph IX hereof, and which the said defendant claimed to be entitled to receive, under the provisions of the said section 139 of Act No. 1189, upon the said sums of money so collected from purchasers of hemp under the denomination of "prensaje."

VII. That the average weight of a bale of hemp is two (2) piculs (126.5 kilograms).

IX. That between the first day of January, 1905, and the 31st day of March, 1910, the plaintiff firm, in accordance with the custom mentioned in paragraph V hereof, collected and received, under the denomination of "prensaje," from purchasers of hemp sold by the said firm for its own account, in addition to the price expressly agreed upon for the said hemp, sums aggregating P380,124.35; and between the 1st day of October, 1908, and the 1st day of March, 1910, collected for the account of the owners of hemp sold by the plaintiff firm in Manila on commission, and under the said denomination of "prensaje," in addition to the price expressly agreed upon the said hemp, sums aggregating P31,080.

XIII. That on the 4th day of May, 1910, the plaintiff firm paid to the defendant under protest the said sum of P1,370.69, and on the same date appealed to the defendant as Collector of Internal Revenue, against the ruling by which the plaintiff firm was required to make said payment, but defendant overruled said protest and adversely decided said appeal, and refused and still refuses to return to plaintiff the said sum of P1,370.68 or any part thereof.1awphil.net

X. That the plaintiff firm in estimating the amount due it as commissions on sales of hemp made by it for its principals has always based the said amount on the total sum collected from the purchasers of the hemp, including the charge made in each case under the denomination of "prensaje."

XIV. Upon the facts above set forth t is contended by the plaintiff that the tax of P1,370.68 assessed by the defendant upon the aggregate sum of said charges made against said purchasers of hemp by the plaintiff during the period in question, under the denomination of "prensaje" as aforesaid, namely, P411,204.35, is illegal upon the ground that the said charge does not constitute a part of the selling price of the hemp, but is a charge made for the service of baling the hemp, and that the plaintiff firm is therefore entitled to recover of the defendant the said sum of P1,370.68 paid to him under protest, together with all interest thereon at the legal rate since payment, and the costs of this action.

Upon the facts above stated it is the contention of the defendant that the said charge

made under the denomination of "prensaje" is in truth and in fact a part of the gross value of the hemp sold and of its actual selling price, and that therefore the tax imposed by section 139 of Act No. 1189 lawfully accrued on said sums, that the collection thereof was lawfully and properly made and that therefore the plaintiff is not entitled to recover back said sum or any part thereof; and that the defendant should have judgment against plaintiff for his costs.

paid. In such case the plaintiff performed no service whatever for his vendee, nor did the plaintiff's vendor perform any service for him.

Under these facts we are of the opinion that the judgment of the court below was right. It is one of the stipulations in the statement of facts that it is customary to sell hemp in bales, and that the price quoted in the market for hemp per picul is the price for the hemp baled. The fact is that among large dealers like the plaintiff in this case it is practically impossible to handle hemp without its being baled, and it is admitted by the statement of facts, as well as demonstrated by the documentary proof introduced in the case, that if the plaintiff sold a quality of hemp it would be the under standing, without words, that such hemp would be delivered in bales, and that the purchase price would include the cost and expense of baling. In other words, it is the fact as stipulated, as well as it would be the fact of necessity, that in all dealings in hemp in the general market the selling price consists of the value of the hemp loose plus the cost and expense of putting it into marketable form. In the sales made by the plaintiff, which are the basis of the controversy here, there were n services performed by him for his vendee. There was agreement that services should be performed. Indeed, at the time of such sales it was not known by the vendee whether the hemp was then actually baled or not. All that he knew and all that concerned him was that the hemp should be delivered to him baled. He did not ask the plaintiff to perform services for him, nor did the plaintiff agree to do so. The contract was single and consisted solely in the sale and purchase of hemp. The purchaser contracted for nothing else and the vendor agreed to deliver nothing else.

The word "price" signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price, put to the debit of the vendee and agreed to by him. It is quite possible that the plaintiff, in this case in connection with the hemp which he sold, had himself already paid the additional expense of baling as a part of the purchase price which he paid and that he himself had received the hemp baled from his vendor. It is quite possible also that such vendor of the plaintiff may have received the same hemp from his vendor in baled form, that he paid the additions cost of baling as a part of the purchase price which he

The distinction between a contract of sale and one for work, labor, and materials is tested by the inquiry whether the thing transferred is one no in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and been the subject of sale to some other person, even if the order had not been given. (Groves vs. Buck, 3 Maule & S., 178; Towers vs. Osborne, 1 Strange, 506; Benjamin on Sales, 90.) It is clear that in the case at bar the hemp was in existence in baled form before the agreements of sale were made, or, at least, would have been in existence even if none of the individual sales here in question had been consummated. It would have been baled, nevertheless, for sale to someone else, since, according to the agreed statement of facts, it is customary to sell hemp in bales. When a person stipulates for the future sale of articles which he is habitually making, and which at the time are not made or finished, it is essentially a contract of sale and not a contract for labor. It is otherwise when the article is made pursuant to agreement. (Lamb vs. Crafts, 12 Met., 353; Smith vs. N.Y.C. Ry. Co., 4 Keyes, 180; Benjamin on Sales, 98.) Where labor is employed on the materials of the seller he can not maintain an action for work and labor. (Atkinson vs. Bell, 8 Barn. & C., 277; Lee vs. Griffin, 30 L.J.N. S.Q.B., 252; Prescott vs. Locke, 51 N.H., 94.) If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at the defendant's request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendant's order for it. (Garbutt s. Watson, 5 Barn. & Ald., 613; Gardner vs. Joy, 9 Met., 177; Lamb vs. Crafts, 12 Met., 353; Waterman vs. Meigs, 4 Cush., 497., Clark vs. Nichols, 107 Mass., 547; May vs. Ward, 134 Mass., 127; Abbott vs. Gilchrist, 38 Me., 260; Crocket vs. Scribner, 64 Me., 105; Pitkin vs. Noyes, 48 N. H., 294; Prescott vs. Locke, 51 N. H., 94; Ellison vs. Brigham, 38 Vt., 64.) It has been held in Massachusetts that a contract to make is a contract of sale if the article ordered is already substantially in existence at the time of the order and merely requires some alteration, modification, or adoption to the buyer's wishes or purposes. (Mixer vs. Howarth, 21 Pick., 205.) It is also held in that state that a contract for the sale of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract for the sale of goods to which the statute of frauds applies. But if the goods are to be manufactured especially for the purchaser and upon his special order, and not for the general market, the case is not within the statute. (Goddard vs. Binney, 115 Mass., 450.)

