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ROSENCOR v.

INQUING
Facts: The plaintiffs herein are the lessees
of the subject disputed property. The late
spouses Tiangcos were the original owners
of the subject property. They had a verbal
lease agreement with the lessees herein
that the latter would have the right of first
refusal in the event that the spouses
Tiangco would sell the property with the
other buyers. The heirs of the spouses
Tiangco sold the subject property with
Rosencor. The lessees protested that they
have the right of first refusal which the
heirs of the Tiangcos ignored. They also
imputed bad faith to Rosencor. Hence, this
petition.
Issue:May a contract of sale entered into
in violation of a third partys right of first
refusal be rescinded in order that such
third party can exercise said right?
Held: Thus, the prevailing doctrine, as
enunciated in the cited cases, is that a
contract of sale entered into in violation of
a right of first refusal of another person,
while valid, is rescissible.
There is, however, a circumstance which
prevents the application of this doctrine in
the case at bench. In the cases cited
above, the Court ordered the rescission of
sales made in violation of a right of first
refusal precisely because the vendees
therein could not have acted in good
faith as they were aware or should have
been aware of the right of first refusal
granted to another person by the
vendors therein. The rationale for this is
found in the provisions of the New Civil
Code on rescissible contracts. Under
Article 1381 of the New Civil Code,
paragraph 3, a contract validly agreed
upon may be rescinded if it is
undertaken in fraud of creditors when

the latter cannot in any manner collect


the claim due them. Moreover, under
Article 1385, rescission shall not take
place when the things which are the
object of the contract are legally in the
possession of third persons who did not
act in bad faith.
It must be borne in mind that, unlike the
cases cited above, the right of first refusal
involved in the instant case was an oral
one given to respondents by the deceased
spouses Tiangco and subsequently
recognized by their heirs. As such, in
order to hold that petitioners were in
bad faith, there must be clear and
convincing proof that petitioners were
made aware of the said right of first
refusal either by the respondents or by
the heirs of the spouses Tiangco.
It is axiomatic that good faith is always
presumed unless contrary evidence is
adduced. A purchaser in good faith is one
who buys the property of another without
notice that some other person has a right
or interest in such a property and pays a
full and fair price at the time of the
purchase or before he has notice of the
claim or interest of some other person in
the property. In this regard, the rule on
constructive
notice
would
be
inapplicable as it is undisputed that the
right of first refusal was an oral one
and that the same was never reduced to
writing, much less registered with the
Registry of Deeds. In fact, even the
lease contract by which respondents
derive their right to possess the
property involved was an oral one.
On this point, we hold that the evidence
on record fails to show that petitioners
acted in bad faith in entering into the deed
of sale over the disputed property with the
heirs
of
the
spouses
Tiangco. Respondents failed to present
any evidence that prior to the sale of the

property on September 4, 1990, petitioners


were aware or had notice of the oral right
of first refusal.
Respondents point to the letter dated June
1, 1990[33] as indicative of petitioners
knowledge of the said right. In this letter,
a certain Atty. Erlinda Aguila demanded
that respondent Irene Guillermo vacate the
structure they were occupying to make
way for its demolition.
We fail to see how the letter could give
rise to bad faith on the part of the
petitioner. No mention is made of the
right of first refusal granted to
respondents. The name of petitioner
Rosencor or any of it officers did not
appear on the letter and the letter did
not state that Atty. Aguila was writing
in behalf of petitioner. In fact, Atty.
Aguila stated during trial that she
wrote the letter in behalf of the heirs of
the spouses Tiangco. Moreover, even
assuming that Atty. Aguila was indeed
writing in behalf of petitioner Rosencor,
there is no showing that Rosencor was
aware at that time that such a right of
first refusal existed.
Neither was there any showing that
after receipt of this June 1, 1990 letter,
respondents notified Rosencor or Atty.
Aguila of their right of first refusal over
the property. Respondents did not try
to communicate with Atty. Aguila and
inform her about their preferential
right over the disputed property. There
is even no showing that they contacted
the heirs of the spouses Tiangco after
they received this letter to remind them
of their right over the property.
Respondents likewise point to the letter
dated October 9, 1990 of Eufrocina de
Leon, where she recognized the right of
first refusal of respondents, as indicative
of the bad faith of petitioners. We do not

agree. Eufrocina de Leon wrote the


letter on her own behalf and not on
behalf of petitioners and, as such, it
only shows that Eufrocina de Leon was
aware of the existence of the oral right
of first refusal. It does not show that
petitioners were likewise aware of the
existence of the said right. Moreover,
the letter was made a month after the
execution of the Deed of Absolute Sale
on September 4, 1990 between
petitioner Rosencor and the heirs of the
spouses Tiangco. There is no showing
that prior to the date of the execution of
the said Deed, petitioners were put on
notice of the existence of the right of
first refusal.
Clearly, if there was any indication of bad
faith based on respondents evidence, it
would only be on the part of Eufrocina de
Leon as she was aware of the right of first
refusal of respondents yet she still sold the
disputed property to Rosencor. However,
bad faith on the part of Eufrocina de
Leon does not mean that petitioner
Rosencor likewise acted in bad
faith. There is no showing that prior to
the execution of the Deed of Absolute
Sale, petitioners were made aware or
put on notice of the existence of the oral
right of first refusal. Thus, absent clear
and convincing evidence to the
contrary, petitioner Rosencor will be
presumed to have acted in good faith in
entering into the Deed of Absolute Sale
over the disputed property.
Considering that there is no showing of
bad faith on the part of the petitioners, the
Court of Appeals thus erred in ordering
the rescission of the Deed of Absolute
Sale dated September 4, 1990 between
petitioner Rosencor and the heirs of the
spouses Tiangco. The acquisition by
Rosencor of the property subject of the
right of first refusal is an obstacle to the

action for its rescission where, as in this


case, it was shown that Rosencor is in
lawful possession of the subject of the
contract and that it did not act in bad
faith.
This does not mean however that
respondents are left without any remedy
for the unjustified violation of their right
of first refusal. Their remedy however is
not an action for the rescission of the
Deed of Absolute Sale but an action for
damages against the heirs of the spouses
Tiangco for the unjustified disregard of
their right of first refusal.
KHE HONG CHENG v. CA
Facts: In said case, Philam filed an action
for collection against Khe Hong Cheng.
While the case was still pending, or on
December 20, 1989, Khe Hong Cheng,
executed deeds of donations over parcels
of land in favor of his children, and on
December 27, 1989, said deeds were
registered. Thereafter, new titles were
issued in the names of Khe Hong Chengs
children. Then, the decision became final
and executory. But upon enforcement of
writ of execution, Philam found out that
Khe Hong Cheng no longer had any
property in his name. Thus, on February
25, 1997, Philam filed an action for
rescission of the deeds of donation against
Khe Hong Cheng alleging that such was
made in fraud of creditors. However, Khe
Hong Cheng moved for the dismissal of
the action averring that it has already
prescribed since the four-year prescriptive
period for filing an action for rescission
pursuant to Article 1389 of the Civil Code
commenced to run from the time the deeds
of donation were registered on December
27, 1989. Khe Hong Cheng averred that
registration amounts to constructive notice
and since the complaint was filed only on
February 25, 1997, or more than four (4)

years after said registration, the action was


already barred by prescription. The trial
court ruled that the complaint had not yet
prescribed since the prescriptive period
began to run only from December 29,
1993, the date of the decision of the trial
court. Such decision was affirmed by this
court but reckoned the accrual of Philam's
cause of action in January 1997, the time
when it first learned that the judgment
award could not be satisfied because the
judgment creditor, Khe Hong Cheng, had
no more properties in his name. Hence,
the case reached the Supreme Court.
Issue: W/N CA erred in ruling that the
donation inter vivos of Lot No. 4709 and
half of Lot No. 4706 in favor of Florante
may only be rescinded if there is already a
judicial determination that the same
actually belonged to the estate of Spouses
Baylon.
Issue: When did the four (4) year
prescriptive period as provided for in
Article 1389 of the Civil Code for
respondent Philam to file its action for
rescission of the subject deeds of donation
commence to run?
Held: The petition is without merit.
Article 1389 of the Civil Code simply
provides that, The action to claim
rescission must be commenced within
four years. Since this provision of law is
silent as to when the prescriptive period
would commence, the general rule, i.e,
from the moment the cause of action
accrues, therefore, applies. Article 1150
of the Civil Code is particularly
instructive:
Art. 1150. The time for prescription for
all kinds of actions, when there is no
special provision which ordains

otherwise, shall be counted from the


day they may be brought.
Indeed, this Court enunciated the principle
that it is the legal possibility of bringing
the action which determines the starting
point for the computation of the
prescriptive period for the action.
Article 1383 of the Civil Code provides as
follows:
Art. 1383. An action for rescission is
subsidiary; it cannot be instituted
except when the party suffering damage
has no other legal means to obtain
reparation for the same.
It is thus apparent that an action to rescind
or an accion pauliana must be of last
resort, availed of only after all other legal
remedies have been exhausted and have
been proven futile. For an accion
pauliana to
accrue,
the
following
requisites must concur:
1) That the plaintiff asking for rescission
has a credit prior to the alienation,
although demandable later; 2) That the
debtor has made a subsequent contract
conveying a patrimonial benefit to a third
person; 3) That the creditor has no other
legal remedy to satisfy his claim, but
would benefit by rescission of the
conveyance to the third person; 4) That
the act being impugned is fraudulent; 5)
That the third person who received the
property conveyed, if by onerous title, has
been an accomplice in the fraud.
We quote with approval the following
disquisition of the CA on the matter:
An accion pauliana accrues only when
the creditor discovers that he has no
other legal remedy for the satisfaction
of his claim against the debtor other

than an accion pauliana. The accion


pauliana is an action of a last
resort. For as long as the creditor still
has a remedy at law for the
enforcement of his claim against the
debtor, the creditor will not have any
cause of action against the creditor for
rescission of the contracts entered into
by and between the debtor and another
person or persons. Indeed, an accion
pauliana presupposes a judgment and
the issuance by the trial court of a writ
of execution for the satisfaction of the
judgment and the failure of the Sheriff
to enforce and satisfy the judgment of
the court. It presupposes that the
creditor has exhausted the property of
the debtor. The date of the decision of
the trial court against the debtor is
immaterial. What is important is that
the credit of the plaintiff antedates that
of the fraudulent alienation by the
debtor of his property. After all, the
decision of the trial court against the
debtor will retroact to the time when
the debtor became indebted to the
creditor.
Petitioners, however, maintain that the
cause of action of respondent Philam
against them for the rescission of the
deeds of donation accrued as early as
December 27, 1989, when petitioner Khe
Hong Cheng registered the subject
conveyances with the Register of Deeds.
Respondent Philam allegedly had
constructive knowledge of the execution
of said deeds under Section 52 of
Presidential
Decree
No.
1529,
quoted infra, as follows:
Section 52. Constructive knowledge upon
registration.
Every
conveyance,
mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting
registered land shall, if registered, filed or

entered in the Office of the Register of


Deeds for the province or city where the
land to which it relates lies, be
constructive notice to all persons from the
time of such registering, filing, or
entering.
Petitioners argument that the Civil Code
must yield to the Mortgage and
Registration Laws is misplaced, for in no
way does this imply that the specific
provisions of the former may be all
together ignored. To count the four year
prescriptive period to rescind an allegedly
fraudulent contract from the date of
registration of the conveyance with the
Register of Deeds, as alleged by the
petitioners, would run counter to Article
1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate
the third requisite to file an action for
rescission of an allegedly fraudulent
conveyance of property, i.e., the creditor
has no other legal remedy to satisfy his
claim.
An accion pauliana thus presupposes the
following: 1) A judgment; 2) the
issuance by the trial court of a writ of
execution for the satisfaction of the
judgment, and 3) the failure of the
sheriff to enforce and satisfy the
judgment of the court. It requires that the
creditor has exhausted the property of the
debtor. The date of the decision of the trial
court is immaterial. What is important is
that the credit of the plaintiff antedates
that of the fraudulent alienation by the
debtor of his property. After all, the
decision of the trial court against the
debtor will retroact to the time when the
debtor became indebted to the creditor.
Tolentino, a noted civilist, explained:
xxx[T]herefore,
suspensive term

credits
with
or condition are

excluded,
because
the accion
pauliana presupposes a judgment and
unsatisfied execution, which cannot
exist when the debt is not yet
demandable at the time the rescissory
action is brought. Rescission is a
subsidiary action, which presupposes
that the creditor has exhausted the
property of the debtor which is
impossible in credits which cannot be
enforced because of a suspensive term
or condition.
While it is necessary that the credit of
the plaintiff in the accion pauliana must
be prior to the fraudulent alienation,
the date of the judgment enforcing it is
immaterial. Even if the judgment be
subsequent to the alienation, it is
merely declaratory with retroactive
effect to the date when the credit was
constituted.
These principles were reiterated by the
Court when it explained the requisites of
an accion pauliana in greater detail, to
wit:
The following successive measures must
be taken by a creditor before he may bring
an action for rescission of an allegedly
fraudulent sale: (1) exhaust the
properties of the debtor through levying
by attachment and execution upon all
the property of the debtor, except such
as are exempt from execution; (2)
exercise all the rights and actions of the
debtor, save those personal to him
(accion subrogatoria); and (3) seek
rescission of the contracts executed by
the debtor in fraud of their rights
(accion pauliana). Without availing of
the first and second remedies, i.e.,
exhausting the properties of the debtor or
subrogating themselves in Francisco
Baregs transmissible rights and actions,

petitioners simply undertook the third


measure and filed an action for annulment
of sale. This cannot be done.[11]
In the same case, the Court also quoted the
rationale of the CA when it upheld the
dismissal of the accion pauliana on the
basis of lack of cause of action:
In this case, plaintiffs appellants had not
even commenced an action against
defendants-appellees Bareng for the
collection of the alleged indebtedness.
Plaintiffs-appellants had not even tried to
exhaust the property of defendantsappellees Bareng. Plaintiffs-appellants, in
seeking the rescission of the contracts of
sale entered into between defendantsappellees, failed to show and prove that
defendants-appellees Bareng had no other
property, either at the time of the sale or at
the time this action was filed, out of which
they could have collected this (sic) debts.
Even if respondent Philam was aware, as
of December 27, 1989, that petitioner Khe
Hong Cheng had executed the deeds of
donation in favor of his children, the
complaint against Butuan Shipping Lines
and/or petitioner Khe Hong Cheng was
still pending before the trial court.
Respondent Philam had no inkling, at the
time, that the trial court's judgment would
be in its favor and further, that such
judgment would not be satisfied due to the
deeds of donation executed by petitioner
Khe Hong Cheng during the pendency of
the case. Had respondent Philam filed his
complaint on December 27, 1989, such
complaint would have been dismissed for
being premature. Not only were all other
legal remedies for the enforcement of
respondent Philams claims not yet
exhausted at the time the deeds of
donation were executed and registered.
Respondent Philam would also not have

been able to prove then that petitioner


Khe Hong Chneg had no more property
other than those covered by the subject
deeds to satisfy a favorable judgment
by the trial court.
It bears stressing that petitioner Khe Hong
Cheng even expressly declared and
represented that he had reserved to
himself property sufficient to answer for
his debts contracted prior to this date:
That the DONOR further states, for the
same purpose as expressed in the next
preceding paragraph, that this donation is
not made with the object of defrauding his
creditors having reserved to himself
property sufficient to answer his debts
contracted prior to this date.[12]
As mentioned earlier, respondent Philam
only learned about the unlawful
conveyances made by petitioner Khe
Hong Cheng in January 1997 when its
counsel accompanied the sheriff to Butuan
City to attach the properties of petitioner
Khe Hong Cheng. There they found that
he no longer had any properties in his
name. It was only then that respondent
Philam's action for rescission of the deeds
of donation accrued because then it could
be said that respondent Philam had
exhausted all legal means to satisfy the
trial court's judgment in its favor. Since
respondent Philam filed its complaint
for accion pauliana against petitioners on
February 25, 1997, barely a month from
its discovery that petitioner Khe Hong
Cheng had no other property to satisfy the
judgment award against him, its action for
rescission of the subject deeds clearly had
not yet prescribed.
From the foregoing, it is clear that the
four-year prescriptive period commences
to run neither from the date of the
registration of the deed sought to be

rescinded nor from the date the trial


court rendered its decision but from the
day it has become clear that there are
no other legal remedies by which the
creditor can satisfy his claims.
UNION BANK v. SPOUSES ONG
Facts:
Issue: W/N the Ong-Lee contract
sale partakes of a conveyance
defraud Union Bank.