It is clear to our minds that in the case at bar the baling was performed for the general market and was not something done by plaintiff which was a result of any peculiar wording of the particular contract between him and his vendee. It is undoubted that the plaintiff prepared his hemp for the general market. This would be necessary. One whose exposes goods for sale in the market must have them in marketable form. The hemp in question would not have been in that condition if it had not been baled. the baling, therefore, was nothing peculiar to the contract between the plaintiff and his vendee. It was precisely the same contract that was made by every other seller of hemp, engaged as was the plaintiff, and resulted simply in the transfer of title to goods already prepared for the general market. The method of bookkeeping and form of the account rendered is not controlling as to the nature of the contract made. It is conceded in the case tat a separate entry and charge would have been made for the baling even if the plaintiff had not been the one who baled the hemp but, instead, had received it already baled from his vendor. This indicates of necessity tat the mere fact of entering a separate item for the baling of the hemp is formal rather than essential and in no sense indicates in this case the real transaction between the parties. It is undisputable that, if the plaintiff had brought the hemp in question already baled, and that was the hemp the sale which formed the subject of this controversy, then the plaintiff would have performed no service for his vendee and could not, therefore, lawfully charge for the rendition of such service. It is, nevertheless, admitted that in spite of that fact he would still have made the double entry in his invoice of sale to such vendee. This demonstrates the nature of the transaction and discloses, as we have already said, that the entry of a separate charge for baling does not accurately describe the transaction between the parties.

there can be no question that, if the value of the hemp were not augmented to the amount of P1.75 per bale by said operation, the purchaser would not pay that sum. If one buys a bale of hemp at a stipulated price of P20, well knowing that there is an agreement on his part, express or implied, to pay an additional amount of P1.75 for that bale, he considers the bale of hemp worth P21. 75. It is agreed, as we have before stated, that hemp is sold in bales. Therefore, baling is performed before the sale. The purchaser of hemp owes to the seller nothing whatever by reason of their contract except the value of the hemp delivered. That value, that sum which the purchaser pays to the vendee, is the true selling price of the hemp, and every item which enters into such price is a part of such selling price. By force of the custom prevailing among hemp dealers in the Philippine Islands, a purchaser of hemp in the market, unless he expressly stipulates that it shall be delivered to him in loose form, obligates himself to purchase and pay for baled hemp. Wheher or not such agreement is express or implied, whether it is actual or tacit, it has the same force. After such an agreement has once been made by the purchaser, he has no right to insists thereafter that the seller shall furnish him with unbaled hemp. It is undoubted that the vendees, in the sales referred to in the case at bar, would have no right, after having made their contracts, to insists on the delivery of loose hemp with the purpose in view themselves to perform the baling and thus save 75 centavos per bale. It is unquestioned that the seller, the plaintiff, would have stood upon his original contract of sale, that is, the obligation to deliver baled hemp, and would have forced his vendees to accept baled hemp, he himself retaining among his own profits those which accrued from the proceed of baling.

We are of the opinion that the judgment appealed from must be affirmed, without special finding as to costs, and it is so ordered.

Section 139 [Act No. 1189] of the Internal Revenue Law provides that:

Torres, Mapa, Johnson and Carson, JJ., concur. XXXXXXXXXXXXXXXXXX

There shall be paid by each merchant and manufacturer a tax at the rate of one-third of one per centum on the gross value in money of all goods, wares and merchandise sold, bartered or exchanged in the Philippine Islands, and that this tax shall be assessed on the actual selling price at which every such merchant or manufacturer disposes of his commodities.

The operation of baling undoubtedly augments the value of the goods. We agree that

B. REQUISITES OF A VALID PRICE: a. G.R. No. L-38498 August 10, 1989

ISAAC BAGNAS, ENCARNACION BAGNAS, SILVESTRE BAGNAS MAXIMINA BAGNAS, SIXTO BAGNAS and AGATONA ENCARNACION, petitioners, vs. HON. COURT OF APPEALS, ROSA L. RETONIL TEOFILO ENCARNACION, and JOSE B. NAMBAYAN respondents.

Mateum continued in the possession of the lands purportedly conveyed until his death, that he remained the declared owner thereof and that the tax payments thereon continued to be paid in his name. 4 Whatever the truth, however, is not crucial. What is not disputed is that on the strength of the deeds of sale, the respondents were able to secure title in their favor over three of the ten parcels of land conveyed thereby. 5

Beltran, Beltran & Beltran for petitioners.

Jose M. Legaspi for private respondents.

NARVASA, J.:

The facts underlying this appeal by certiorari are not in dispute. Hilario Mateum of Kawit, Cavite, died on March 11, 1964, single, without ascendants or descendants, and survived only by collateral relatives, of whom petitioners herein, his first cousins, were the nearest. Mateum left no will, no debts, and an estate consisting of twenty-nine parcels of land in Kawit and Imus, Cavite, ten of which are involved in this appeal. 1

On May 22,1964 the petitioners commenced suit against the respondents in the Court of First Instance of Cavite, seeking annulment of the deeds of sale as fictitious, fraudulent or falsified, or, alternatively, as donations void for want of acceptance embodied in a public instrument. Claiming ownership pro indiviso of the lands subject of the deeds by virtue of being intestate heirs of Hilario Mateum, the petitioners prayed for recovery of ownership and possession of said lands, accounting of the fruits thereof and damages. Although the complaint originally sought recovery of all the twenty-nine parcels of land left by Mateum, at the pre-trial the parties agreed that the controversy be limited to the ten parcels subject of the questioned sales, and the Trial Court ordered the exclusion of the nineteen other parcels from the action. 6 Of the ten parcels which remained in litigation, nine were assessed for purposes of taxation at values aggregating P10,500 00. The record does not disclose the assessed value of the tenth parcel, which has an area of 1,443 square meters. 7