of
to

Held: Essentially, petitioner anchors its


case on Article 1381 of the Civil Code
which lists as among the rescissible
contracts [T]hose undertaken in fraud of
creditors when the latter cannot in
any other manner collect the claim due
them."
Contracts in fraud of creditors are
those executed with the intention to
prejudice the rights of creditors. They
should not be confused with those entered
into without such mal-intent, even if,
as a direct
consequence thereof,
the
creditor may suffer some damage. In
determining whether or not a certain
conveying contract is fraudulent, what
comes to mind first is the question
of whether the conveyance was a bona
fide transaction or a trick and contrivance
to
defeat
creditors.[7] To creditors
seeking contract rescission on the ground
of fraudulent conveyance rest the onus of
proving by competent evidence the
existence of such fraudulent intent on the
part of the debtor, albeit they may fall
back on the disputable presumptions, if
proper, established under Article 1387 of
the Code.[8]
In the present case, respondent sp
ouses Ong, as the
CA
had

determined, had sufficiently established


the validity and legitimacy of the salein
question. The conveying deed, a duly nota
rized document, carries with it the
presumption of validity and regularity.
Too, the sale was duly recorded and
annotated on the title of the property
owners, the spouses Ong. As the
transferee of said property, respondent Lee
caused the transfer of title to his name.
There can be no quibbling about the
transaction
being
supported by a valid and sufficient con
sideration. Respondent
Lees account, while on the witness box,
about this angle of the sale was
categorical and straightforward.
The foregoing testimony readily proves
that money indeed changed hands in
connection with the sale of the subject
property. Respondent Lee, as purchaser,
paid the stipulated contract price to the
spouses
Ong,
as
vendors. Receipts presented in evidence
covered
and
proved
such
payment.Accordingly,
any
suggestion negating payment and receipt
of valuable consideration for the subject
conveyance, or worse, that the sale
was fictitiousmust simply be rejected.
In a bid to attach a badge of fraud on
the transaction, petitioner raises the issue
of inadequate consideration, alleging in
this regard that onlyP12,500,000.00 was
paid for property having, during the
period
material, a fair market value of P14,500
,000.00.
We do not agree.
The existence of fraud or the intent
to defraud creditors cannot plausibly be

presumed from the fact that the price paid


for a piece of real estate is perceived to
be slightly lower, if that really be the
case, than its market value. To be sure, it
is logical, even expected, for contracting
minds, each having an interest to
protect, to negotiate on the price and
other conditions before closing a sale of a
valuable
piece
of
land. The negotiatingareas could
cover
various items. The purchase price, while
undeniably an important consideration, is
doubtless only one of them. Thus, a
scenario
where the price actually stipulated may,
as a matter of fact, be lower than the
original asking price of the vendor or the
fair market value of the property, as
what perhaps happened in the instant case,
is not out of the ordinary, let alone
indicative of fraudulent intention. That
the spouses Ongacquiesced to the price
of P12,500,000.00, which may be lower
than the market value of the house and lot
at the time of alienation, is certainly
notan unusual business phenomenon.

parties thereto are


undeniably bound.

Lest it be overlooked, the disparity


between the price appearing in
the conveying deed
and
what the petitioner regarded as the real
value of the property is not as gross to
support a conclusion of fraud. What is
more, one Oliver Morales, a licensed real
estate appraiser and broker, virtually made
short shrift of petitioners claim of gross
inadequacy of the purchase price. Mr.
Morales declared that there exists no gross
disparity between the market value of the
subject
property
and
the
price
mentioned in the deed as consideration.

Parenthetically, the rescissory action


to set aside contracts in fraud of creditors
is accion
pauliana, essentially
a
subsidiary remedy accorded under Article
1383 of the Civil Code which the party
suffering damage can avail of only
when he has no other legal means to
obtain reparation for the same.[14] In net
effect, the provision applies only when the
creditor cannot recover in any other
manner what is due him.

Withal, the consideration of the sale is fair


and reasonable as would justify the
conclusion that the sale is undoubtedly a
true and genuine conveyance to which the

irrevocably

and

It may be stressed that, when the


validity of sales contract is in issue, two
veritable presumptions are relevant: first,
that there was sufficient consideration of
the contract[11]; and, second, that it was the
result of a fair and regular private
transaction.[12] If shown to hold, these
presumptions
infer prima
facie the
transaction's validity, except that it must
yield to the evidence adduced[13] which the
party disputing suchpresumptive validity
has
the
burden of
overcoming. Unfortunately
for the petitioner, it failed to discharge this
burden. Its bare allegation respectingthe
sale having been executed in fraud of
creditors
and
without
adequate
consideration
cannot,
without
more, prevail over the respondents'
evidence
which
more
than
sufficiently supports a conclusion
as
to the legitimacy of the transaction and
the bona fides of the parties.

It is true that respondent spouses, as


surety for BMC, bound themselves to
answer
for the
latters debt.
Nonetheless, for
purposes
of recovering what the
eventually
insolvent BMC owed
the
bank, it
behooved the petitioner to show that it had

exhausted all the properties of the spouses


Ong. It does not appear in this case
that the petitioner sought other properties
of the spouses other than the
subject Greenhills property. The
CA
categorically said so. Absent proof,
therefore, that the spouses Ong had no
other property except their Greenhills
home, the sale thereof to respondent Lee
cannot simplistically be considered as
one in fraud of creditors.
Neither was
evidence adduced to
show
that
the
sale in
question
peremptorily deprived the
petitioner of
means
to
collect
its
claim against the Ongs. Where a creditor
fails to show that he has no other legal
recourse to obtain satisfaction for his
claim, then he is not entitled to the
rescission asked.[15]
For a contract to be rescinded for
being in fraud of creditors, both
contracting parties must be shown to have
acted maliciously so as to prejudice the
creditors who were prevented from
collecting their claims.[16] Again, in this
case, there is no evidence tending to prove
that the spouses Ong and Lee were
conniving cheats. In fact, the petitioner
did not even attempt to prove the
existence of personal closeness or
business and professional interdependence
between the spouses Ong and Lee as to
cast doubt on their true intent in executing
the contract of sale. With the view we
take of the evidence on record, their
relationship
vis--vis
the
subject
Greenhills property was no more than one
between vendor and vendee dealing with
each other for the first time. Any
insinuation that the two colluded to gyp
petitioner bank is to read in a relationship
something which, from all indications,
appears to be purely business.

It cannot be overemphasized
that rescission is generally unavailing
should a third person, acting in good
faith, is in lawful possession of the
property,[17] that is to say, he is protected
by law against a suit for rescission by the
registration of the transfer to him in the
registry.
As recited earlier, Lee was - and
may still be - in lawful possession of the
subject property as the transfer to him was
by
virtue
of
apresumptively
valid onerous contract
of
sale. His
possession is evidenced by no less than a
certificate
of
title
issued
him
by the Registry of Deeds of San Juan,
Metro Manila, after the usual registration
of the corresponding conveying deed of
sale. On the other hand, the bona fides of
his acquisitioncan be deduced from his
conduct and outward acts previous to the
sale. As testified to by him and duly noted
by the CA, respondent Lee undertook
what amounts to due diligence on the
possible defects in the title of the Ongs
before proceeding with the sale. As it
were, Lee decided to buy the
property only after being satisfied of the
absence of such defects.[18]
Time
and
again,
the Court
has held that one
dealing with a registered parcel
of land need not go beyond the certificate
of title as he is charged with notice only of
burdens which are noted on the face of the
register or on the certificate of title.
[19]
The Continuing Surety Agreement, it
ought to be particularly pointed out, was
never recorded nor annotated on the title
of spouses Ong. There is no evidence
extant in the records to show that Lee had
knowledge, prior to the subject sale, of
the surety agreement adverted to. In

fine, there is nothing to remotely suggest


that the purchase of the subject property
was characterized by anything other than
good faith.

Petitioner has
made
much
of respondent Lee not taking immediate
possession of the property after the sale,
stating that such failure is an indication of
his participation in the fraudulent scheme
to prejudice petitioner bank.
We are not persuaded.
Lee,
it
is
true,
allowed the respondent spouses to
continue occupying the
premises even
after the sale. This development, however,
is not without basis or practical reason.
The spouses' continuous possession of
the property was by virtue of a oneyear lease[20] they executed withrespondent
Lee six days after the sale. As
explained by the respondent spouses, they
insisted
on
the lease
arrangement
as a condition
for
the
sale in
question. And pursuant to the lease
contract
aforementioned,
the respondent Ongs
paid
and Lee
collected
rentals
at
the
rate
of P25,000.00 a
month.Contrary thus to
the petitioners asseveration, respondent L
ee, after the sale, exercised acts of
dominion over the said property and
asserted his rights as the new owner. So,
when the respondent spouses continued to
occupy the property after its sale, they
did so as mere tenants. While the failure
of the vendee to take exclusive possession
of the property is generally recognized
as a badge of fraud, the same cannot be
said here in the light of the existence
of what appears to be a genuine lessorlessee relationship between the spouses

Ong and Lee. To borrow from Reyes vs.


Court of Appeals,[21] possession may be
exercised in ones own name or in the
name of another; an owner of a piece of
land has possession, either when he
himself physically occupies the same or
when another person who recognizes his
right as owner is in such occupancy.
Petitioners
assertion
regarding
respondent Lees lack of financial
capacity to acquire the property in
question since his income in 1990 was
onlyP346,571.73 is clearly untenable.
Assuming for argument that petitioner got
its figure right, it is clearly incorrect to
measure ones purchasing capacity with
ones income at a given period. But the
more important consideration in this
regard is the uncontroverted fact that
respondent Lee paid the purchase price of
said property. Where he sourced the
needed cash is, for the nonce, really of no
moment.
The
cited
case
of China
Banking[22] cannot plausibly provide
petitioner with a winning card. In that
case, the Court, applying Article 1381 (3)
of
the
Civil
Code,
rescinded
an Assignment of Rights to Redeem owing
to the failure of the assignee to overthrow
the
presumption
that
the
said
conveyance/assignment is fraudulent. In
turn, the presumption was culled from
Article 1387, par. 2, of the Code
pertinently providing that [A]lienation by
onerous title are also presumed fraudulent
when made by persons against whom
some judgment has been rendered in any
instance or some writ of attachment has
been issued.
Indeed, when the deed of assignment
was executed in China Banking, the
assignor therein already faced at that time

an adverse judgment. In the same case,


moreover, the Court took stock of other
signs of fraud which tainted the
transaction therein and which are,
significantly, not obtaining in the
instant case. We refer, firstly, to the
element of kinship, the assignor, Alfonso
Roxas Chua, being the father of the
assignee,
Paulino. Secondly,Paulino admitted
knowing
his
father
to
be
insolvent. Hence, the Court, rationalizing
the rescission of the assignment of rights,
made the following remarks:
The mere fact that
the conveyance was founded
on valuable consideration
does not necessarily negate
the presumption of fraud
under Article 1387 of the
Civil Code. There has to be
valuable consideration and
the transaction must have
been made bona fide.[23]
There lies the glaring
difference with the instant
case.
Here, the existence of fraud cannot
be presumed, or, at the very least, what
were perceived to be badges of fraud have
been proven to be otherwise. And, unlike
Alfonso Roxas Chua in China Banking, a
judgment has not been rendered against
respondent spouses Ong or that a writ of
attachment has been issued against them
at the time of the disputed sale.
In a last-ditch attempt to resuscitate
a feeble cause, petitioner cites Section
70 of the Insolvency Law which, unlike
the invoked Article 1381 of the Civil Code
that deals with a valid but rescissible
contract, treats of a contractual infirmity

resulting in nullity no less of the


transaction in question. Insofar as
pertinent, Section 70 of the Insolvency
Law provides:
Sec. 70. If
any
debtor, being insolvent, or in
contemplation
of
insolvency, within thirty
days before the filing of a
petition by or against him,
with a view to giving a
preference to any creditor or
person having a claim
against
him xxx makes
any xxx sale or conveyance
of any part of his
property, xxx such xxx sale,
assignment or conveyance is
void, and the assignee, or
the receiver, may recover
the property or the value
thereof, as assets of
such insolvent debtor. xxx.
Any
payment,
pledge,
mortgage, conveyance, sale,
assignment, or transfer of
property
of
whatever
character made by the
insolvent within one (1)
month before the filing of a
petition in insolvency by or
against him, except for a
valuable
pecuniary
consideration made in
good faith shall be void.
xxx. (Emphasis added)
Petitioner avers that the OngLee sales contract partakes of a
fraudulent transfer and is null and void in
contemplation
of
the
aforequoted
provision,
the sale having occurred on October 22,

1991 or within thirty (30) days before


BMC filed a petition for suspension of
payments onNovember 22, 1991.
Petitioner's reliance on the aforequoted provision is misplaced for the
following reasons:
First,
Section 70, supra, of the
Insolvency
Law specifically
makes
reference
to conveyance of properties made by a
debtor or by an insolvent who filed a
petition, or against whom a petition for
insolvency
has
been
filed.
Respondent spouses
Ong have
doubtlessly not filed a petition for a
declaration of their own insolvency.
Neither has one been filed against them.
And as the CA aptly observed, it was
never proven that respondent spouses are
likewise
insolvent, petitioner having
failed to show that they were down to
their Greenhills property as their only
asset.
It may be that BMC had filed a
petition for rehabilitation and suspension
of payments with the SEC. The nagging
fact, however is that
BMC is adifferent juridical
person
from the respondent
spouses. Their
seventy percent (70%) ownership of
BMCs capital stock does not change the
legal situation. Accordingly, the alleged
insolvency of BMC cannot, as petitioner
postulates, extend to the respondent
spouses such that transaction of the latter
comes within the purview of Section 70 of
the Insolvency Law.
Second, the real debtor of petitioner
bank in this case is BMC. The fact that
the respondent spouses bound themselves
to answer for BMCs indebtedness under
the surety agreement referred to at the
outset is not reason enough to conclude

that the spouses are themselves debtors


ofpetitioner bank. We have already passed
upon
the
simple reason for
this
proposition. We refer to the basic precept
in this jurisdiction that a corporation,
upon coming into existence, is invested by
law with a personality separate and
distinct
from
those
of
the
[24]
persons composing it. Mere ownership
by a single or small group of stockholders
of nearly all of the capital stock of the
corporation is not, without more,
sufficient to disregard the fiction
of separate corporate personality.[25]
Third, Section 70 of the Insolvency
Law
considers
transfers
made
within a month after the date of cleavage
void, except those made in good
faith and for
valuable
pecuniary consideration. The
twin
elements of good faith and valuable and
sufficient consideration have been duly
established. Given the validity and the
basic legitimacy of the sale in question,
there is simply no occasion to
apply Section 70 of the Insolvency Law to
nullify the transaction subject of the
instant case.
All told, we are far from convinced
by petitioners argumentation that the
circumstances surrounding the sale of the
subject property may be considered
badges of fraud. Consequently, its
failure to show actual fraudulent intent on
the part of the spouses Ong defeats its
own cause.
HEIRS OF QUIRONG v. DBP
Facts: Every sale of a real property has a
sellers warranty against eviction. Eviction
takes place whenever the buyer is
deprived of the whole or part of the thing

purchased by virtue of a final judgment


based on a right prior to the sale or an act
imputable to the seller (Article 1458, Civil
Code). In case of eviction, what is the
remedy of the seller? And when should it
be exercised? These questions are
answered in this case of the heirs of Sonia.
The case involved a parcel of land with an
area of 589 square meters inherited by Isa
and her nine children which was
mortgaged by one of her children Rina
and the latters husband to the
Development Bank of the Philippines
(DBP). The couple was able to mortgage
the land because Isa sold the whole lot to
them.
But Rina and her husband failed to pay the
loan. So on February 12, 1979, DBP
foreclosed the mortgage and consolidated
its ownership on June 17, 1981. Then on
September 20, 1983, DBP conditionally
sold the lot to Sonia for the price of
P78,000 with a down-payment of P14,000
under a contract containing a waiver of
warranty against eviction and liability for
any liens and encumbrances on the part of
DBP.
Ten months after such sale, Isa and her
eight other children filed an action before
the Regional Trial Court against DBP and
Rina and her husband for partition and
declaration of nullity of documents with
damages. Notwithstanding the suit, DBP
still executed a Deed of Absolute Sale in
favor of Sonia containing the same
waivers. Then on May 11, 1985, after
Sonias death, her heirs filed an answer in
intervention in the said case. The heirs
asked the RTC to award the lot to them or
should it instead be given to Isa and her 8
children, to order DBP to pay them the
value of the lot.

Sonias heirs however failed to file a


formal offer of evidence so the RTC did
not rule on the merits of their claim and
rendered a decision on December 12,
1992 declaring DBPs sale to Sonia valid
only with respect to the shares of Isa and
Rina in the property. It also declared Isas
sale to Rina and her husband, the latters
mortgage to DBP and DBPs sale to Sonia
void in so far as they prejudiced the shares
of the eight other children of Isa who were
entitle to a tenth share of the subject lot.
So only 20% of the lot went to Sonias
heirs while the 80% went to Isas eight
other children This decision became final
and executory on January 28, 1993 when
DBP failed to appeal from it within the
time set for such appeal.
With the loss of 80% of the subject lot,
Sonias heirs filed an action before the
RTC for rescission against DBP on June
10, 1998 pursuant to the provisions of
Article 1556 of the Civil Code which
provides that Should the vendee lose, by
reason of eviction, a part of the thing sold
of such importance that he would not have
bought it without said part, he may
demand the rescission of the contract.
On June 14, 2004, the RTC rendered a
decision in favor of Sonias heirs
rescinding the sale between DBP and
Sonia and ordering the latter to return to
them the P78,000 that Sonia paid the
bank. On appeal by DBP to the Court of
Appeals (CA) however, the latter reversed
the RTC decision and dismissed the heirs
action on the ground of prescription.
Issue: 1.
Whether or not the
Quirong heirs action for rescission
of respondent DBPs sale of the
subject property to Sofia Quirong
was already barred by prescription;
and

2.
In the negative, whether or
not the heirs of Quirong were
entitled to the rescission of the
DBPs sale of the subject lot to the
late Sofia Quirong as a
consequence of her heirs having
been evicted from it.
Held: The CA held that the Quirong heirs
action for rescission of the sale between
DBP and their predecessor, Sofia Quirong,
is barred by prescription reckoned from
the date of finality of the December 16,
1992 RTC decision in Civil Case D-7159
and applying the prescriptive period of
four years set by Article 1389 of the Civil
Code.
Unfortunately, the CA did not state in its
decision the date when the RTC decision
in Civil Case D-7159 became final and
executory, which decision resulted in the
Quirong heirs loss of 80% of the lot that
the DBP sold to Sofia Quirong. Petitioner
heirs claim that the prescriptive period
should be reckoned from January 17,
1995, the date this Courts resolution in
G.R. 116575 became final and executory.
[15]

But the incident before this Court in G.R.


116575 did not deal with the merit of the
RTC decision in Civil Case D-7159. That
decision became final and executory on
January 28, 1993 when the DBP failed to
appeal from it within the time set for such
appeal. The incident before this Court in
G.R. 116575 involved the issuance of the
writ of execution in that case. The DBP
contested such issuance supposedly
because the dispositive portion of the
decision failed to specify details that were
needed for its implementation. Since this
incident did not affect the finality of the
decision in Civil Case D-7159, the
prescriptive period remained to be

reckoned from January 28, 1993, the date


of such finality.
The next question that needs to be
resolved is the applicable period of
prescription. The DBP claims that it
should be four years as provided under
Article 1389 of the Civil Code.[16] Article
1389 provides that the action to claim
rescission must be commenced within
four years. The Quirong heirs, on the
other hand, claim that it should be 10
years as provided under Article 1144
which states that actions upon a written
contract must be brought within 10
years from the date the right of action
accrues.
Now, was the action of the Quirong heirs
for rescission or upon a written
contract? There is no question that their
action was for rescission, since their
complaint in Civil Case CV-98-02399-D
asked for the rescission of the contract of
sale between Sofia Quirong, their
predecessor, and the DBP and the
reimbursement of the price of P78,000.00
that Sofia Quirong paid the bank plus
damages. The prescriptive period for
rescission is four years.
But it is not that simple. The remedy of
rescission is not confined to the
rescissible contracts enumerated under
Article 1381.[17] Article 1191 of the Civil
Code gives the injured party in reciprocal
obligations, such as what contracts are
about, the option to choose between
fulfillment and rescission. Arturo M.
Tolentino, a well-known authority in civil
law, is quick to note, however, that the
equivalent of Article 1191 in the old code
actually uses the term resolution rather
than the present rescission.[18] The
calibrated meanings of these terms are
distinct.

Rescission is a subsidiary action based


on injury to the plaintiffs economic
interests as described in Articles 1380 and
1381. Resolution, the action referred to
in Article 1191, on the other hand, is based
on the defendants breach of faith, a
violation of the reciprocity between the
parties. As an action based on the
binding force of a written contract,
therefore, rescission (resolution) under
Article 1191 prescribes in 10 years. Ten
years is the period of prescription of
actions based on a written contract
under Article 1144.
The distinction makes sense. Article 1191
gives the injured party an option to
choose between, first, fulfillment of the
contract and, second, its rescission. An
action to enforce a written contract
(fulfillment) is definitely an action
upon a written contract, which
prescribes in 10 years (Article 1144). It
will not be logical to make the remedy
of fulfillment prescribe in 10 years
while the alternative remedy of
rescission (or resolution) is made to
prescribe after only four years as
provided in Article 1389 when the
injury from which the two kinds of
actions derive is the same.
Here, the Quirong heirs alleged in their
complaint that they were entitled to the
rescission of the contract of sale of the lot
between the DBP and Sofia Quirong
because the decision in Civil Case D-7159
deprived her heirs of nearly the whole of
that lot. But what was the status of that
contract at the time of the filing of the
action for rescission? Apparently, that
contract of sale had already been fully
performed when Sofia Quirong paid the
full price for the lot and when, in
exchange, the DBP executed the deed of

absolute sale in her favor. There was a


turnover of control of the property
from DBP to Sofia Quirong since she
assumed under their contract, the
ejectment
of
squatters
and/or
occupants on the lot, at her own
expense.
Actually, the cause of action of the
Quirong heirs stems from their having
been ousted by final judgment from the
ownership of the lot that the DBP sold to
Sofia Quirong, their predecessor, in
violation of the warranty against eviction
that comes with every sale of property or
thing. Article 1548 of the Civil Code
provides:
Article 1548. Eviction shall take
place whenever by a final
judgment based on a right prior
to the sale or an act imputable to
the vendor, the vendee is
deprived of the whole or of a
part of thing purchased.
xxxx
With the loss of 80% of the
subject lot to the Dalopes by
reason of the judgment of the
RTC in Civil Case D-7159, the
Quirong heirs had the right to
file an action for rescission
against the DBP pursuant to the
provision of Article 1556 of the
Civil Code which provides:
Article 1556. Should the vendee
lose, by reason of the eviction, a
part of the thing sold of such
importance, in relation to the
whole, that he would not have
bought it without said part, he
may demand the rescission of
the contract; but with the

obligation to return the thing


without other encumbrances
than those which it had when he
acquired it. x x x
And that action for rescission, which is
based on a subsequent economic loss
suffered by the buyer, was precisely the
action that the Quirong heirs took
against the DBP. Consequently, it
prescribed as Article 1389 provides in
four years from the time the action
accrued. Since it accrued on January
28, 1993 when the decision in Civil Case
D-7159 became final and executory and
ousted the heirs from a substantial
portion of the lot, the latter had only
until January 28, 1997 within which to
file their action for rescission. Given
that they filed their action on June 10,
1998, they did so beyond the four-year
period.
With the conclusion that the Court has
reached respecting the first issue presented
in this case, it would serve no useful
purpose for it to further consider the issue
of whether or not the heirs of Quirong
would have been entitled to the rescission
of the DBPs sale of the subject lot to
Sofia Quirong as a consequence of her
heirs having been evicted from it. As the
Court has ruled above, their action was
barred by prescription. The CA acted
correctly in reversing the RTC decision
and dismissing their action.
ADA v. BAYLON
Facts: The persons involved in this case
are the heirs of the spouses Baylon. The
subject property was inherited by the heirs
from the spouses after they died. They
alleged therein that Spouses Baylon,
during their lifetime, owned 43 parcels of
land5 all situated in Negros Oriental.

After the death of Spouses Baylon, they


claimed that Rita took possession of the
said parcels of land and appropriated for
herself the income from the same. Using
the income produced by the said parcels
of land, Rita allegedly purchased two
parcels of land, Lot No. 47096 and half of
Lot No. 4706,7 situated in Canda-uay,
Dumaguete City. The petitioners averred
that Rita refused to effect a partition of the
said parcels of land. During the pendency
of the case, Rita, through a Deed of
Donation dated July 6, 1997, conveyed
Lot No. 4709 and half of Lot No. 4706 to
Florante. On July 16, 2000, Rita died
intestate and without any issue.
Thereafter, learning of the said donation
inter vivos in favor of Florante, the
petitioners
filed
a
Supplemental
Pleading17 dated February 6, 2002,
praying that the said donation in favor of
the respondent be rescinded in accordance
with Article 1381(4) of the Civil Code.
They further alleged that Rita was already
sick and very weak when the said Deed of
Donation was supposedly executed and,
thus, could not have validly given her
consent thereto.
Florante and Panfila opposed the
rescission of the said donation, asserting
that Article 1381(4) of the Civil Code
applies only when there is already a prior
judicial decree on who between the
contending parties actually owned the
properties under litigation.
Issue: W/N the CA erred in ruling that the
donation inter vivos of Lot No. 4709 and
half of Lot No. 4706 in favor of Florante
may only be rescinded if there is already a
judicial determination that the same
actually belonged to the estate of Spouses
Baylon.
Held:

Rescission is a remedy to address the


damage or injury caused to the
contracting parties or third persons.
Rescission is a remedy granted by law to
the contracting parties and even to third
persons, to secure the reparation of
damages caused to them by a contract,
even if it should be valid, by means of the
restoration of things to their condition at
the moment prior to the celebration of said
contract. It is a remedy to make ineffective
a contract, validly entered into and
therefore obligatory under normal
conditions, by reason of external causes
resulting in a pecuniary prejudice to one
of the contracting parties or their creditors.
Contracts which are rescissible are valid
contracts having all the essential requisites
of a contract, but by reason of injury or
damage caused to either of the parties
therein or to third persons are considered
defective and, thus, may be rescinded.
The kinds of rescissible contracts,
according to the reason for their
susceptibility to rescission, are the
following: first, those which are
rescissible because of lesion or prejudice;
second, those which are rescissible on
account of fraud or bad faith; and third,
those which, by special provisions of law,
are susceptible to rescission.
Contracts which refer to things subject
of litigation is rescissible pursuant to
Article 1381(4) of the Civil Code.
Contracts which are rescissible due to
fraud or bad faith include those which
involve things under litigation, if they
have been entered into by the defendant
without the knowledge and approval of
the litigants or of competent judicial

authority. Thus, Article 1381(4) of the


Civil Code provides:
Art. 1381. The following contracts are
rescissible:
xxxx
(4) Those which refer to things under
litigation if they have been entered into by
the defendant without the knowledge and
approval of the litigants or of competent
judicial authority[.]
The rescission of a contract under Article
1381(4) of the Civil Code only requires
the concurrence of the following: first, the
defendant, during the pendency of the
case, enters into a contract which refers to
the thing subject of litigation; and second,
the said contract was entered into without
the knowledge and approval of the
litigants or of a competent judicial
authority. As long as the foregoing
requisites concur, it becomes the duty of
the court to order the rescission of the said
contract.
The reason for this is simple. Article
1381(4) seeks to remedy the presence of
bad faith among the parties to a case
and/or any fraudulent act which they may
commit with respect to the thing subject
of litigation.
When a thing is the subject of a judicial
controversy, it should ultimately be bound
by whatever disposition the court shall
render. The parties to the case are
therefore expected, in deference to the
courts exercise of jurisdiction over the
case, to refrain from doing acts which
would dissipate or debase the thing
subject of the litigation or otherwise
render the impending decision therein
ineffectual.

There is, then, a restriction on the


disposition by the parties of the thing that
is the subject of the litigation. Article
1381(4) of the Civil Code requires that
any contract entered into by a defendant in
a case which refers to things under
litigation should be with the knowledge
and approval of the litigants or of a
competent judicial authority.
Further, any disposition of the thing
subject of litigation or any act which tends
to render inutile the courts impending
disposition in such case, sans the
knowledge and approval of the litigants or
of the court, is unmistakably and
irrefutably indicative of bad faith. Such
acts undermine the authority of the court
to lay down the respective rights of the
parties in a case relative to the thing
subject of litigation and bind them to such
determination.
It should be stressed, though, that the
defendant in such a case is not absolutely
proscribed from entering into a contract
which refer to things under litigation. If,
for instance, a defendant enters into a
contract which conveys the thing under
litigation during the pendency of the case,
the conveyance would be valid, there
being no definite disposition yet coming
from the court with respect to the thing
subject of litigation.
After all,
notwithstanding that the subject thereof is
a thing under litigation, such conveyance
is but merely an exercise of ownership.
This is true even if the defendant effected
the conveyance without the knowledge
and approval of the litigants or of a
competent judicial authority. The absence
of such knowledge or approval would not
precipitate the invalidity of an otherwise
valid contract.
Nevertheless, such
contract, though considered valid, may be

rescinded at the instance of the other


litigants pursuant to Article 1381(4) of the
Civil Code.
Here, contrary to the CAs disposition, the
RTC aptly ordered the rescission of the
donation inter vivos of Lot No. 4709 and
half of Lot No. 4706 in favor of Florante.
The
petitioners
had
sufficiently
established the presence of the requisites
for the rescission of a contract pursuant to
Article 1381(4) of the Civil Code. It is
undisputed that, at the time they were
gratuitously conveyed by Rita, Lot No.
4709 and half of Lot No. 4706 are among
the properties that were the subject of the
partition case then pending with the RTC.
It is also undisputed that Rita, then one of
the defendants in the partition case with
the RTC, did not inform nor sought the
approval from the petitioners or of the
RTC with regard to the donation inter
vivos of the said parcels of land to
Florante.
Although the gratuitous conveyance of the
said parcels of land in favor of Florante
was valid, the donation inter vivos of the
same being merely an exercise of
ownership, Ritas failure to inform and
seek the approval of the petitioners or the
RTC regarding the conveyance gave the
petitioners the right to have the said
donation rescinded pursuant to Article
1381(4) of the Civil Code.
Rescission under Article 1381(4) of the
Civil Code is not preconditioned upon
the judicial determination as to the
ownership of the thing subject of
litigation.
In this regard, we also find the assertion
that rescission may only be had after the
RTC had finally determined that the
parcels of land belonged to the estate of