On April 3, 1964, the private respondents, themselves collateral relatives of Mateum though more remote in degree than the petitioners, 2 registered with the Registry of Deeds for the Province of Cavite two deeds of sale purportedly executed by Mateum in their (respondents') favor covering ten parcels of land. Both deeds were in Tagalog, save for the English descriptions of the lands conveyed under one of them; and each recited the reconsideration of the sale to be" ... halagang ISANG PISO (Pl.00), salaping Pilipino, at mga naipaglingkod, ipinaglilingkod sa aking kapakanan ..." ("the sum of ONE PESO Pl.00), Philippine Currency, and services rendered, being rendered and to be rendered for my benefit"). One deed was dated February 6,1963 and covered five parcels of land, and the other was dated March 4, 1963, covering five other parcels, both, therefore, antedating Mateum's death by more than a year. 3 It is asserted by the petitioners, but denied by the respondents, that said sales notwithstanding,

In answer to the complaint, the defendants (respondents here) denied the alleged fictitious or fraudulent character of the sales in their favor, asserting that said sales were made for good and valuable consideration; that while "... they may have the effect of donations, yet the formalities and solemnities of donation are not required for their validity and effectivity, ... that defendants were collateral relatives of Hilario Mateum and had done many good things for him, nursing him in his last illness, which services constituted the bulk of the consideration of the sales; and (by way of affirmative defense) that the plaintiffs could not question or seek annulment of the sales because they were mere collateral relatives of the deceased vendor and were not bound, principally or subsidiarily, thereby. 8

After the plaintiffs had presented their evidence, the defendants filed a motion for dismissal in effect, a demurrer to the evidence reasserting the defense set up in their answer that the plaintiffs, as mere collateral relatives of Hilario Mateum, had no light to impugn the latter's disposition of his properties

by means of the questioned conveyances and submitting, additionally, that no evidence of fraud maintaining said transfers had been presented. 9

and quite another result obtains, as pointed out by the eminent civil law authority, Mr. Justice J.B.L. Reyes who, in his concurring opinion in Armentia, said:

The Trial Court granted the motion to dismiss, holding (a) on the authority of Armentia vs. Patriarca, 10 that the plaintiffs, as mere collateral relatives, not forced heirs, of Hilario Mateum, could not legally question the disposition made by said deceased during his lifetime, regardless of whether, as a matter of objective reality, said dispositions were valid or not; and (b) that the plaintiffs evidence of alleged fraud was insufficient, the fact that the deeds of sale each stated a consideration of only Pl.00 not being in itself evidence of fraud or simulation. 11

On appeal by the plaintiffs to the Court of Appeals, that court affirmed, adverting with approval to the Trial Court's reliance on the Armentia ruling which, it would appear, both courts saw as denying, without exception, to collaterals, of a decedent, not forced heirs, the right to impugn the latter's dispositions inter vivos of his property. The Appellate Court also analyzed the testimony of the plaintiffs' witnesses, declared that it failed to establish fraud of any kind or that Mateum had continued paying taxes on the lands in question even after executing the deeds conveying them to the defendants, and closed with the statement that "... since in duly notarized and registered deeds of sale consideration is presumed, we do not and it necessary to rule on the alternative allegations of the appellants that the said deed of sale were (sic) in reality donations. 12

I ... cannot bring myself to agree to the proposition that the heirs intestate would have no legal standing to contest the conveyance made by the deceased if the same were made without any consideration, or for a false and fictitious consideration. For under the Civil Code of the Philippines, Art. 1409, par. 3, contracts with a cause that did not exist at the time of the transaction are inexistent and void from the beginning. The same is true of contracts stating a false cause (consideration) unless the persons interested in upholding the contract should prove that there is another true and lawful consideration therefor. (lbid., Art. 1353).

If therefore the contract has no causa or consideration, or the causa is false and fictitious (and no true hidden causa is proved) the property allegedly conveyed never really leaves the patrimony of the transferor, and upon the latter's death without a testament, such property would pass to the transferor's heirs intestate and be recoverable by them or by the Administrator of the transferor's estate. In this particular regard, I think Concepcion vs. Sta. Ana, 87 Phil. 787 and Sobs vs. Chua Pua Hermanos, 50 Phil. 536, do not correctly state the present law, and must be clarified.

One issue clearly predominates here. It is whether, in view of the fact that, for properties assuredly worth in actual value many times over their total assessed valuation of more than P10,000.00, the questioned deeds of sale each state a price of only one peso (P1.00) plus unspecified past, present and future services to which no value is assigned, said deeds were void or inexistent from the beginning ("nulo") or merely voidable, that is, valid until annulled. If they were only voidable, then it is a correct proposition that since the vendor Mateum had no forced heirs whose legitimes may have been impaired, and the petitioners, his collateral relatives, not being bound either principally or subsidiarily to the terms of said deeds, the latter had and have no actionable right to question those transfers.

On the other hand, if said deeds were void ab initio because to all intents and purposes without consideration, then a different legal situation arises,

To be sure the quoted passage does not reject and is not to be construed as rejecting the Concepcion and Solis rulings 13 as outrightly erroneous, far from it. On the contrary, those rulings undoubtedly read and applied correctly the law extant in their time: Art. 1276 of the Civil Code of 1889 under which the statement of a false cause in a contract rendered it voidable only, not void ab initio. In observing that they "... do not correctly state the present law and must be clarified," Justice Reyes clearly had in mind the fact that the law as it is now (and already was in the time Armentia) no longer deems contracts with a false cause, or which are absolutely simulated or fictitious, merely voidable, but declares them void, i.e., inexistent ("nulo") unless it is shown that they are supported by another true and lawful cause or consideration. 14 A logical consequence of that change is the juridical status of contracts without, or with a false, cause is that conveyances of property affected with such a vice cannot operate to divest and transfer ownership, even if unimpugned. If afterwards the transferor dies the property descends to his heirs, and without regard to the manner in which they are called to the succession, said heirs may bring an

action to recover the property from the purported transferee. As pointed out, such an action is not founded on fraud, but on the premise that the property never leaves the estate of the transferor and is transmitted upon his death to heirs, who would labor under no incapacity to maintain the action from the mere fact that they may be only collateral relatives and bound neither principally or subsidiarily under the deed or contract of conveyance.