Spouses Baylon intrinsically amiss. The


petitioners right to institute the action for
rescission pursuant to Article 1381(4) of
the Civil Code is not preconditioned upon
the RTCs determination as to the
ownership of the said parcels of land.
It bears stressing that the right to ask for
the rescission of a contract under Article
1381(4) of the Civil Code is not
contingent upon the final determination of
the ownership of the thing subject of
litigation. The primordial purpose of
Article 1381(4) of the Civil Code is to
secure the possible effectivity of the
impending judgment by a court with
respect to the thing subject of litigation. It
seeks to protect the binding effect of a
courts impending adjudication vis--vis
the thing subject of litigation regardless of
which among the contending claims
therein would subsequently be upheld.
Accordingly,
a
definitive
judicial
determination with respect to the thing
subject of litigation is not a condition sine
qua non before the rescissory action
contemplated under Article 1381(4) of the
Civil Code may be instituted.
Moreover, conceding that the right to
bring the rescissory action pursuant to
Article 1381(4) of the Civil Code is
preconditioned
upon
a
judicial
determination with regard to the thing
subject litigation, this would only bring
about the very predicament that the said
provision of law seeks to obviate.
Assuming arguendo that a rescissory
action under Article 1381(4) of the Civil
Code could only be instituted after the
dispute with respect to the thing subject of
litigation is judicially determined, there is
the possibility that the same may had
already been conveyed to third persons
acting in good faith, rendering any judicial
determination with regard to the thing

subject of litigation illusory. Surely, this


paradoxical eventuality is not what the
law had envisioned.
Even if the donation inter vivos is
validly rescinded, a determination as to
the ownership of the subject parcels of
land is still necessary.
Having established that the RTC had aptly
ordered the rescission of the said donation
inter vivos in favor of Florante, the issue
that has to be resolved by this Court is
whether there is still a need to determine
the ownership of Lot No. 4709 and half of
Lot No. 4706.
In opting not to make a determination as
to the ownership of Lot No. 4709 and half
of Lot No. 4706, the RTC reasoned that
the parties in the proceedings before it
constitute not only the surviving heirs of
Spouses Baylon but the surviving heirs of
Rita as well. As intimated earlier, Rita
died intestate during the pendency of the
proceedings with the RTC without any
issue, leaving the parties in the
proceedings before the RTC as her
surviving heirs.
Thus, the RTC
insinuated, a definitive determination as to
the ownership of the said parcels of land is
unnecessary since, in any case, the said
parcels of land would ultimately be
adjudicated to the parties in the
proceedings before it.
We do not agree.
Admittedly, whoever may be adjudicated
as the owner of Lot No. 4709 and half of
Lot No. 4706, be it Rita or Spouses
Baylon, the same would ultimately be
transmitted to the parties in the
proceedings before the RTC as they are
the only surviving heirs of both Spouses
Baylon and Rita. However, the RTC

failed to realize that a definitive


adjudication as to the ownership of Lot
No. 4709 and half of Lot No. 4706 is
essential in this case as it affects the
authority of the RTC to direct the partition
of the said parcels of land. Simply put,
the RTC cannot properly direct the
partition of Lot No.
4709 and half of Lot No. 4706 until and
unless it determines that the said parcels
of land indeed form part of the estate of
Spouses Baylon.
It should be stressed that the partition
proceedings before the RTC only covers
the properties co-owned by the parties
therein in their respective capacity as the
surviving heirs of Spouses Baylon.
Hence, the authority of the RTC to issue
an order of partition in the proceedings
before it only affects those properties
which actually belonged to the estate of
Spouses Baylon.
In this regard, if Lot No. 4709 and half of
Lot No. 4706, as unwaveringly claimed by
Florante, are indeed exclusively owned by
Rita, then the said parcels of land may not
be partitioned simultaneously with the
other properties subject of the partition
case before the RTC. In such case,
although the parties in the case before the
RTC are still co-owners of the said parcels
of land, the RTC would not have the
authority to direct the partition of the said
parcels of land as the proceedings before it
is only concerned with the estate of
Spouses Baylon.
ANCHOR SAVINGS BANK v.
FURIGAY
Facts:
Issue: W/N the CA was correct in

dismissing ASBs complaint on the


ground that the action against respondents
was premature.
Held: In relation to an action for
rescission, it should be noted that the
remedy of rescission is subsidiary in
nature; it cannot be instituted except when
the party suffering damage has no other
legal means to obtain reparation for the
same.24 Article 1177 of the New Civil
Code provides:
The creditors, after having pursued the
property in possession of the debtor to
satisfy their claims, may exercise all the
rights and bring all the actions of the latter
for the same purpose, save those which
are inherent in his person; they may also
impugn the actions which the debtor may
have done to defraud them.
Consequently, following the subsidiary
nature of the remedy of rescission, a
creditor would have a cause of action to
bring an action for rescission, if it is
alleged that the following successive
measures have already been taken: (1)
exhaust the properties of the debtor
through levying by attachment and
execution upon all the property of the
debtor, except such as are exempt by law
from execution; (2) exercise all the rights
and actions of the debtor, save those
personal to him (accion subrogatoria); and
(3) seek rescission of the contracts
executed by the debtor in fraud of their
rights (accion pauliana).
With respect to an accion pauliana, it is
required that the ultimate facts
constituting the following requisites must
all be alleged in the complaint, viz.:
1) That the plaintiff asking for rescission,
has credit prior to the alienation, although
demandable later;
2) That the debtor has made a subsequent

contract conveying a patrimonial benefit


to a third person;
3) That the creditor has no other legal
remedy to satisfy his claim, but would
benefit by rescission of the conveyance to
the third person;
4) That act being impugned is fraudulent;
and
5) That the third person who received the
property conveyed, if by onerous title, has
been an accomplice in the fraud.26

rights. While courts should consider


public policy and necessity in putting an
end to litigations speedily they must
nevertheless harmonize such necessity
with the fundamental right of litigants to
due process.

A cursory reading of the allegations of


ASBs complaint would show that it failed
to allege the ultimate facts constituting its
cause of action and the prerequisites that
must be complied before the same may be
instituted. ASB, without availing of the
first and second remedies, that is,
exhausting the properties of CTS, Henry
H. Furigay and Genilda C. Furigay or their
transmissible rights and actions, simply
undertook the third measure and filed an
action for annulment of the donation. This
cannot be done.

Facts: It is not disputed that Ignacio


Atupan caused the fraudulent cancellation
of OCT No. RO-238(555). The trial court
found that Atupan, on the basis of his
Affidavit of Extra-judicial Settlement
and Confirmation Sale, adjudicated unto
himself one-half of Lot 216 by
misrepresenting himself as the sole heir of
Apolonia Abao. Atupan, in said affidavit,
likewise confirmed the two deeds of sale
allegedly executed by him and Abao on
September 15 and 16, 1939, covering the
latters one-half lot in favor of Nicolas
Jadol.

In all, it is incorrect for ASB to argue that


a complaint need not allege all the
elements constituting its cause of action
since it would simply adduce proof of the
same during trial. "Nothing is more settled
than the rule that in a motion to dismiss
for failure to state a cause of action, the
inquiry is "into the sufficiency, not the
veracity, of the material allegations."28
The inquiry is confined to the four comers
of the complaint, and no other.
Unfortunately for ASB, the Court finds the
allegations of its complaint insufficient in
establishing its caust.:~ of action and in
apprising the respondents of the same so
that
theycould
defend
themselves
intelligently and effective!y pursuant to
their right to due process. It is a rule of
universal application that courts of justice
are constituted to adjudicate substantive

SAMONTE v. CA
The exception to the rule that the Torrens
System serves as a notice to the whole
world.

The trial court found Atupans affidavit,


dated August 7, 1957, to be tainted with
fraud because he falsely claimed therein
that he was the sole heir of Abao when in
fact, he merely lived and grew up with
her. Jadol and his wife, Beatriz, knew
about this fact. Despite this knowledge,
however, the Jadol spouses still presented
the affidavit of Atupan before the Register
of Deeds of the Province of Agusan when
they caused the cancellation of OCT No.
R0-238(555) and issuance of TCT No. RT476 in their names covering that portion
owned by Abao.
The trial court concluded that the
incorporation of the statement in Atupans
affidavit confirming the alleged execution
of the aforesaid deeds of sale was
intended solely to facilitate the issuance of

the certificate of title in favor of the Jadol


spouses. It was noted that the documents
evidencing the alleged transactions were
not presented in the Register of Deeds. It
was further pointed out that the Jadol
spouses only sought the registration of
these transactions in 1957, eighteen (18)
years after they supposedly took place or
twelve (12) years after Abao died.
Based on the foregoing facts, the CA, on
appeal, ruled that the cancellation of OCT
No. R0-238(555) and the consequent
issuance of TCT No. RT-476 in its place in
the name of the Jadol spouses were
effected through fraudulent means and
that they (spouses Jadol) not only had
actual knowledge of the fraud but were
also guilty of bad faith.[7]
Nonetheless, petitioner contends that
respondents action in the court a quo had
already prescribed. Generally, an action
for reconveyance of real property based
on fraud may be barred by the statute of
limitations which requires that the action
must be commenced within four (4) years
from the discovery of fraud, and in case of
registered land, such discovery is deemed
to have taken place from the date of the
registration of title.
Issue: W/N prescription has already set in.
Held: Article 1456 of the Civil Code,
however, provides:
Art. 1456. If property is acquired through
mistake or fraud, the person obtaining it
is, by force of law, considered a trustee of
an implied trust for the benefit of the
person from whom the property comes.
As it had been indubitably established that
fraud attended the registration of a portion
of the subject property, it can be said that
the Jadol spouses were trustees thereof

on behalf of the surviving heirs of


Abao. An action based on implied or
constructive trust prescribes in ten (10)
years from the time of its creation or
upon the alleged fraudulent registration
of the property.[9]
Petitioner, as successor-in-interest of the
Jadol spouses, now argues that the
respondents action for reconveyance,
filed only in 1975, had long prescribed
considering that the Jadol spouses caused
the registration of a portion of the subject
lot in their names way back in August 8,
1957. It is petitioners contention that
since eighteen years had already lapsed
from the issuance of TCT No. RT-476
until the time when respondents filed the
action in the court a quo in 1975, the same
was time-barred.
Petitioners defense of prescription is
untenable. The general rule that the
discovery of fraud is deemed to have
taken place upon the registration of real
property because it is considered a
constructive
notice
to
all
persons[10] does not apply in this
case. Instead, the CA correctly applied
the ruling in Adille vs. Court of
Appeals[11] which is substantially on all
fours with the present case.
In Adille, petitioner therein executed a
deed
of
extra-judicial
partition
misrepresenting himself to be the sole heir
of his mother when in fact she had other
children. As a consequence, petitioner
therein was able to secure title to the land
in his name alone. His siblings then filed
a case for partition on the ground that said
petitioner was only a trustee on an implied
trust of the property. Among the issues
resolved by the Court in that case was
prescription. Said petitioner registered the
property in 1955 and the claim of private
respondents therein was presented in
1974.

The Courts resolution of whether


prescription had set in therein is
quite apropos to the instant case:
It is true that registration under the
Torrens system is constructive notice of
title, but it has likewise been our
holding that the Torrens title does not
furnish a shield for fraud. It is therefore
no argument to say that the act of
registration is equivalent to notice of
repudiation, assuming there was one,
notwithstanding the long-standing rule
that registration operates as a universal
notice of title.
For the same reason, we cannot dismiss
private respondents claims commenced in
1974 over the estate registered in 1955.
While actions to enforce a constructive
trust prescribes in ten years, reckoned
from the date of the registration of the
property, we, as we said, are not prepared
to count the period from such a date in this
case. We note the petitioners sub
rosa efforts to get hold of the property
exclusively for himself beginning with his
fraudulent misrepresentation in his
unilateral affidavit of extrajudicial
settlement that he is the only heir and
child of his mother Feliza with the
consequence that he was able to secure
title in his name [alone]. Accordingly, we
hold that the right of the private
respondents commenced from the time
they actually discovered the petitioners
act of defraudation. According to the
respondent Court of Appeals, they "came
to know [of it] apparently only during the
progress of the litigation." Hence,
prescription is not a bar.[12]
In this case, the CA reckoned the
prescriptive period from the time
respondents had actually discovered the
fraudulent act of Atupan which was, as

borne out by the records, only during


the trial of Civil Case No. 1672.
[13]
Citing Adille, the CA rightfully ruled
that
respondents
action
for
reconveyance had not yet prescribed.
MENDEZONA v. OZAMIZ
A person is not incapacitated mainly
because of old age.
Facts: Carmen Ozamiz is the owner of the
disputed property in this case. The
Mendezonas claimed that they bought a
certain property in Lahug Cebu from
Carmen Ozamiz. This was evidenced by a
notarized DOAS and a consideration of
P1,040,000.00. This however was rebutted
by the other hairs of Carmen Ozamiz.
They alleged that Ms. Ozamiz could not
have executed such DOAS because she
was already very old at the time the
DOAS was executed. They alleged that
her old age rendered her incapacitated to
execute
such
contract
with
the
Mendezonas.
Issue: W/N old age incapacitates a person
to contract with annother party.
Held: Simulation is defined as the
declaration of a fictitious will, deliberately
made by agreement of the parties, in order
to produce, for the purposes of deception,
the appearances of a juridical act which
does not exist or is different from what
that which was really executed.[20] The
requisites of simulation are: (a) an
outward declaration of will different
from the will of the parties; (b) the false
appearance must have been intended by
mutual agreement; and (c) the purpose
is to deceive third persons.[21] None of
these were clearly shown to exist in the
case at bar.

Contrary to the erroneous conclusions of


the appellate court, a simulated contract
cannot be inferred from the mere nonproduction of the checks. It was not the
burden of the petitioners to prove
so. It is significant to note that the
Deed of Absolute Sale dated April 28,
1989 is a notarized document duly
acknowledged
before
a
notary
public. As such, it has in its favor the
presumption of regularity, and it carries
the evidentiary weight conferred upon
it with respect to its due execution. It is
admissible in evidence without further
proof of its authenticity and is entitled
to full faith and credit upon its face.[22]
Payment is not merely presumed from the
fact that the notarized Deed of Absolute
Sale dated April 28, 1989 has gone
through the regular procedure as
evidenced by the transfer certificates of
title issued in petitioners names by the
Register of Deeds. In other words,
whosoever alleges the fraud or
invalidity of a notarized document has
the burden of proving the same by
evidence that is clear, convincing, and
more than merely preponderant.
[23]
Therefore, with this well-recognized
statutory presumption, the burden fell
upon the respondents to prove their
allegations attacking the validity and due
execution of the said Deed of Absolute
Sale. Respondents failed to discharge that
burden; hence, the presumption in favor of
the said deed stands. But more
importantly, that notarized deed shows on
its face that the consideration of One
Million
Forty
Thousand
Pesos
(P1,040,000.00) was acknowledged to
have been received by Carmen Ozamiz.
Simulation cannot be inferred from the
alleged absence of payment based on the
testimonies
of Concepcion Agac-ac,
assistant
of
Carmen Ozamiz,

and Nelfa Perdido, part-time bookkeeper


of Carmen Ozamiz. The testimonies of
these two (2) witnesses are unreliable and
inconsistent.
While Concepcion Agac-ac testified that
she was aware of all the transactions of
Carmen Ozamiz, she also admitted that
not all income of Carmen Ozamiz passed
through her since Antonio Mendezona, as
appointed administrator, directly reported
to
Carmen Ozamiz.[24] With
respect
to Nelfa Perdido, she testified that most of
the transactions that she recorded refer
only to rental income and expenses, and
the amounts thereof were reported to her
by Concepcion Agac-ac only, not by
Carmen Ozamiz. She does not record
deposits or withdrawals in the bank
accounts of Carmen Ozamiz.[25] Their
testimonies hardly deserve any credit and,
hence, the appellate court misplaced
reliance thereon.
Considering
that
Carmen Ozamiz acknowledged, on the
face of the notarized deed, that she
received the consideration at One Million
Forty Thousand Pesos (P1,040,000.00),
the appellate court should not have placed
too much emphasis on the checks, the
presentation of which is not really
necessary. Besides, the burden to prove
alleged
non-payment
of
the
consideration of the sale was on the
respondents, not on the petitioners.
Also, between its conclusion based on
inconsistent oral testimonies and a duly
notarized document that enjoys
presumption of regularity, the appellate
court should have given more weight to
the latter. Spoken words could be
notoriously unreliable as against a
written document that speaks a
uniform language.[26]
Furthermore, the appellate court erred in
ruling that at the time of the execution of

the Deed of Absolute Sale on April 28,


1989 the
mental
faculties
of
Carmen Ozamiz were already seriously
impaired.[27] It placed too much reliance
upon the testimonies of the respondents
witnesses. However, after a thorough
scrutiny of the transcripts of the
testimonies of the witnesses, we find that
the respondents core witnesses all made
sweeping statements which failed to show
the
true
state
of
mind
of
Carmen Ozamiz at the time of the
execution of the disputed document. The
testimonies of the respondents witnesses
on
the
mental
capacity
of
Carmen Ozamiz are far from being clear
and convincing, to say the least.
Carolina Lagura,
a househelper of
Carmen Ozamiz, testified that when
Carmen Ozamiz was confronted by Paz
O. Montalvan in January 1989 with the
sale
of
the Lahug
property,
Carmen Ozamiz denied the same. She
testified that Carmen Ozamiz understood
the question then.[28] However, this
declaration is inconsistent with her
(Carolinas) statement that since 1988
Carmen Ozamiz could
not
fully
understand the things around her, that she
was physically fit but mentally could not
carry a conversation or recognize persons
who visited her.[29] Furthermore, the
disputed sale occurred on April 28,
1989 or three (3) months after this alleged
confrontation in January 1989. This
inconsistency was not explained by the
respondents.
The revelation of Dr. Faith Go did not also
shed light on the mental capacity of
Carmen Ozamiz on the relevant day
- April 28, 1989 when the Deed of
Absolute Sale was executed and notarized.
At best, she merely revealed that
Carmen Ozamiz was
suffering
from
certain infirmities in her body and at