1. advert to a decision of the Court of Appeals in Montinola vs. Herbosa (59 O.G. No. 47, pp, 8101, 8118) holding that a price of P l.00 for the sale of things worth at least P20,000.00 is so insignificant as to amount to no price at all, and does not satisfy the law which, while not requiring for the validity of a sale that the price be adequate, prescribes that it must be real, not fictitious, stressing the obvious parallel between that case and the present one in stated price and actual value of the property sold;

In Armentia the Court determined that the conveyance questioned was merely annullable not void ab initio, and that the plaintiff s action was based on fraud vitiating said conveyance. The Court said:

Hypothetically admitting the truth of these allegations (of plaintiffs complaint), the conclusion is irresistible that the sale is merely voidable. Because Marta Armentia executed the document, and this is not controverted by plaintiff. Besides, the fact that the vendees were minors, makes the contract, at worst, annullable by them, Then again, inadequacy of consideration does not imply total want of consideration. Without more, the parted acts of Marta Armentia after the sale did not indicate that the said sale was void from the being.

2. cite Manresa to the same effect: that true price, which is essential to the validity of a sale, means existent, real and effective price, that which does not consist in an insignificant amount as, say, P.20 for a house; that it is not the same as the concept of a just price which entails weighing and measuring, for economic equivalence, the amount of price against all the factors that determine the value of the thing sold; but that there is no need of such a close examination when the immense disproportion between such economic values is patent a case of insignificant or ridiculous price, the unbelievable amount of which at once points out its inexistence; 15

The sum total of all these is that, in essence, plaintiffs case is bottomed on fraud, which renders the contract voidable.

3. assert that Art. 1458 of the Civil Code, in prescribing that a sale be for a ... price certain in money or its equivalent ... requires that "equivalent" be something representative of money, e.g., a check or draft, again citing Manresa 16 to the effect that services are not the equivalent of money insofar as said requirement is concerned and that a contract is not a true sale where the price consists of services or prestations;

It therefore seems clear that insofar as it may be considered as setting or reaffirming precedent, Armentia only ruled that transfers made by a decedent in his lifetime, which are voidable for having been fraudulently made or obtained, cannot be posthumously impugned by collateral relatives succeeding to his estate who are not principally or subsidiarily bound by such transfers. For the reasons already stated, that ruling is not extendible to transfers which, though made under closely similar circumstances, are void ab initio for lack or falsity of consideration.

4. once more citing Manresa 17 also point out that the "services" mentioned in the questioned deeds of sale are not only vague and uncertain, but are unknown and not susceptible of determination without the necessity of a new agreement between the parties to said deeds.

The petitioners here argue on a broad front that the very recitals of the questioned deeds of sale reveal such want or spuriousness of consideration and therefore the void character of said sales. They:

Without necessarily according all these assertions its full concurrence, but upon the consideration alone that the apparent gross, not to say enormous, disproportion between the stipulated price (in each deed) of P l.00 plus unspecified and unquantified services and the undisputably valuable real estate allegedly sold worth at least P10,500.00 going only by assessments for tax purposes which, it is wellknown, are notoriously low indicators of actual value plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no other true and lawful cause having been shown, the Court finds both said deeds, insofar as they

purport to be sales, not merely voidable, but void ab initio.

Neither can the validity of said conveyances be defended on the theory that their true causa is the liberality of the transferor and they may be considered in reality donations 18 because the law 19 also prescribes that donations of immovable property, to be valid, must be made and accepted in a public instrument, and it is not denied by the respondents that there has been no such acceptance which they claim is not required. 20

As the record clearly demonstrates, the respondents not only failed to offer any proof whatsoever, opting to rely on a demurrer to the petitioner's evidence and upon the thesis, which they have maintained all the way to this Court, that petitioners, being mere collateral relatives of the deceased transferor, were without right to the conveyances in question. In effect, they gambled their right to adduce evidence on a dismissal in the Trial Court and lost, it being the rule that when a dismissal thus obtained is reversed on appeal, the movant loses the right to present evidence in his behalf. 23

The transfers in question being void, it follows as a necessary consequence and conformably to the concurring opinion in Armentia, with which the Court fully agrees, that the properties purportedly conveyed remained part of the estate of Hilario Mateum, said transfers notwithstanding, recoverable by his intestate heirs, the petitioners herein, whose status as such is not challenged.

The private respondents have only themselves to blame for the lack of proof that might have saved the questioned transfers from the taint of invalidity as being fictitious and without ilicit cause; proof, to be brief, of the character and value of the services, past, present, and future, constituting according to the very terms of said transfers the principal consideration therefor. The petitioners' complaint (par. 6) 21 averred that the transfers were "... fraudulent, fictitious and/or falsified and (were) ... in reality donations of immovables ...," an averment that the private respondents not only specifically denied, alleging that the transfers had been made "... for good and valuable consideration ...," but to which they also interposed the affirmative defenses that said transfers were "... valid, binding and effective ...," and, in an obvious reference to the services mentioned in the deeds, that they "... had done many good things to (the transferor) during his lifetime, nursed him during his ripe years and took care of him during his previous and last illness ...," (pars. 4, 6, 16 and 17, their answer).lwph1.t 22 The onus, therefore, of showing the existence of valid and illicit consideration for the questioned conveyances rested on the private respondents. But even on a contrary assumption, and positing that the petitioners initially had the burden of showing that the transfers lacked such consideration as they alleged in their complaint, that burden was shifted to the private respondents when the petitioners presented the deeds which they claimed showed that defect on their face and it became the duty of said respondents to offer evidence of existent lawful consideration.

WHEREFORE, the appealed Decision of the Court of Appeals is reversed. The questioned transfers are declared void and of no force or effect. Such certificates of title as the private respondents may have obtained over the properties subject of said transfers are hereby annulled, and said respondents are ordered to return to the petitioners possession of an the properties involved in tills action, to account to the petitioners for the fruits thereof during the period of their possession, and to pay the costs. No damages, attorney's fees or litigation expenses are awarded, there being no evidence thereof before the Court.

SO ORDERED.

Cruz, Gancayco, Gri;o-Aquino and Medialdea, JJ., concur. XXXXXXXXXXXXXXXXXX

b. G.R. No. L-55999 August 24, 1984

(administered by the Ladanga spouses) which purportedly was sold to Salvacion for P26,000 (Exh. C). The total price involved in the nine deeds of sale and in the tenth sale executed on November 8, 1974 was P92,200.

SPOUSES SALVACION SERRANO LADANGA and AGUSTIN S. LADANGA, petitioners, vs. COURT OF APPEALS and BERNARDO S. ASENETA, as Guardian of the Incompetent CLEMENCIA A. ASENETA, respondents. On the witness stand, Clemencia denied having "received even one centavo" of the price of P26,000 (15, 16, 32 tsn August 16, 1976), much less the P92,000. She considered the allegation that she received the price as a he, exclaiming on the witness stand: "Susmaryosep! P92,000!" (15, 28-30 tsn August 16, 1976). This testimony was corroborated by Soledad L. Maninang, 69, a dentist with whom Clemencia had lived for more than thirty years in Kamuning, Quezon City.

Venusto P. France and Ambrosia Padilla, Mempia, Reyes & Equidez Law Office for petitioners.

Agrava, Lucero & Gineta for private respondents.

The notary testified that the deed of sale for the Paco property was signed in the office of the Quezon City registry of deeds. He did not see Salvacion giving any money to Clemencia.

AQUINO, J.: In May, 1975, Bernardo as guardian of Clemencia, filed an action for reconveyance of the Paco property, accounting of the rentals and damages. Clemencia was not mentally incompetent but she was placed under guardianship because she was an easy prey for exploitation and deceit.

The spouses Salvacion Serrano and Doctor Agustin S. Ladanga appealed from the decision of the Court of Appeals (affirming the decision of the Manila Court of First Instance), declaring void the sale to Salvacion by her aunt, Clemencia A. Aseneta, of the 166-square-meter lot with a house located at 1238 Sison Street, Paco, Manila for non-payment of the price of P26,000. It ordered the register of deeds of Manila to issue a new title to Clemencia.

The said spouses were further ordered to pay to Clemencia's estate P21,000 as moral and exemplary damages and attorney's fees and to render to Bernardo an accounting of the rentals of the property from April 6, 1974.

Parenthetically, it should be stated that she died on May 21, 1977 at the age of 80. She allegedly bequeathed her properties in a holographic will dated November 23, 1973 to Doctor Maninang. In that will she disinherited Bernardo. The will was presented for probate (Exh. 22-A and 22-C).

The Appellate Court and Judge Jose C. Colayco found that Clemencia, a spinster who retired as division superintendent of public schools at 65 in 1961, had a nephew named Bernardo S. Aseneta, the child of her sister Gloria, and a niece named Salvacion, the daughter of her sister Flora. She legally adopted Bernardo in 1961 (Exh. B).

The testate case was consolidated with the intestate proceeding filed by Bernardo in the sala of Judge Ricardo L. Pronove at Pasig, Rizal. He dismissed the testate case. He appointed Bernardo as administrator in the intestate case (p. 23, Bernardo's brief).

On a single date, April 6, 1974 (when Clemencia was about 78 years old), she signed nine deeds of sale in favor of Salvacion for various real properties. One deed of sale concerned the said Paco property

As already stated, in the instant case, the trial court and the Appellate Court declared void the sale of the Paco property. The Ladanga spouses contend that the Appellate Court disregarded the rule on burden of proof. This contention is devoid of merit because Clemencia herself testified that the price of P26,000 was not paid to her. The burden of the evidence shifted to the Ladanga spouses. They were

not able to prove the payment of that amount. The sale was fictitious.

Judge Colayco concluded that the Ladangas abused Clemencia's confidence and defrauded her of properties with a market value of P393,559.25 when she was already 78 years old.

The Ladanga spouses argue that the Appellate Court erred in not considering that inadequacy of price may indicate a donation or some other contract; in disregarding the presumption that the sale was fair and regular and for a sufficient consideration; in overlooking important facts and in not holding that Bernardo had no right to file a complaint to annul the sale.

The contention that Bernardo had no right to institute the instant action because he was not a compulsory heir of Clemencia cannot be sustained. Bernardo was Clemencia's adopted son. Moreover, Clemencia, by testifying in this case, tacitly approved the action brought in her behalf.

As a rule, only important legal issues, as contemplated in section 4, Rule 45 of the Rules of Court, may be raised in a review of the Appellate Court's decision. This case does not fall within any of the exceptions to that rule (2 Moran's Comments on the Rules of Court, 1979 Ed. p. 475; Ramos vs. Pepsi-Cola Bottling Co., 125 Phil. 701).

But the moral damages awarded by the trial court is not sanctioned by articles 2217 to 2220 of the Civil Code. Clemencia's own signature in the deed brought about the mess within which she was entangled.

The questions ventilated by the Ladangas in their briefs and in their comment of April 3, 1984 may be reduced to the issue of the validity of the sale which the vendor Clemencia herself assailed in her testimony on August 16 and December 3, 1976 when she was eighty years old. Her testimony and that of the notary leave no doubt that the price of P26,000 was never paid.

WHEREFORE, the judgment of the Appellate Court is affirmed with the modification that the adjudication for moral and exemplary damages is discarded. No costs.