times, she was forgetful, but there was no


categorical
statement
that
Carmen Ozamiz succumbed to what the
respondents suggest as her alleged
second childhood as early as 1987.
The petitioners rebuttal witness, Dr.
William Buot, a doctor of neurology,
testified that no conclusion of mental
incapacity at the time the said deed was
executed can be inferred from Dr.
Faith Gos clinical notes nor can such
fact be deduced from the mere
prescription of a medication for
episodic memory loss.
It has been held that a person is not
incapacitated to contract merely
because of advanced years or by reason
of physical infirmities. Only when such
age or infirmities impair her mental
faculties to such extent as to prevent her
from properly, intelligently, and fairly
protecting her property rights, is she
considered
incapacitated.The
respondents utterly failed to show
adequate proof that at the time of the sale
on April 28, 1989 Carmen Ozamiz had
allegedly lost control of her mental
faculties.
We note that the respondents sought to
impugn only one document, namely, the
Deed of Absolute Sale dated April 28,
1989, executed by Carmen Ozamiz.
However, there are nine (9) other
important documents that were, signed
by Carmen Ozamiz either before or
after April 28, 1989 which were not
assailed by the respondents.[31] Such is
contrary to their assertion of complete
incapacity of Carmen Ozamiz to handle
her affairs since 1987. We agree with the
trial courts assessment that it is unfair
for the [respondents] to claim
soundness
of
mind
of
Carmen Ozamiz when it benefits them
and otherwise when it disadvantages

them.[32] A person is presumed to be of


sound mind at any particular time and
the condition is presumed to continue to
exist, in the absence of proof to the
contrary.[33] Competency and freedom
from undue influence, shown to have
existed in the other acts done or
contracts executed, are presumed to
continue until the contrary is shown.[34]
FAMANILA v. CA
Facts: Roberto G. Famanila was hired as
Messman[4] for Hansa Riga. On June 21,
1990, while Hansa Riga was docked at
the port of Eureka, California, U.S.A. and
while petitioner was assisting in the
loading operations, the latter complained
of a headache. Petitioner experienced
dizziness and he subsequently collapsed.
Upon examination, it was determined that
he had a sudden attack of left cerebral
hemorrhage from a ruptured cerebral
aneurysm.[5] Petitioner underwent a brain
operation and he was confined at
the Emmanuel Hospital in Portland,Orego
n, U.S.A. On July 19, 1990, he underwent
a second brain operation. Owing to
petitioners physical and mental condition,
he
was
repatriated
to
the Philippines. On August 21, 1990, he
was examined at the American Hospital in
Intramuros, Manila where the examining
physician, Dr. Patricia Abesamis declared
that he cannot go back to sea duty and
has been observed for 120 days, he is
being declared permanently, totally
disabled.[6]
Thereafter,
authorized
representatives of the respondents
convinced him to settle his claim amicably
by accepting the amount of US$13,200.
[7]
Petitioner accepted the offer as
evidenced by his signature in the Receipt
and Release dated February 28, 1991.
[8]
His wife, Gloria Famanila and one
Richard Famanila, acted as witnesses in

the signing of the release. Thereafter, he


filed with the NLRC a complaint for an
award of disability benefits. From the
NLRC to the CA, his claim was denied.
Issue: W/N there was a vitiation of
consent.
Held: A vitiated consent does not make a
contract void and unenforceable. A
vitiated consent only gives rise to a
voidable agreement. Under the Civil
Code, the vices of consent are mistake,
violence, intimidation, undue influence or
fraud.[16] If consent is given through any
of the aforementioned vices of consent,
the contract is voidable.[17] A voidable
contract is binding unless annulled by a
proper action in court.[18]
Petitioner contends that his permanent and
total disability vitiated his consent to the
Receipt and Release thereby rendering it
void
and
unenforceable. However,
disability is not among the factors that
may vitiate consent. Besides, save for
petitioners self-serving allegations, there
is no proof on record that his consent was
vitiated on account of his disability. In the
absence of such proof of vitiated consent,
the validity of the Receipt and Release
must be upheld. We agree with the
findings of the Court of Appeals that:
In the case at bar, there is
nothing in the records to show that
petitioners consent was vitiated
when he signed the agreement.
Granting
that petitioner has
not fully recovered his health at
the time he signed the subject
document, the same cannot still
lead to the conclusion that he
did not voluntar[il]y accept the
agreement, for his wife and

another relative witnessed his


signing.

recognized as a valid and binding


undertaking,[22] as in this case.

Moreover,
the
document
entitled receipt and release which
was attached by petitioner in his
appeal does not show on its face
any violation of law or public
policy. In fact, petitioner did not
present any proof to show that the
consideration for the same is not
reasonable and acceptable.
Absent any evidence to support the
same, the Court cannot, on its own
accord, decide against the
unreasonableness
of
the
[19]
consideration.

To be valid and effective, waivers must be


couched in clear and unequivocal terms,
leaving no doubt as to the intention of
those giving up a right or a benefit that
legally pertains to them.[23] We have
reviewed the terms and conditions
contained in the Receipt and Release and
we find the same to be clear and
unambiguous. The signing was even
witnessed by petitioners wife, Gloria T.
Famanila and one Richard T. Famanila.

It is true that quitclaims and waivers are


oftentimes frowned upon and are
considered as ineffective in barring
recovery for the full measure of the
workers right and that acceptance of the
benefits therefrom does not amount to
estoppel.[20] The
reason
is
plain. Employer and employee, obviously
do not stand on the same footing.
[21]
However, not all waivers and
quitclaims are invalid as against public
policy. If the agreement was voluntarily
entered into and represents a reasonable
settlement, it is binding on the parties and
may not later be disowned simply because
of change of mind. It is only where there
is clear proof that the waiver was wangled
from an unsuspecting or gullible person,
or the terms of the settlement are
unconscionable on its face, that the law
will step in to annul the questionable
transaction. But where it is shown that the
person making the waiver did so
voluntarily, with full understanding of
what he was doing, and the consideration
for the quitclaim is credible and
reasonable, the transaction must be

It is elementary that a contract is 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.
[25]
Further, dire necessity is not an
acceptable ground for annulling the
Receipt and Release since it has not been
shown that petitioner was forced to sign it.
[26]

Regarding prescription, the applicable


prescriptive period for the money claims
against the respondents is the three year
period pursuant to Article 291 of the
Labor Code which provides that:
ART. 291. Money Claims.
All money claims arising from
employer-employee
relations
accruing during the effectivity of
this Code shall be filed within
three (3) years from the time the
cause of action accrued; otherwise
they shall be forever barred.
xxxx

Since petitioners demand for an award of


disability benefits is a money claim
arising from his employment, Article 291
of the Labor Code applies. From the time
petitioner was declared permanently and
totally disabled on August 21, 1990 which
gave rise to his entitlement to disability
benefits up to the time that he filed the
complaint on June 11, 1997, more than
three years have elapsed thereby
effectively barring his claim.
CATALAN v. BASA
A person suffering from schizophrenia
does not necessarily lose his competence
to intelligently dispose his property.
Facts: On October 20, 1948, FELICIANO
CATALAN (Feliciano) was discharged
from active military service. The Board
of Medical Officers of the Department of
Veteran Affairs found that he was unfit to
render military service due to his
schizophrenic reaction, catatonic type,
which incapacitates him because of
flattening
of
mood
and
affect,
preoccupation with worries, withdrawal,
and sparce (sic) and pointless speech. He
allegedly donated to his sister Mercedes
his 1/2 share in a parcel of land located in
Binmaley, Pangasinan. Mercedes then
sold the said property to her two children.
BPI thereafter was declared by the court
as guardian of Feliciano Catalan. On April
1, 1997, BPI, acting as Felicianos
guardian, filed a case for Declaration of
Nullity of Documents, Recovery of
Possession and Ownership,[13] as well as
damages
against
the
herein
respondents. BPI alleged that the Deed of
Absolute Donation to Mercedes was
void ab initio, as Feliciano never donated
the property to Mercedes. In addition,
BPI averred that even if Feliciano had
truly intended to give the property to her,
the donation would still be void, as he was

not of sound mind and was therefore


incapable of giving valid consent. Thus, it
claimed that if the Deed of Absolute
Donation was void ab initio, the
subsequent Deed of Absolute Sale to Delia
and Jesus Basa should likewise be
nullified, for Mercedes Catalan had no
right to sell the property to anyone. BPI
raised doubts about the authenticity of the
deed of sale, saying that its registration
long after the death of Mercedes Catalan
indicated fraud. Thus, BPI sought
remuneration for incurred damages and
litigation expenses.
Issue: W/N a schizophrenic person is
deemd incapacitated.
Held: A donation is an act of liberality
whereby a person disposes gratuitously a
thing or right in favor of another, who
accepts it.[22] Like any other contract, an
agreement of the parties is essential.
Consent in contracts presupposes the
following requisites: (1) it should be
intelligent or with an exact notion of the
matter to which it refers; (2) it should be
free; and (3) it should be spontaneous.
[23]
The parties' intention must be clear and
the attendance of a vice of consent, like
any contract, renders the donation
voidable.[24]

In order for donation of property to be


valid, what is crucial is the donors
capacity to give consent at the time of
the donation. Certainly, there lies no
doubt in the fact that insanity impinges
on consent freely given.[25] However, the
burden of proving such incapacity rests
upon the person who alleges it; if no
sufficient proof to this effect is
presented, capacity will be presumed.
[26]

A thorough perusal of the records of the


case at bar indubitably shows that the
evidence presented by the petitioners
was insufficient to overcome the
presumption
that Feliciano was
competent when he donated the
property
in
question
to
Mercedes. Petitioners make much ado
of the fact that, as early as 1948,
Feliciano had been found to be
suffering from schizophrenia by the
Board of Medical Officers of the
Department of Veteran Affairs. By
itself, however, the allegation cannot
prove the incompetence of Feliciano.
A study of the nature of schizophrenia
will show that Feliciano could still be
presumed capable of attending to his
property rights. Schizophrenia was
brought to the attention of the public
when, in the late 1800s, Emil Kraepelin, a
German
psychiatrist,
combined
hebrephrenia and catatonia with
certain paranoid states and called the
condition dementia praecox. Eugene
Bleuler, a Swiss psychiatrist, modified
Kraepelins conception in the early 1900s
to include cases with a better outlook and
in 1911 renamed the condition
schizophrenia. According to medical
references, in persons with schizophrenia,
there is a gradual onset of symptoms, with
symptoms becoming increasingly bizarre
as the disease progresses. The condition
improves (remission or residual stage) and
worsens (relapses) in cycles. Sometimes,
sufferers may appear relatively normal,
while other patients in remission may
appear strange because they speak in a
monotone, have odd speech habits, appear
to have no emotional feelings and are
prone to have ideas of reference. The
latter refers to the idea that random social
behaviors are directed against the
sufferers.[27] It has been proven that the
administration of the correct medicine

helps
the
patient. Antipsychotic
medications help bring biochemical
imbalances closer to normal in a
schizophrenic. Medications
reduce
delusions, hallucinations and incoherent
thoughts and reduce or eliminate chances
of relapse.[28] Schizophrenia can result in a
dementing illness similar in many aspects
to Alzheimers disease. However, the
illness will wax and wane over many
years, with only very slow deterioration of
intellect.[29]
From these scientific studies it can be
deduced that a person suffering from
schizophrenia does not necessarily lose
his competence to intelligently dispose
his property. By merely alleging the
existence of schizophrenia, petitioners
failed to show substantial proof that at
the date of the donation, June 16, 1951,
Feliciano Catalan had lost total control
of his mental faculties. Thus, the lower
courts correctly held that Feliciano was
of sound mind at that time and that this
condition continued to exist until proof
to the contrary was adduced.
[30]
Sufficient proof of his infirmity to
give consent to contracts was only
established when the Court of First
Instance of Pangasinan declared him an
incompetent on December 22, 1953.[31]
It is interesting to note that the petitioners
questioned Felicianos capacity at the
time he donated the property, yet did
not see fit to question his mental
competence when he entered into a
contract of marriage with Corazon
Cerezo or when he executed deeds of
donation of his other properties in their
favor. The presumption that Feliciano
remained
competent
to
execute
contracts, despite his illness, is
bolstered by the existence of these other
contracts. Competency and freedom
from undue influence, shown to have

existed in the other acts done


or contracts executed, are presumed to
continue until the contrary is shown.[32]

(2) Was its sale by Florentino without


Elisera's consent valid?

Needless to state, since the donation was


valid, Mercedes had the right to sell the
property to whomever she chose.[33] Not
a shred of evidence has been presented to
prove the claim that Mercedes sale of the
property to her children was tainted with
fraud or falsehood. It is of little bearing
that the Deed of Sale was registered
only after the death of Mercedes. What
is material is that the sale of the
property to Delia and Jesus Basa was
legal and binding at the time of its
execution. Thus, the property in
question belongs to Delia and Jesus
Basa.

Held: Anent the first issue, petitioners'


contention that the lot belongs exclusively
to Florentino because of his separation in
fact from his wife, Elisera, at the time of
sale dissolved their property relations, is
bereft of merit. Respondents' separation in
fact neither affected the conjugal nature of
the lot nor prejudiced Elisera's interest
over it. Under Article 17816 of the Civil
Code, the separation in fact between
husband and wife without judicial
approval shall not affect the conjugal
partnership. The lot retains its conjugal
nature.

Finally, we note that the petitioners raised


the issue of prescription and laches for the
first time on appeal before this Court. It is
sufficient for this Court to note that even
if the present appeal had prospered, the
Deed of Donation was still a voidable,
not a void, contract. As such, it
remained binding as it was not annulled
in a proper action in court within four
years.
VILLANUEVA v. CHIONG
Facts: Florentino and Elisera are separated
in fact. Sometime in 1985, Florentino
verbally sold their conjugal property to the
spouses
Chiong.
Elisera
however
questioned the sale on July 5, 19991. The
spouses Chiong on the other hand averred
that the sale of the 1/2 portion of
Florentinos share in the land is valid.
Moreover, they insist that the land is not
the conjugal property of the spouses.
Issue: (1) Is the subject lot an exclusive
property of Florentino or a conjugal
property of respondents?