SO ORDERED.

Concepcion, Jr., Guerrero, Escolin and Cuevas, JJ., concur. A contract of sale is void and produces no effect whatsoever where the price, which appears therein as paid, has in fact never been paid by the purchaser to the vendor (Meneses Vda. de Catindig vs. Heirs of Catalina Roque, L-25777, November 26, 1976, 74 SCRA 83, 88; Mapalo vs. Mapalo, 123 Phil. 979, 987; Syllabus, Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921).

Makasiar, J., (Chairman) and Abad Santos, JJ., took no part. XXXXXXXXXXXXXXXXXX

Such a sale is inexistent and cannot be considered consummated (Borromeo' vs. Borromeo, 98 Phil. 432; Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229).

It was not shown that Clemencia intended to donate the Paco property to the Ladangas. Her testimony and the notary's testimony destroyed any presumption that the sale was fair and regular and for a true consideration.

C. HOW PRICE IS DETERMINED D. INADEQUACY OF PRICE: Articles 1355 1470 a. G.R. No. L-47717 May 2, 1988

IGNACIO PASCUA, and URSULA DUGAY, in representation of her deceased husband CATALINO DUGAY,petitioners, vs. HEIRS OF SEGUNDO SIMEON, HON. JUDGE ANACLETO ALZATE, Tarlac Court of First Instance, PROVINCIAL SHERIFF OF TARLAC, and REGISTER OF DEEDS OF TARLAC, respondents.

CORTES, J.: Judgement was rendered in a civil case in 1969. Real properties belonging to the judgment debtors were levied upon and sold on execution to satisfy the judgment debt. To this day, however, the highest bidders at the public auction have yet to enjoy the properties sold to them. Petitioners were among the defendants in Civil Case No. 3606 before the Court of First Instance of Tarlac, Branch II, Judge Anacleto B. Alzate, presiding, while private respondents are the heirs of the plaintiff in said civil case. On June 28,1969, judgment was rendered in favor of respondents and against the defendants therein ordering the latter to pay P19,720.00. The defendants appealed to the Court of A appeals but for failure of their counsel to submit the brief within the reglementary period, the appeal was dismissed and the case was remanded to the trial court for execution of judgment. To satisfy the judgment, twenty (20) parcels of land were levied upon and then sold at public auction in which the highest bidders were the respondents. As the judgment debtors failed to redeem the properties within the twelve-month period, the Provincial Sheriff of Tarlac issued a Certificate of Absolute Sale on February 20, 1972. On motion, Judge Alzate ordered on January 21, 1973 the issuance of a writ of possession. However, the defendants/judgment debtors would not vacate the premises. So, on May 23, 1973, respondents filed a motion before the trial court to declare the defendants in contempt of court. Resolving the motion, Judge Alzate issued an order dated January, 13,1978, which reads: Resolving, therefore, the aforementioned motion to declare defendants in contempt of court, this Court rules that for refusing to

obey the writ of possession issued by this court on January 21, 1973, defendants Bruno Dugay, Pacifico Dugay, Maximo Dugay, Ignacio Pascua, and Ursula Dugay are liable for contempt of court as defined and penalized under Section 3(b) and 7, Rule 71, New Rules of Court. However, tempering justice with compassion and mercy, this Court is disposed to give said defendants another chance to deliver to the plaintiffs the possession of that portion of the properties embodied in the Certificate of Absolute Sale dated February 20, 1972 over which said defendants had rights and interests when the same was sold to the Plaintiffs at public auction, and for this purpose let an alias writ of Possession issue immediately to be served by the Provincial Sheriff of Tarlac or his deputy to said defendants within fifteen (15) days from today and make a return to the Court upon service thereof. And if said defendants refuse to obey said alias writ of possession, this Court will be constrained, much to its regret, to declare them in contempt of court and order them to be committed to the provincial jail of Tarlac and to remain therein until they obey said alias writ of possession. Send a copy of this order to each of the aforementioned defendants as well as their counsel by registered-special delivery mail for their information and guidance. SO ORDERED. From the aforequoted order, petitioners come to this Court praying that: a. Respondent Judge Anacleto Alzate and the Provincial Sheriff of Tarlac be ordered to desist from executing the order of January 13, 1978; b. Setting aside technicality, to order respondents heirs of Segundo Simeon to accept the amount of P19,720.00 instead of their preference of being given possession and ownership over the said 20 parcels of land; c. To order the Register of Deeds of Tarlac to cancel the annotation of the auction sale in favor of respondent heirs of Segundo Simeon upon payment of the

assessed value and bid price of P19,720.00 corresponding to the pro rata shares of herein petitioners annotated at the back of their titles; xxx xxx xxx (Petition, pp. 3-4.) On February 1, 1978, this tribunal issued a temporary restraining order enjoining the enforcement of the questioned order of respondent judge. 1. Petitioners first ask this Court to enjoin Respondent Judge Alzate and the Provincial Sheriff of Tarlac from enforcing the order of January 13, 1978. A scrutiny of the dispositive portion of the order quoted above shows that it consists of essentially three parts, to wit: a. Declaring Bruno Dugay, Pacifico Dugay, Ignacio Pascua and Ursula Dugay in contempt of court. b. Ordering the issuance of an alias writ of possession directed to the Provincial Sheriff. c. If said defendants refuse to obey said alias writ of possession, the CFI would be constrained to declare them in contempt of court and order them committed in jail. Even as the court found petitioners guilty of contempt of court, no penalty was imposed for reasons of "compassion and mercy." Obviously, petitioners do not question such order. It may be stated, however, that the mere refusal or unwillingness on the part of petitioners to relinquish the properties would not constitute contempt. The contumacious act punishable under Rule 71, Section 3(b) is: (b) Disobedience of or resistance to a lawful writ, process, order, judgment or command of a court, or injunction granted by a court or judge, including the act of a person who after being dispossessed or ejected from any real property by the judgment or process of any court of competent jurisdiction, enters or attempts or induces another to enter into or upon such real property, for the purpose of executing acts of ownership or possession, or in any manner disturbs the possession given to the

person adjudged to be entitled thereto; Note that the writ of possession was directed not to petitioners, but to the sheriff for him to deliver the properties to respondents. As the writ did not command the petitioners to do anything, they cannot be held guilty of "disobedience of or resistance to a lawful writ, process, order, judgment or command of a court." The proper procedure if the petitioners refuse to deliver possession of the lands is not for the court to cite them for contempt but for the sheriff to dispossess them of the premises and deliver the possession thereof to the respondents. However, if subsequent to such dispossesion., petitioners enter into or upon the properties for the purpose of executing acts of ownership or possession or in any manner disturb the possession of respondents, then and only then may they be charged with and punished for contempt. [See Moslem v. Soriano, G.R. No. L-36837, August 17, 1983, 124 SCRA 190; Rom v. Cobadora, G.R. No. L-24764, July 17, 1969, 28 SCRA 758; Chinese Commercial Co. v. Martinez, G.R. No. L-18565, November 30, 1962, 6 SCRA 848.] The second part of the order directing the issuance of an alias writ of possession, is proper. Under the Rules of Court, if no redemption is made within twelve months after the sale, the purchaser is entitled not only to conveyance but possession of the property [Rule 39, Sec. 35.]. Petitioners admit that they failed to redeem the properties sold on execution within the twelve-month redemption period. Hence, respondents are entitled, as a matter of right, to possession of the lands. The Court thus rules that the trial judge committed no error in ordering the issuance of an alias writ of possession. The third part of the order partakes of the nature of a "conditional judgment," the citation for contempt being dependent upon the happening of a future event, namely, "petitioners' refusal to obey (the) alias writ of possession." Being a conditional judgment, it is null and void. [Cu Unjieng e Hijos v. Mabalacat Sugar Co., 70 Phil. 381 (1940).] Moreover, as stated above, refusal to relinquish possession does not constitute contempt, as the alia s writ is directed to the sheriff and not to petitioners. 2. Anent the second and third reliefs prayed for, it is certainly outside the power of this Court to order private respondents to accept P19,720. 00, instead of recognizing their right to possess the lands they bought at public auction. The Rules of Court are clear that "(i)f no redemption is made within twelve (12) months after the sale, the purchaser, or his assignee, is entitled to conveyance and possession of the property" [Rule 39, Sec. 35.].

By asking that respondents be ordered to accept payment of P 19,720. 00, the original judgment debt, petitioners are in effect asking that the execution sale, which is the source of respondents' right to possess the properties, be set aside, at least insofar as it may affect the properties pertaining to petitioners. Petitioners buttress their position by alleging that the properties sold for only P19,720.00 were actually worth P100,000.00 in 1978, the time when the case was called for hearing before this Court. (The amount was later raised to P200,000.00.) [Rollo, p. 40.] It has been held that a "judicial sale of real estate win not be set aside for gross inadequacy of price unless the inadequacy be so great as to shock the conscience or unless there be additional circumstances against its fairness. [Warner, Barnes and Co. v. Santos, 14 Phil. 446 (1909); Pingol, et al. v. Tigno, Ft. al., 108 Phil. 623 (1960).<re||an1w> See also Art. 1470, Civil Code.] Granting that the actual market value of the properties in 1978, or several years after the execution sale, is the amount quoted by petitioners, the bid price was not so grossly inadequate as to shock the minds of impartial men, especially considering the inflation rate during the intervening period. Besides as the petitioners have continued to enjoy the properties and their fruits to this date. One last bid was made to encourage the parties to reach an amicable settlement when the Court called the parties to a hearing on April 17, 1978. Unfortunately, no compromise was reached. [Manifestation of petitioners dated May 16, 1978; Manifestation of respondents dated May 19, 1978.] WHEREFORE, the questioned Order of January 13,1978 is AFFIRMED only insofar as it directed the issuance of an alias writ of possession. The Temporary Restraining Order issued on February 1, 1978 is hereby LIFTED. Let the court of origin forthwith issue an alias writ of possession. No costs. XXXXXXXXXXXXXXXXXX

b. G.R. No. 103338 January 4, 1994

FEDERICO SERRA, petitioner, vs. THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION, respondents. Andres R. Amante, Jr. for petitioner. R.C. Domingo, respondent. Jr. & Associates for private

NOCON, J.: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. (Article 1479, New Civil Code) The first is the mutual promise and each has the right to demand from the other the fulfillment of the obligation. While the second is merely an offer of one to another, which if accepted, would create an obligation to the offeror to make good his promise, provided the acceptance is supported by a consideration distinct from the price. Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered into between petitioner Federico Serra and private respondent Rizal Commercial Banking Corporation. (RCBC). Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the parties, the pertinent portion of which reads: 1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease, the parcel of land described in the first WHEREAS clause, to have and to hold the same for a period of twenty-five (25) years commencing from June 1, 1975 to June 1, 2000. The LESSEE, however, shall have the option to purchase said parcel of land within a period of ten (10) years from the date of the signing of this Contract at a price not greater than TWO HUNDRED TEN PESOS (P210.00) per square meter. For this purpose, the LESSOR

undertakes, within such ten-year period, to register said parcel of land under the TORRENS SYSTEM and all expenses appurtenant thereto shall be for his sole account. If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within the aforementioned ten-year period, the LESSEE shall have the right, upon termination of the lease to be paid by the LESSOR the market value of the building and improvements constructed on said parcel of land. The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of land under the TORRENS SYSTEM in case the LESSOR, for any reason, fails to comply with his obligation to effect said registration within reasonable time after the signing of this Agreement, and all expenses appurtenant to such registration shall be charged by the LESSEE against the rentals due to the LESSOR. 2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's residence, a monthly rental of SEVEN HUNDRED PESOS (P700.00), Philippine Currency, payable in advance on or before the fifth (5th) day of every calendar month, provided that the rentals for the first four (4) months shall be paid by the LESSEE in advance upon the signing of this Contract. 3. The LESSEE is hereby authorized to construct as its sole expense a building and such other improvements on said parcel of land, which it may need in pursuance of its business and/or operations; provided, that if for any reason the LESSEE shall fail to exercise its option mentioned in paragraph (1) above in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period mentioned therein, said building and/or improvements, shall become the property of the LESSOR after the expiration of the 25-year lease period without the right of reimbursement on the part of the LESSEE. The authority herein granted does not, however, extend to the making or allowing any unlawful,