Likewise, under Article 16017 of the Civil


Code, all property acquired by the
spouses during the marriage is
presumed to belong to the conjugal
partnership of gains, unless it is proved
that it pertains exclusively to the
husband or to the wife. Petitioners' mere
insistence as to the lot's supposed
exclusive nature is insufficient to
overcome such presumption when taken
against all the evidence for respondents.
On the basis alone of the certificate of
title, it cannot be presumed that the lot
was acquired during the marriage and that
it is conjugal property since it was
registered "in the name of Florentino
Chiong, Filipino, of legal age, married to
Elisera Chiong ."18 But Elisera also
presented a real property tax declaration
acknowledging her and Florentino as
owners of the lot. In addition, Florentino
and Elisera categorically declared in the
Memorandum of Agreement
they
executed that the lot is a conjugal
property.19 Moreover, the conjugal nature

of the lot was admitted by Florentino in


the Deed of Absolute Sale dated May 13,
1992, where he declared his capacity to
sell as a co-owner of the subject lot.20
Anent the second issue, the sale by
Florentino without Elisera's consent is not,
however, void ab initio. In Vda. de
Ramones v. Agbayani,21 citing Villaranda
v. Villaranda,22 we held that without the
wife's consent, the husband's alienation
or encumbrance of conjugal property
prior to the effectivity of the Family
Code on August 3, 1988 is not void, but
merely voidable. Articles 166 and 173 of
the Civil Code 23 provide:
ART. 166. Unless the wife has been
declared a non compos mentis or a
spendthrift, or is under civil interdiction or
is confined in a leprosarium, the husband
cannot alienate or encumber any real
property of the conjugal partnership
without the wife's consent
This article shall not apply to property
acquired by the conjugal partnership
before the effective date of this Code.
ART. 173. The wife may, during the
marriage, and within ten years from the
transaction questioned,ask the courts for
the annulment of any contract of the
husband entered into without her
consent, when such consent is required, or
any act or contract of the husband which
tends to defraud her or impair her interest
in the conjugal partnership property.
Should the wife fail to exercise this right,
she or her heirs, after the dissolution of the
marriage, may demand the value of
property fraudulently alienated by the
husband.
Applying Article 166, the consent of both
Elisera and Florentino is necessary for the

sale of a conjugal property to be valid. In


this case, the requisite consent of Elisera
was not obtained when Florentino
verbally sold the lot in 1985 and executed
the Deed of Absolute Sale on May 13,
1992. Accordingly, the contract entered by
Florentino is annullable at Elisera's
instance, during the marriage and within
ten years from the transaction questioned,
conformably
with
Article
173.
Fortunately, Elisera timely questioned
the sale when she filed Civil Case No.
4383 on July 5, 1991, perfectly within
ten years from the date of sale and
execution of the deed.
Petitioners
finally
contend
that,
assuming arguendo the property is still
conjugal, the transaction should not be
entirely voided as Florentino had one-half
share over the lot. Petitioners' stance lacks
merit. In Heirs of Ignacia Aguilar-Reyes
v. Mijares 24 citing Bucoy v. Paulino, et
al.,25 a case involving the annulment of
sale executed by the husband without the
consent of the wife, it was held that the
alienation must be annulled in its
entirety and not only insofar as the
share of the wife in the conjugal
property is concerned. Although the
transaction in the said case was
declared void and not merely voidable,
the rationale for the annulment of the
whole transaction is the same. Thus:
The plain meaning attached to the plain
language of the law is that the contract, in
its entirety, executed by the husband
without the wife's consent, may be
annulled by the wife. Had Congress
intended to limit such annulment in so far
as the contract shall "prejudice" the wife,
such limitation should have been spelled
out in the statute. It is not the legitimate
concern of this Court to recast the law. As
Mr. Justice Jose B. L. Reyes of this Court

and Judge Ricardo C. Puno of the Court of


First Instance correctly stated, "[t]he rule
(in the first sentence of Article 173)
revokes Baello vs. Villanueva, 54 Phil.
213 and Coque vs. Navas Sioca, 45 Phil.
430," in which cases annulment was held
to refer only to the extent of the one-half
interest of the wife .26
Now, if a voidable contract is annulled,
the restoration of what has been given is
proper.27 Article 1398 of the Civil Code
provides:
An obligation having been annulled, the
contracting parties shall restore to each
other the things which have been the
subject matter of the contract, with
their fruits, and the price with its
interest, except in cases provided by
law.
In obligations to render service, the
value thereof shall be the basis for
damages.
The effect of annulment of the contract is
to wipe it out of existence, and to restore
the parties, insofar as legally and
equitably possible, to their original
situation before the contract was entered
into.28
Strictly applying Article 1398 to the
instant case, petitioners should return to
respondents the land with its fruits29and
respondent Florentino should return to
petitioners the sum of P8,000, which he
received as the price of the land, together
with interest thereon.
On the matter of fruits and interests, we
take into consideration that petitioners
have been using the land and have derived
benefit from it just as respondent
Florentino has used the price of the land in

the sum of P8,000. Hence, if, as ordered


by the lower court, Florentino is to pay a
reasonable amount or legal interest for the
use of the money then petitioners should
also be required to pay a reasonable
amount for the use of the land.30 Under the
particular circumstances of this case,
however, it would be equitable to consider
the two amounts as offsetting each other.
Hence, the award of the trial court for the
payment of interest should be deleted.
AYSON v. PARAGAS
Facts: An ejectment suit was filed against
spouses Paragas by the successors-ininterest of Amado Ll. Ayson, particularly
Amado Ayson. The Paragas spouses
admitted that they stayed on the premises
because of the tolerance of the Aysons.
This reached up to the SC where the SC
upheld the ejectment suit against the
Paragas spouses. Meanwhile, during the
pendency of the appeal with the RTC,
respondent-spouses filed against petitioner
a complaint[13] for declaration of nullity of
deed of sale, transactions, documents and
titles with a prayer for preliminary
injunction and damages. The complaint
alleged, inter alia, that respondent
Maxima is a co-owner of a parcel of
land. Sometime prior to April 13, 1955,
respondent Felix, then an employee of the
defunct
Dagupan
Colleges
(now University of Pangasinan) failed to
account for the amount of P3,000.00. It
was agreed that respondent Felix would
pay the said amount by installment to the
Dagupan Colleges. Pursuant to that
agreement, Blas F. Rayos and Amado Ll.
Ayson, then both occupying high positions
in the said institution, required
respondent-spouses to sign, without
explaining to them, a Deed of Absolute
Sale on April 13, 1955 over respondent
Maximas real property under threat

that respondent Felix would be


incarcerated for misappropriation if
they refused to do so. The complaint
further alleged that later, respondentspouses, true to their promise to reimburse
the defalcated amount, took pains to pay
their obligation in installments regularly
deducted from the salaries received by
respondent Felix from Dagupan Colleges;
that the payments totaled P5,791.69; that
notwithstanding the full payment of the
obligation, Amado Ll. Ayson and Blas F.
Rayos did nothing to cancel the purported
Deed of Absolute Sale; and that they were
shocked when they received a copy of the
complaint for ejectment filed by
petitioner.
Issue: W/N there was vitiation of consent
on the part of Felix Paragas.
Held: First. With respect to the
admissions made by respondent-spouses,
through their counsel during the
preliminary conference of the ejectment
case, it is worthy to note that, as early as
the submission of position papers before
the MTCC, they already questioned the
sale of the subject property to Amado Ll.
Ayson and Blas F. Rayos for being
fictitious and asserted their ownership
over the land, pointing to the fact that
respondent Maxima had been living on the
land since her birth in 1913 and that they
had been in continuous possession thereof
since her marriage to respondent Felix in
1944. However, unfortunately for them,
the MTCC held them bound by the
admissions made by their counsel and
decided that petitioner had a better right to
possess the property.
Nevertheless, it must be remembered that
in ejectment suits the issue to be resolved
is merely the physical possession over the
property, i.e., possession de factoand not

possession de jure, independent of any


claim of ownership set forth by the partylitigants.[19] Should the defendant in an
ejectment case raise the defense of
ownership in his pleadings and the
question of possession cannot be resolved
without deciding the issue of ownership,
the issue of ownership shall be resolved
only to determine the issue of possession.
[20]
The judgment rendered in such an
action shall be conclusive only with
respect to physical possession and shall in
no wise bind the title to the realty or
constitute a binding and conclusive
adjudication of the merits on the issue of
ownership. Therefore, such judgment
shall not bar an action between the same
parties respecting the title or ownership
over the property,[21] which action was
precisely resorted to by respondentspouses in this case.
Anent the claim that respondent-spouses
admitted the series of TCTs issued by
reason of the registration of the questioned
Deed of Absolute Sale, suffice it to state
that records show that they admitted only
the existence thereof, not necessarily the
validity of their issuance.
Second. The Deed of Absolute Sale is, in
reality, an equitable mortgage or a
contract of loan secured by a
mortgage. The Civil Code enumerates the
cases in which a contract, purporting to be
a sale, is considered only as a contract of
loan secured by a mortgage, viz.:
Art. 1602. The contract
shall be presumed to be an
equitable mortgage, in any
of the following cases:
(1)

When the price


of the sale with
right to repurchase

is
unusually
inadequate;
(2)

(3)

When
the
vendor remains in
possession
as
lessee
or
otherwise;
When upon or
after the expiration
of the right to
repurchase another
instrument
extending
the
period
of
redemption
or
granting a new
period is executed;

(4)

When
the
purchaser retains
for himself a part
of the purchase
price;

(5)

When the vendor


binds himself to
pay the taxes on
the thing sold;

(6)

or otherwise shall be considered as


interest which shall be subject to
the usury laws.[22]

In any other case


where it may be
fairly inferred that
the real intention
of the parties is
that the transaction
shall secure the
payment of a debt
or the performance
of
any
other
obligation.

In any of the foregoing cases, any


money, fruits, or other benefit to
be received by the vendee as rent

Art. 1604. The provisions


of article 1602 shall also
apply to a contract
purporting to be an
absolute sale.
In such cases, parol evidence then
becomes
competent
and
admissible to prove that the
instrument was in truth and in fact
given merely as a security for the
repayment of a loan; and upon
adequate proof of the truth of such
allegations, the courts will enforce
the agreement or understanding in
this regard, in accord with the true
intent of the parties at the time the
contract was executed, even if the
conveyance was accompanied by
registration in the name of the
transferee and the issuance of a
new certificate of title in his name.
[23]

In this case, the evidence before the RTC,


Branch 42, Dagupan City had established
that the possession of the subject property
remained with respondent-spouses despite
the execution of the Deed of Absolute
Sale on April 13, 1955. In fact,
testimonies during the trial showed that
petitioner and his predecessors never
disturbed the possession of respondentspouses until the filing of the ejectment
case on April 12, 1992.[24]
Moreover, the evidence presented by
respondent-spouses indubitably reveals
that they signed the contract under threat
of prosecution, with the view to secure the
payment of the P3,000.00 defalcated by
respondent Felix. Amado Ll. Ayson and

Blas F. Rayos obviously exerted undue


influence on Felix taking advantage of the
latters
lack
of
education
and
understanding of the legal effects of his
signing the deed.
Respondent-spouses have clearly proven
that they have already paid the aforesaid
amount. That the obligation was paid in
installments through salary deduction over
a period of 10 years from the signing of
the Deed of Absolute Sale is of no
moment. It is safe to assume that this
repayment scheme was in the nature of an
easy payment plan based on the
respondent-spouses capacity to pay. Also
noteworthy is that the deductions from
respondent Felixs salary amounted to a
total of P5,791.69,[25] or almost double the
obligation of P3,000.00. Furthermore, it
cannot be denied that petitioner failed to
adduce countervailing proof that the
payments, as evidenced by the volume of
receipts, were for some other obligation.

Colleges, practically bullied respondentspouses into signing the Deed of Absolute


Sale under threat of incarceration. Thus,
the four-year period should start from the
time the defect in the consent ceases.
[26]
While at first glance, it would seem
that the defect in the consent of
respondent-spouses ceased either from the
payment of the obligation through salary
deduction or from the death of Amado Ll.
Ayson and Blas F. Rayos, it is apparent
that such defect of consent never ceased
up to the time of the signing of the
Affidavit on April 8, 1992 when Zareno,
acting on behalf of petitioner, caused
respondent Felix to be brought to him, and
taking advantage of the latter being
unlettered, unduly influenced Felix into
executing the said Affidavit for a fee
of P10,000.00.[27] The complaint praying
for the nullity of the Deed of Absolute
Sale was filed on October 11, 1993, well
within the four-year prescriptive period.
DESTREZA v. ALAROS

That the realty taxes paid by respondentspouses was only for their house can be
explained by the fact that, until the filing
of the ejectment case, respondent Maxima
was not aware that the land she co-owned
was already partitioned, such that the
payments of real estate taxes in her name
were limited to the improvement on the
land.
An equitable mortgage is a voidable
contract. As such, it may be annulled
within four (4) years from the time the
cause of action accrues. This case,
however, not only involves a contract
resulting from fraud, but covers a
transaction
ridden
with
threat,
intimidation, and continuing undue
influence which started when petitioners
adoptive father Amado Ll. Ayson and Blas
F. Rayos, Felixs superiors at Dagupan

Facts:
Issue: W/N sufficient evidence warranted
the nullification of the deed of sale that
the late Rioza executed in favor of the
Destrezas.
Held: At the outset, the ruling of the CA
was correct. Indeed, the notarized deed of
sale should be admitted as evidence
despite the failure of the Notary Public in
submitting his notarial report to the
notarial section of the RTC Manila. It is
the swearing of a person before the Notary
Public and the latters act of signing and
affixing his seal on the deed that is
material and not the submission of the
notarial report.
Parties who appear before a notary public
to have their documents notarized should

not be expected to follow up on the


submission of the notarial reports. They
should not be made to suffer the
consequences of the negligence of the
Notary Public in following the procedures
prescribed by the Notarial Law. Thus, the
notarized deed of sale executed by Rioza
is admissible as evidence of the sale of the
Utod
sugarland
to
the
Destrezas. Furthermore, it will be shown
later that the Destrezas did not fabricate
the sale of the Utod sugarland as may be
suggested by the failure of the Notary
Public to submit his notarial report
because there are evidence which show
that Rioza really consented to the sale.
The CA, however, made a mistake with
regard to the assignment of the burden of
proof. No rule requires a party, who relies
on a notarized deed of sale for establishing
his ownership, to present further evidence
of such deeds genuineness lest the
presumption of its due execution be for
naught. Under the rules of evidence,
Every instrument duly acknowledged or
proved and certified as provided by law,
may be presented in evidence without
further proof, the certificate of
acknowledgment
being prima
facie evidence of the execution of the
instrument or document involved.[32]
Here, Atty. Crispulo Ducusin notarized the
deed of sale that Rioza acknowledged as
his free act and deed on June 17,
1989. By signing and affixing his notarial
seal on the deed, Atty. Ducusin converted
it from a private document to a public
document.[33] As such, the deed of sale is
entitled to full faith and credit upon its
face. And since Rioza, the executor of
the deed, is already dead, the notarized
deed of absolute sale is the best evidence
of his consent to the sale of the Utod
sugarland
to
the
Destreza

spouses. Parenthetically, it is not disputed


that the Destrezas immediately and openly
occupied the land right after the sale and
continuously cultivated it from then on.
The burden of proof is the duty of a party
to present such amount of evidence on the
facts in issue as the law deems necessary
for the establishment of his claim.
[34]
Here, since respondents Plazo and
Alaras claim, despite the Destrezas
evidence of title over the property and
open possession of it, that grave and
serious doubts plague TCT 55396, the
burden is on them to prove such
claim. Only when they are successful in
doing so will the court be justified in
nullifying the notarized deed of sale that
their father Rioza executed in favor of
the Destrezas.
But more than plausible evidence was
required of Plazo and Alaras. An
allegation of fraud with regard to the
execution of a notarized deed of
absolute sale is a grave allegation. It
cannot
be
declared
on
mere
speculations. In fact, to overcome the
presumption of regularity and due
execution of a notarized deed, there
must be clear and convincing evidence
showing otherwise. The burden of
proof to overcome the presumption lies
on the one contesting the same.
[35]
Without
such
evidence,
the
presumption remains undiminished.[36]
The Courts present task, therefore, is to
determine if respondents Plazo and
Alaras evidence that their father did not
sell the subject land to the Destrezas is
clear and convincing.
1.
Plazo and Alaras point out that
Destrezas acquisition of a copy of TCT
55396 is questionable. Destreza said that

he got a copy of the TCT on July 15, 1989


but such TCT was entered into the registry
of title only on July 18, 1989. Moreover,
Bonuan, the Register of Deeds, testified
that he had not yet issued that TCT to the
Destrezas because of some lacking
documents. He did, however, say that he
released a copy of it to ex-mayor Rioza
upon the latters request.
These
circumstances
may
appear
perplexing but the problem is that they did
not touch the validity of the deed of
sale. And it does not help that the trial did
not really address them. Plazo and Alaras
did not confront petitioner Gregorio
Destreza regarding these circumstances
when he took the witness stand. It would
be pure speculation to declare that the
Destrezas defrauded Rioza based solely
on them.
At any rate, Section 57 of Presidential
Decree No. 1529, the Property
Registration Decree, provides that an
owner who wants to convey his registered
land shall execute and register a deed of
conveyance in a form sufficient in
law. The Register of Deeds shall then
make out in the registration book a new
certificate of title to the new owner and
shall prepare and deliver to him an
owner's duplicate certificate. The Register
of Deeds shall note upon the original and
duplicate certificate the date of transfer,
the volume and page of the registration
book in which the new certificate is
registered and a reference by number to
the last preceding certificate. The original
and the owner's duplicate of the grantor's
certificate shall be stamped canceled.
Here, the supposed irregularity lies in the
release of a copy of the title to the
Destrezas even before it had been entered
into the books of the Register of