improper or offensive used of the leased premises, or any use thereof, other than banking and office purposes. The maintenance and upkeep of such building, structure and improvements shall likewise be for the sole account of the LESSEE. 1 The foregoing agreement was subscribed before Notary Public Romeo F. Natividad. Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his part of the agreement by having the property registered and placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued by the Register of Deeds of the Province of Masbate. Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank decided to exercise its option and informed petitioner, through a letter, 2 of its intention to buy the property at the agreed price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied that he is no longer selling the property. 3 Hence, on March 14, 1985, a complaint for specific performance and damages were filed by respondent against petitioner. In the complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends to stay permanently on property once its branch office is opened unless the exigencies of the business requires otherwise. Aside from its prayer for specific performance, it likewise asked for an award of P50,000.00 for attorney's fees P100,000.00 as exemplary damages and the cost of the suit. 4 A special and affirmative defenses, petitioner contended: 1. That the contract having been prepared and drawn by RCBC, it took undue advantage on him when it set in lopsided terms. 2. That the option was not supported by any consideration distinct from the price and hence not binding upon him. 3. That as a condition for the validity and/or efficacy of the option, it should have been exercised within the reasonable time after the registration of the land under the

Torrens System; that its delayed action on the option have forfeited whatever its claim to the same. 4. That extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of the currency that could not reasonably be forseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation, thus, rendering the terms of the contract unenforceable, inequitable and to the undue enrichment of RCBC. 5 and as counterclaim petitioner alleged that: 1. The rental of P700.00 has become unrealistic and unreasonable, that justice and equity will require its adjustment. 2. By the institution of the complaint he suffered moral damages which may be assessed at P100,000.00 and award of attorney's fee of P25,000.00 and exemplary damages at 6 P100,000.00. Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract to be valid, the court nonetheless ruled that the option to buy in unenforceable because it lacked a consideration distinct from the price and RCBC did not exercise its option within reasonable time. The prayer for readjustment of rental was denied, as well as that for moral and exemplary damages. 7 Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9, 1989, reversed itself, the dispositive portion reads: WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders judgment as follows: 1. The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of plaintiff selling, transferring and conveying the property covered by and described in the Original Certificate of Title 0-232 of the Registry of Deeds of Masbate for the sum of Seventy Eight Thousand Five Hundred Forty Pesos (P78,540,00), Philippine Currency; 2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as attorney's fees;

3. The counter claim of defendant is hereby dismissed; and 4. Defendants shall pay the costs of suit. 8 In a decision promulgated on September 19, 1991, 9 the Court of Appeals affirmed the findings of the trial court that: 1. The contract is valid and that the parties perfectly understood the contents thereof; 2. The option is supported by a distinct and separate consideration as embodied in the agreement; 3. There is no basis in granting an adjustment in rental. Assailing the judgment of the appellate court, petitioner would like us to consider mainly the following: 1. The disputed contract is a contract of adhesion. 2. There was no consideration to support the option, distinct from the price, hence the option cannot be exercised. 3. Respondent court gravely abused its discretion in not granting currency adjustment on the already eroded value of the stipulated rentals for twenty-five years. The petition is devoid of merit. There is no dispute that the contract is valid and existing between the parties, as found by both the trial court and the appellate court. Neither do we find the terms of the contract unfairly lopsided to have it ignored. A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically one-sided. 10 We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time of the trial was already a CPALawyer, and when he entered into the contract, was already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident

that a man of his stature should have been more cautious in transactions he enters into, particularly where it concerns valuable properties. He is amply equipped to drive a hard bargain if he would be so minded to. Petitioner contends that the doctrines laid down in the cases of 11 Atkins Kroll v. Cua Hian Tek, Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were misapplied in the present case, because 1) the option given to the respondent bank was not supported by a consideration distinct from the price; and 2) that the stipulated price of "not greater than P210.00 per square meter" is not certain or definite. Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise issupported by a consideration distinct from the price. In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price which is certain. 14 In which case, the parties may then reciprocally demand performance. Jurisprudence has taught us that an optional contract is a privilege existing only in one party the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the time expires. 15 On the other hand, what may be regarded as a consideration separate from the price is discussed in the case of Vda. de Quirino v. Palarca 16 wherein the facts are almost on all fours with the case at bar. The said case also involved a lease contract with option to buy where we had occasion to say that "the consideration for the lessor's obligation to sell the leased premises to the lessee, should he choose to exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building and/or improvements constructed and/or made by the former, if he fails to exercise his option to buy leased premises." 17

In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the period stipulated. 18 The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A price is considered certain if it is so with reference to another thing certain or when the determination thereof is left to the judgment of a specified person or persons. 19 And generally, gross inadequacy of price does not affect a contract of sale. 20 Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square meter. This was confirmed by petitioner himself in his testimony, as follows: Q. Will you please tell this Court what was the offer? A. It was an offer to buy the property that I have in Quezon City (sic). Q. And did they give you a specific amount? xxx xxx xxx A. Well, there was an offer to buy the property at P210 per square meters (sic). Q. And that was in what year? A . 1975, sir. Q. And did you accept the offer? A. Yes, sir. 21 Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager to effect the sale immediately, means that he understood perfectly the terms of the contract. He even had the same property mortgaged to the respondent bank sometime in 1979, without the slightest hint of wanting to abandon his offer to sell the property at the agreed price of P210 per square meter. 22

Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in an extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. 23 Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between petitioner and respondent bank is valid, effective and enforceable, the price being certain and that there was consideration distinct from the price to support the option given to the lessee. WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is hereby AFFIRMED. XXXXXXXXXXXXXXXXXX