Deeds. Furthermore, the Destrezas were


able to acquire a copy of it when they still
needed to submit some registration
requirements. But the premature release
of a copy of the registered title cannot
affect the validity of the contract of sale
between
Rioza
and
the
Destrezas. Registration only serves as
the operative act to convey or affect the
land insofar as third persons are
concerned. It does not add anything to
the efficacy of the contract of sale
between the buyer and the seller. In
fact, if a deed is not registered, the deed
will continue to operate as a contract
between the parties.[37]
Furthermore, the declaration of Bonuan
that he furnished ex-mayor Rioza with a
copy of TCT 55396 strengthens the case
of the Destrezas. It shows that Rioza
knew of and gave consent to the sale of
his Utod sugarland to them considering
that he even helped facilitate the
registration of the deed of sale. This
negates any possible suggestion that the
Destrezas merely fabricated the sale of
the Utod sugarland on the evidence that
the Notary Public failed to submit his
notarial report. Whatever irregularity
in registration may have been incurred,
it did not affect the validity of the sale.
2.
Alaras claims that on August 1,
1989, months after the sale of the Utod
sugarland to the Destrezas, her father
Rioza asked her to mortgage some
land. He gave Alaras the title to it,
impressing on her that such title covered a
land in Barangay Utod. But this does not
prove that the sale of the Utod
sugarland to the Destrezas is
void. Alaras admitted that she did not
see the number of the title handed to
her. Nor did she identify in court any
specific title as the one she got. To be of

value to her cause, Alaras needed to


testify that TCT 40353 remained
uncancelled in her fathers hands even
after the supposed entry of TCT 55396
in the Registry of Deeds.[38] But she did
not so testify.
3.
Plazo and Alaras also question the
testimony of Gregorio Destreza that he
paid P100,000.00 to Rioza when the
figure appearing on the deed of sale was
only P60,000.00. Again, this is not
sufficient ground to nullify such
deed. The fact remains that Rioza sold
his land to the Destrezas under that
document and they paid for it. The
explanation for the difference in the
prices can be explained only by Rioza
and Gregorio Destreza. Unfortunately,
Rioza had died. On the other hand,
Plazo and Alaras chose not to confront
Destreza regarding that difference
when the latter took the witness stand.
In sum, the Court finds the notarized
deed of sale that the late Pedro Rioza
executed in favor of the Destrezas valid
and binding upon them and their
successors-in-interest. It served as
authority to the Register of Deeds to
register the conveyance of the property
and issue a new title in favor of the
Destrezas. That the Destrezas occupied
and cultivated the land openly for seven
years before and after Riozas death
negates any scheme to steal the land.
KINGS PROPERTIES INC. v.
GALIDO
Facts:
Issue: W/N the DOS is valid.
Held:
Validity of the deed of sale to respondent

The contract between the Eniceo heirs and


respondent executed on 10 September
1973 was a perfected contract of sale. A
contract is perfected once there is consent
of the contracting parties on the object
certain and on the cause of the obligation.
[39]
In the present case, the object of the
sale is the Antipolo property and the price
certain is P250,000.
The contract of sale has also been
consummated because the vendors and
vendee have performed their respective
obligations under the contract. In a
contract of sale, the seller obligates
himself to transfer the ownership of the
determinate thing sold, and to deliver the
same to the buyer, who obligates himself
to pay a price certain to the seller.[40] The
execution of the notarized deed of sale
and the delivery of the owners duplicate
copy of OCT No. 535 to respondent is
tantamount to a constructive delivery of
the object of the sale. In Navera v. Court
of Appeals, the Court ruled that since the
sale was made in a public instrument, it
was clearly tantamount to a delivery of the
land resulting in the symbolic possession
thereof being transferred to the buyer.[41]
Petitioner alleges that the deed of sale is a
forgery. The Eniceo heirs also claimed in
their answer that the deed of sale is fake
and spurious.[42] However, as correctly
held by the CA, forgery can never be
presumed. The party alleging forgery is
mandated to prove it with clear and
convincing evidence.[43] Whoever alleges
forgery has the burden of proving it. In
this case, petitioner and the Eniceo
heirs failed to discharge this burden.

Petitioner invokes the belated approval by


the DENR Secretary, made within 25
years from the issuance of the homestead,
to nullify the sale of the Antipolo property.
The sale of the Antipolo property cannot
be annulled on the ground that the DENR
Secretary gave his approval after 21 years
from the date the deed of sale in favor of
respondent was executed. Section 118 of
Commonwealth Act No. 141 or the Public
Land Act (CA 141), as amended by
Commonwealth Act No. 456,[44] reads:
SEC. 118. EXCEPT IN
FAVOR
OF
THE
GOVERNMENT
OR
ANY
OF
ITS
BRANCHES, UNITS, OR
INSTITUTIONS,
OR
LEGALLY
CONSTITUTED
BANKING
CORPORATIONS,
LANDS
ACQUIRED
UNDER FREE PATENT
OR
HOMESTEAD
PROVISIONS
SHALL
NOT BE SUBJECT TO
ENCUMBRANCE
OR
ALIENATION
FROM
THE DATE OF THE
APPROVAL OF THE
APPLICATION
AND
FOR A TERM OF FIVE
YEARS FROM AND
AFTER THE DATE OF
THE ISSUANCE OF
THE
PATENT
OR
GRANT X X X
No alienation, transfer, or conveyance of
any homestead after five years and before
twenty-five years after the issuance of title
shall be valid without the approval of the
Secretary of Agriculture and Natural
Resources,[45] which approval shall not be

denied except on constitutional and legal


grounds.
In Spouses Alfredo v. Spouses Borras,
[46]
the Court explained the implications of
Section 118 of CA 141. Thus:
A grantee or homesteader is
prohibited from alienating to a
private individual a land grant
within five years from the time
that the patent or grant is
issued. A violation of this
prohibition renders a sale void.
This , however, expires on the fifth
year. From then on until the next
20 years, the land grant may be
alienated
provided
the
Secretary of Agriculture and
Natural Resources approves the
alienation. The Secretary is
required to approve the
alienation unless there are
constitutional and legal grounds
to deny the approval. In this case,
there are no apparent or legal
grounds for the
Secretary
to
disapprove the sale of the Subject
Land.
The failure to secure the approval of the
Secretary does not ipso facto make a
sale void. The absence of approval by
the Secretary does not a sale made after
the expiration of the 5-year period, for
in such event the requirement of
Section 118 of the Public Land Act
becomes merely directory or a
formality. The approval may be secured
later, producing the effect of ratifying
and adopting the transaction as if the
sale had been previously authorized.
VILORIA v. CONTINENTAL

AIRLINES
Facts: In 1997, while the spouses Viloria
were in the United States, they approached
Holiday Travel, a travel agency working
for ContinentalAirlines,
to
purchase
tickets from Newark to San Diego. The
travel agent, Margaret Mager, advised the
couple that they cannot travel by train
because it is fully booked; that they must
purchase
plane
tickets
forContinental Airlines; that if they wont
purchase plane tickets; theyll never reach
their destination in time. The couple
believed Magers representations and so
they purchased two plane tickets worth
$800.00.
Later however, the spouses found out that
the train trip isnt fully booked and so they
purchased train tickets and went to their
destination by train instead. Then they
called up Mager to request for a refund for
the plane tickets. Mager referred the
couple to ContinentalAirlines. As the
couple are now in the Philippines, they
filed
their
request
with Continental Airlines office in Ayala.
The spouses Viloria alleged that Mager
misled them into believing that the only
way to travel was by plane and so they
were fooled into buying expensive tickets.
Continental Airlines refused to refund the
amount of the ticket and so the spouses
sued the airline company. In its
defense, ContinentalAirlines claimed that
the ticket sold to them by Mager is nonrefundable; that, if any, they are not bound
by the misrepresentations of Mager
because theres no agency existing
between Continental Airlines and Mager.
The trial court ruled in favor of spouses
Viloria but the Court of Appeals reversed
the ruling of the RTC
Issue:

Held:
I. Even on the assumption that CAI
may be held liable for the acts of Mager,
still,
Spouses Viloria are not entitled
to a refund. Magers statement cannot
be considered a causal fraud that
would justify the annulment of the
subject contracts that would
oblige CAI to indemnify Spouses
Viloria and return the money they paid
for the
subject tickets.
A
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(
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)

y
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.
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a

t
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c
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n
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d
,
t
h
e
p
a
r
t
i
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s

a
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e
r
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r
t
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e
1
3
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8
o
f
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s
a
m
e
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o
d

e
t
o
r
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s
t
o
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e
t
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a
c
h
o
t
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r
t
h
e
t
h
i
n
g
s
s
u
b
j
e
c
t

m
a
t
t
e
r
o
f
t
h
e
c
o
n
t
r
a
c
t
,
i
n
c
l
u
d
i
n
g
t
h
e
i
r
f
r
u
i
t
s

a
n
d
i
n
t
e
r
e
s
t
.
On the basis of the foregoing and given
the allegation of Spouses Viloria that
Fernandos consent to the subject
contracts was supposedly secured by
Mager through fraudulent means, it is
plainly apparent that their demand for a
refund is tantamount to seeking for an
annulment of the subject contracts on
the ground of vitiated consent.
Whether the subject contracts are
annullable, this Court is required to
determine whether Magers alleged
misrepresentation constitutes causal fraud.
Similar to the dispute on the existence of
an agency, whether fraud attended the
execution of a contract is factual in nature
and this Court, as discussed above, may
scrutinize the records if the findings of the
CA are contrary to those of the RTC
Under Article 1338 of the Civil Code,
there is fraud when, through insidious
words or machinations of one of the
contracting parties, the other is induced to
enter into a contract which, without them,
he would not have agreed to. In order that
fraud may vitiate consent, it must be the
causal (dolo causante), not merely the
incidental (dolo incidente), inducement to
the making of the contract.30 In Samson v.

Court of Appeals,31 causal fraud was


defined as a deception employed by one
party prior to or simultaneous to the
contract in order to secure the consent
of the other.32
Also, fraud must be serious
and its existence must be
established by clear and
convincing evidence. As
ruled by this Court
in Sierra v. Hon. Court of
Appeals, et al.,33
Fraud must also
be
discounted,
for
according to the Civil
Code:
Art.
1338. There
is
fraud
when,
through
insidious
words
or
machinations
of one of the
contracting
parties,
the other is
induced
to
enter into a
contract
which
without
them,
he
would
not
have agreed
to.
Art.
1344.
In
order
that
fraud
may
make
a

contract
voidable, it
should
be
serious and
should
not
have been
employed
by
both
contracting
parties.
To quote Tolentino again, the
misrepresentation constituting
the fraud must be established by
full, clear, and convincing
evidence, and not merely by a
preponderance thereof. The
deceit must be serious. The
fraud is serious when it is
sufficient to impress, or to lead
an ordinarily prudent person
into error; that which cannot
deceive a prudent person cannot
be a ground for nullity. The
circumstances of each case
should be considered, taking into
account the personal conditions
of the victim.34
After meticulously poring over the
records, this Court finds that the fraud
alleged by Spouses Viloria has not been
satisfactorily established as causal in
nature to warrant the annulment of the
subject contracts. In fact, Spouses
Viloria failed to prove by clear and
convincing evidence that Magers
statement was fraudulent. Specifically,
Spouses Viloria failed to prove that (a)
there were indeed available seats at
Amtrak for a trip to New Jersey on
August 13, 1997 at the time they spoke
with Mager on July 21, 1997; (b) Mager
knew about this; and (c) that she
purposely informed them otherwise.

This Court finds the only proof of Magers


alleged fraud, which is Fernandos
testimony that an Amtrak had assured him
of the perennial availability of seats at
Amtrak, to be wanting. As CAI correctly
pointed out and as Fernando admitted, it
was possible that during the intervening
period of three (3) weeks from the time
Fernando purchased the subject tickets
to the time he talked to said Amtrak
employee, other passengers may have
cancelled
their
bookings
and
reservations with Amtrak, making it
possible for Amtrak to accommodate
them. Indeed, the existence of fraud
cannot be proved by mere speculations
and conjectures. Fraud is never lightly
inferred; it is good faith that is. Under
the Rules of Court, it is presumed that
"a person is innocent of crime or
wrong" and that "private transactions
have been fair and regular."35 Spouses
Viloria failed to overcome this
presumption.
I
I
.
A
s
s
u
m
i
n
g
t
h
e
c
o
n
t

r
a
r
y
,
S
p
o
u
s
e
s
V
i
l
o
r
i
a
a
r
e
n
e
v
e
r
t
h
e
l
e
s
s
d
e
e
m
e
d

t
o
h
a
v
e
r
a
t
i
f
i
e
d
t
h
e
s
u
b
j
e
c
t
c
o
n
t
r
a
c
t
s
.
Even
assuming
that
Magers
representation is causal fraud, the subject
contracts have been impliedly ratified
when Spouses Viloria decided to
exercise their right to use the subject
tickets for the purchase of new ones.

Under Article 1392 of the Civil Code,


ratification extinguishes the action to
annul a voidable contract.
Ratification of a voidable
contract is defined under Article 1393
of the Civil Code as follows:

Art. 1393. Ratification


may be effected expressly
or tacitly. It is understood
that there is a tacit
ratification
if,
with
knowledge of the reason
which
renders
the
contract voidable and
such
reason
having
ceased, the person who
has a right to invoke it
should execute an act
which necessarily implies
an intention to waive his
right.
Implied ratification may take diverse
forms, such as by silence or acquiescence;
by acts showing approval or adoption of
the contract; or by acceptance and
retention of benefits flowing therefrom.36
Simultaneous with their demand for a
refund on the ground of Fernandos
vitiated consent, Spouses Viloria likewise
asked for a refund based on CAIs
supposed bad faith in reneging on its
undertaking to replace the subject tickets
with a round trip ticket from Manila to
Los Angeles.
In doing so, Spouses Viloria are actually
asking for a rescission of the subject
contracts based on contractual breach.
Resolution, the action referred to in
Article 1191, is based on the defendants

breach of faith, a violation of the


reciprocity between the parties37 and
in Solar Harvest, Inc. v. Davao
Corrugated Carton Corporation,38this
Court ruled that a claim for a
reimbursement in view of the other
partys failure to comply with his
obligations under the contract is one for
rescission or resolution.
However, annulment under Article 1390
of the Civil Code and rescission under
Article 1191 are two (2) inconsistent
remedies. In resolution, all the elements
to make the contract valid are present;
in annulment, one of the essential
elements to a formation of a contract,
which is consent, is absent. In
resolution, the defect is in the
consummation stage of the contract
when the parties are in the process of
performing their respective obligations;
in annulment, the defect is already
present at the time of the negotiation
and perfection stages of the contract.
Accordingly, by pursuing the remedy of
rescission under Article 1191, the
Vilorias had impliedly admitted the
validity of the subject contracts,
forfeiting their right to demand their
annulment. A party cannot rely on the
contract and claim rights or obligations
under it and at the same time impugn
its existence or validity. Indeed, litigants
are enjoined from taking inconsistent
positions.39
I
I
I
.
C
o
n
t

r
a
c
t
s
c
a
n
n
o
t
b
e
r
e
s
c
i
n
d
e
d
f
o
r
a
s
l
i
g
h
t
o
r
c
a
s
u

a
l
b
r
e
a
c
h
.
C
A
I
c
a
n
n
o
t
i
n
s
i
s
t
o
n
t
h
e
n
o
n
t
r
a
n
s
f

e
r
a
b
i
l
i
t
y
o
f
t
h
e
s
u
b
j
e
c
t
t
i
c
k
e
t
s
.
Considering that the subject contracts are
not annullable on the ground of vitiated
consent, the next question is: Do
Spouses Viloria have the right to
rescind the contract on the ground of
CAIs supposed breach of its
undertaking to issue new tickets upon
surrender of the subject tickets?
Article 1191,
worded, states:

as

presently

The power to rescind


obligations is implied in
reciprocal ones, in case
one of the obligors should
not comply with what is
incumbent upon him.
The injured party may
choose
between
the
fulfilment
and
the
rescission
of
the
obligation,
with
the
payment of damages in
either case. He may also
seek rescission, even after
he has chosen fulfillment,
if the latter should
become impossible.
The court shall decree the
rescission claimed, unless
there be just cause
authorizing the fixing of a
period.
This is understood to be
without prejudice to the
rights of third persons
who have acquired the
thing, in accordance with
articles 1385 and 1388
and the Mortgage Law.
According to Spouses Viloria, CAI acted
in bad faith and breached the subject
contracts when it refused to apply the
value of Lourdes ticket for Fernandos
purchase of a round trip ticket to Los
Angeles and in requiring him to pay an
amount higher than the price fixed by
other airline companies.
In its March 24, 1998 letter, CAI stated
that non-refundable tickets may be used
as a form of payment toward the purchase
of another Continental ticket for $75.00,

per ticket, reissue fee ($50.00, per ticket,


for tickets purchased prior to October 30,
1997).
Clearly, there is nothing in the abovequoted section of CAIs letter from
which the restriction on the nontransferability of the subject tickets can
be inferred. In fact, the words used by
CAI in its letter supports the position of
Spouses Viloria, that each of them can
use the ticket under their name for the
purchase of new tickets whether for
themselves or for some other person.
Moreover, as CAI admitted, it was only
when Fernando had expressed his interest
to use the subject tickets for the purchase
of a round trip ticket between Manila and
Los Angeles that he was informed that he
cannot use the ticket in Lourdes name as
payment.
Contrary to CAIs claim, that the subject
tickets are non-transferable cannot be
implied from a plain reading of the
provision printed on the subject tickets
stating that [t]o the extent not in conflict
with the foregoing carriage and other
services performed by each carrier are
subject to: (a) provisions contained in this
ticket, x x x (iii) carriers conditions of
carriage and related regulations which are
made part hereof (and are available on
application at the offices of carrier) x x x.
As a common carrier whose business is
imbued with public interest, the exercise
of extraordinary diligence requires CAI to
inform Spouses Viloria, or all of its
passengers for that matter, of all the terms
and conditions governing their contract of
carriage. CAI is proscribed from taking
advantage of any ambiguity in the contract
of carriage to impute knowledge on its
passengers of and demand compliance
with a certain condition or undertaking

that is not clearly stipulated. Since the


prohibition on transferability is not
written on the face of the subject tickets
and CAI failed to inform Spouses
Viloria thereof, CAI cannot refuse to
apply the value of Lourdes ticket as
payment for Fernandos purchase of a
new ticket.
C
A
I

s
r
e
f
u
s
a
l
t
o
a
c
c
e
p
t
L
o
u
r
d
e
s

t
i
c
k

e
t
f
o
r
t
h
e
p
u
r
c
h
a
s
e
o
f
a
n
e
w
t
i
c
k
e
t
f
o
r
F
e
r
n
a
n

d
o
i
s
o
n
l
y
a
c
a
s
u
a
l
b
r
e
a
c
h
.
Nonetheless, the right to rescind a
contract for non-performance of its
stipulations is not absolute. The general
rule is that rescission of a contract will
not be permitted for a slight or casual
breach, but only for such substantial
and fundamental violations as would
defeat the very object of the parties in
making the agreement.40Whether a
breach is substantial is largely
determined
by
the
attendant
41
circumstances.
While CAIs refusal to allow Fernando
to use the value of Lourdes ticket as
payment for the purchase of a new
ticket is unjustified as the nontransferability of the subject tickets was

not clearly stipulated, it cannot,


however be considered substantial. The
endorsability of the subject tickets is not
an essential part of the underlying
contracts and CAIs failure to comply is
not essential to its fulfillment of its
undertaking to issue new tickets upon
Spouses Vilorias surrender of the subject
tickets. This Court takes note of CAIs
willingness to perform its principal
obligation and this is to apply the price of
the ticket in Fernandos name to the price
of the round trip ticket between Manila
and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes
name as full or partial payment as the case
may be for the purchase of any ticket,
albeit under her name and for her
exclusive use. In other words, CAIs
willingness to comply with its undertaking
under its March 24, 1998 cannot be
doubted, albeit tainted with its erroneous
insistence that Lourdes ticket is nontransferable.
Moreover, Spouses Vilorias demand for
rescission cannot prosper as CAI cannot
be solely faulted for the fact that their
agreement failed to consummate and no
new ticket was issued to Fernando.
Spouses Viloria have no right to insist
that a single round trip ticket between
Manila and Los Angeles should be
priced at around $856.00 and refuse to
pay the difference between the price of
the subject tickets and the amount fixed
by CAI. The petitioners failed to allege,
much less prove, that CAI had obliged
itself to issue to them tickets for any flight
anywhere in the world upon their
surrender of the subject tickets. In its
March 24, 1998 letter, it was clearly stated
that [n]on-refundable tickets may be used
as a form of payment toward the purchase
of another Continental ticket42 and there
is nothing in it suggesting that CAI had

obliged itself to protect Spouses Viloria


from any fluctuation in the prices of
tickets or that the surrender of the
subject tickets will be considered as full
payment for any ticket that the
petitioners intend to buy regardless of
actual price and destination. The CA
was correct in holding that it is CAIs
right and exclusive prerogative to fix
the prices for its services and it may not
be compelled to observe and maintain
the prices of other airline companies.43
The conflict as to the endorsability of the
subject tickets is an altogether different
matter, which does not preclude CAI from
fixing the price of a round trip ticket
between Manila and Los Angeles in an
amount it deems proper and which does
not provide Spouses Viloria an excuse not
to pay such price, albeit subject to a
reduction coming from the value of the
subject tickets. It cannot be denied that
Spouses Viloria had the concomitant
obligation to pay whatever is not
covered by the value of the subject
tickets whether or not the subject
tickets are transferable or not.
There is also no showing that Spouses
Viloria were discriminated against in bad
faith by being charged with a higher rate.
The only evidence the petitioners
presented to prove that the price of a
round trip ticket between Manila and Los
Angeles at that time was only $856.00 is a
newspaper advertisement for another
airline company, which is inadmissible for
being hearsay evidence, twice removed.
Newspaper clippings are hearsay if they
were offered for the purpose of proving
the truth of the matter alleged. As ruled
in Feria v. Court of Appeals,:44
[N]ewspaper
amount
to

articles
hearsay

evidence, twice removed


and are therefore not only
inadmissible but without
any probative value at all
whether objected to or
not,unless offered for a
purpose
other
than
proving the truth of the
matter asserted. In this
case, the news article is
admissible
only
as
evidence
that
such
publication does exist
with the tenor of the news
therein stated.45
The records of this case demonstrate that
both parties were equally in default;
hence, none of them can seek judicial
redress for the cancellation or resolution
of the subject contracts and they are
therefore bound to their respective
obligations thereunder. As the 1st sentence
of Article 1192 provides:
Art. 1192. In case both
parties have committed a breach
of the obligation, the liability of
the first infractor shall be
equitably tempered by the
courts. If it cannot be determined
which of the parties first violated
the contract, the same
shall be
deemed extinguished, and each
shall bear his own damages.
Therefore, CAIs liability for damages
for its refusal to accept Lourdes ticket
for the purchase of Fernandos round
trip ticket is offset by Spouses Vilorias
liability for their refusal to pay the
amount, which is not covered by the
subject tickets. Moreover, the contract
between them remains, hence, CAI is
duty bound to issue new tickets for a
destination chosen by Spouses Viloria

upon their surrender of the subject


tickets and Spouses Viloria are obliged
to pay whatever amount is not covered
by the value of the subject tickets.
This Court made a similar ruling
in Central Bank of the Philippines v.
Court of Appeals.46 Thus:
Since both parties were in default
in the performance of their
respective reciprocal obligations,
that is, Island Savings Bank
failed to comply with its
obligation to furnish the entire loan
and Sulpicio M. Tolentino failed to
comply with his obligation to pay
his P17,000.00 debt within 3 years
as stipulated, they are both liable
for damages.
Article 1192 of the Civil Code
provides that in case both parties
have committed a breach of their
reciprocal obligations, the
liability of the first infractor
shall be equitably tempered by
the courts. WE rule that the
liability of Island Savings Bank
for damages in not furnishing
the entire loan is offset by the
liability of Sulpicio M. Tolentino
for damages, in the form of
penalties and surcharges, for
not paying his overdue P17,000.00
debt. x x x.47
Another consideration that militates
against the propriety of holding CAI liable
for moral damages is the absence of a
showing that the latter acted fraudulently
and in bad faith. Article 2220 of the Civil
Code requires evidence of bad faith and
fraud and moral damages are generally not
recoverable in culpa contractual except
when bad faith had been proven.48 The

award of exemplary damages is likewise


not warranted. Apart from the requirement
that the defendant acted in a wanton,
oppressive and malevolent manner, the
claimant must prove his entitlement to
moral damages.49
REGAL FILMS v. CONCEPCION
A compromise is an agreement between
two or more persons who, for
preventing or putting an end
to a lawsuit, adjust their
respective positions by mutual
consent in the way they feel
they can live with. Reciprocal
concessions are the very heart
and life of every compromise
agreement, where each party
approximates and concedes in
the hope of gaining balanced
by the danger of losing. It
is, in essence, a contract.
Facts: Gabby is a talent of Regal Films.
He is managed by Lolit. In
1991, Gabby, represented by
Solis, entered into a contract
with Regal for services to be
rendered by Gabby.
In the
contract, Regal promised to
give Gabby two parcels of
lands in addition to his
talent fees.
The

contract was
renewed in 1993,
incorporating the same promise
by Regal to give the lots in
question.
Despite
several
films of Regal where Gabby
appeared, Regal did not give
the lots.

Gabby then filed a case for rescission of


contract.
According to him,
the failure of Regal to live
up to its promise of giving
him the two lots aside from his
talent fees entitle him to
rescind the contract and be
released from his contractual
obligation to Regal.
Regal

moved to dismiss the case.


According
to
Regal,
the

parties have already settled


their differences amicably, and
have executed an addendum to
their 1991 and 1993 contracts,
which was signed by Lolit and a
representative of Gabby.
As no settlement was reached during the
preliminary
conference,
the
court required Gabby and Lolit
to comment on the motion to
dismiss filed by Regal. Lolit
moved
that
the
case
be
dismissed because she and a
representative of Gabby have
amicably settled the case with
Regal.
Gabby
opposed
the
motion
to
dismiss
because
accordiing to him, the addendum
is grossly disadvantageous to
him; further. Lolit is not his
manager anymore, hence have no
authority to sign the contract.
In another preliminary conference, Regal
offered to just release Gabby
from the contract rather than
pursue the addendum.
Later,
Gabby filed a manifestation
that he is now willing to
accept the terms and conditions
of the addendum so that it
should be considered as a
compromise agreement where the
court can accordingly rule.
Regal and Lolit opposed the
manifestation
this
time,
because
the
relationship
between
them
had
become
strained due to the Manila Film
Fest scam.
The trial court rendered a judgment based
on a compromise agreement, and
declared the addendum binding
between the parties, despite
the fact that Gabby initially
rejected the contract.
Regal moved to have the judgment set
aside, but it was denied. On
appeal to the Court of Appeals,
the latter again denied its
appeal.
Issue: What was the effect of the initial
refusal of Gabby to accept the
addendum? Was there a valid

judgment based on compromise


agreement?
Held:

compromise is an agreement
between two or more persons
who, for preventing or putting
an end to a lawsuit, adjust
their respective positions by
mutual consent in the way they
feel they can live with.
Reciprocal concessions are the
very heart and life of every
compromise agreement, where
each party approximates and
concedes in the hope of
gaining balanced by the danger
of losing. It is, in essence,
a
contract.
Law
and
jurisprudence
recite
three
minimum elements for any valid
contract (a) consent; (b)
object certain which is the
subject matter of the contract;
and
(c)
cause
of
the
obligation
which
is
established.
Consent
is
manifested by the meeting of
the offer and cause which are
to constitute the agreement.
The offer, however, must be
certain and the acceptance
seasonable and absolute; if
qualified,
the
acceptance
would merely constitute a
counter-offer.

In this instance, the addendum was flatly


rejected by respondent on the
theses (a) that he did not give
his
consent
thereto
nor
authorized anyone to enter
into the agreement, and (b)
that it contained provisions
grossly disadvantageous to him.
The outright rejection of the
addendum made known to the
other ended the offer. When
respondent later filed his
Manifestation, stating that he
was, after all, willing to
honor the addendum, there was
nothing to still accept.
Verily, consent could be given not only
by the part himself but by
anyone duly authorized and
acting for and in his behalf.
But
by
respondents
own
admission, the addendum was
entered
into
without
his

knowledge
and
consent.
A
contract entered into in the
name of another by one who
ostensibly might have but who,
in reality,
had no
real
authority
or
legal
representation, or who, having
such authority, acted beyond
his
powers,
would
be
unenforceable. The addendum,
let us then assume, resulted in
an
unenforceable
contract,
might
it
not
then
be
susceptible to ratification by
the person on whose behalf it
was executed? The answer would
obviously
be
in
the
affirmative;
however,
that
ratification should be made
before its revocation by the
other contracting party. The
adamant refusal of respondent
to accept the terms of the
addendum
constrained
petitioner,
during
the
preliminary conference held on
23 June 1995, to instead
express its willingness to
release respondent from his
contracts prayed for in his
complaint and to thereby forego
the
rejected
addendum.
Respondents
subsequent
attempt to ratify the addendum
came much too late for, by
then, the addendum had already
been
deemed
revoked
by
petitioner.

LITONJUA v. FERNANDEZ1
Facts:
Issue:
Held: On the first and second assignment
of errors, the petitioners assert that there
was a perfected contract of sale between
the petitioners as buyers and the
respondents-owners, through respondent
Fernandez, as sellers. The petitioners
contend that the perfection of the said
contract is evidenced by the January 16,
1996 Letter of respondent Fernandez.
[27]
The pertinent portions of the said letter
are as follows:

[M]y cousin and I have


thereby changed our mind and that the
sale will no longer push through. I
specifically instructed her to inform you
thru your broker that we will not be
attending the meeting to be held sometime
first week of December.
In view thereof, I regret to formally
inform you now that we are no longer
selling the property until all problems are
fully settled. We have not demanded and
received from you any earnest money,
thereby, no obligations exist[28]

The petitioners argue that the letter is a


sufficient note or memorandum of the
perfected contract, thus, removing it from
the coverage of the statute of frauds. The
letter specifically makes reference to a
sale which respondent Fernandez agreed
to initially, but which the latter withdrew
because of the emergence of some people
who claimed to be tenants on both parcels
of land. According to the petitioners, the
respondents-owners, in their answer to the
complaint, as well as respondent
Fernandez when she testified, admitted the
authenticity and due execution of the said
letter. Besides, when the petitioner
Antonio Litonjua testified on the contract
of sale entered into between themselves
and the respondents-owners, the latter did
not object thereto. Consequently, the
respondents-owners thereby ratified the
said contract of sale. The petitioners thus
contend that the appellate courts
declaration that there was no perfected
contract of sale between the petitioners
and the respondents-owners is belied by
the evidence, the pleadings of the parties,
and the law.

The petitioners contention is bereft of


merit. In its decision, the appellate court
ruled that the Letter of respondent
Fernandez dated January 16, 1996 is
hardly the note or memorandum
contemplated under Article 1403(2)(e) of
the New Civil Code, which reads:
Art. 1403. The following contracts are
unenforceable, unless they are ratified:

(2) Those that do not comply with the


Statute of Frauds as set forth in this
number. In the following cases an
agreement hereafter made shall be
unenforceable by action, unless the same,
or some note or memorandum thereof, be
in writing, and subscribed by the party
charged, or by his agent; evidence,
therefore, of the agreement cannot be
received without the writing, or secondary
evidence of its contents:

(e)
An agreement for the leasing for
a longer period than one year, or for the
sale of real property or of an interest
therein.[29]
The appellate court based its ruling on the
following disquisitions:
In the case at bar, the letter dated January
16, 1996 of defendant-appellant can
hardly be said to constitute the note or
memorandum evidencing the agreement
of the parties to enter into a contract of
sale as it is very clear that defendantappellant as seller did not accept the
condition that she will be the one to pay
the registration fees and miscellaneous
expenses and therein also categorically
denied she had already committed to

execute the deed of sale as claimed by the


plaintiffs-appellees. The letter, in fact,
stated the reasons beyond the control of
the defendant-appellant, why the sale
could no longer push through because of
the problem with tenants. The trial court
zeroed in on the statement of the
defendant-appellant that she and her
cousin changed their minds, thereby
concluding that defendant-appellant had
unilaterally cancelled the sale or backed
out of her previous
commitment. However, the tenor of the
letter actually reveals a consistent denial
that there was any such commitment on
the part of defendant-appellant to sell the
subject lands to plaintiffsappellees. When defendant-appellant
used the words changed our mind, she
was clearly referring to the decision to sell
the property at all (not necessarily to
plaintiffs-appellees) and not in selling the
property to herein plaintiffs-appellees as
defendant-appellant had not yet made the
final decision to sell the property to said
plaintiffs-appellees. This conclusion is
buttressed by the last paragraph of the
subject letter stating that we are no
longer selling the property until all
problems are fully settled. To read a
definite previous agreement for the sale of
the property in favor of plaintiffsappellees into the contents of this letter is
to unduly restrict the freedom of the
contracting parties to negotiate and
prejudice the right of every property
owner to secure the best possible offer and
terms in such sale transactions. We
believe, therefore, that the trial court
committed a reversible error in finding
that there was a perfected contract of sale
or contract to sell under the foregoing
circumstances. Hence, the defendantappellant may not be held liable in this
action for specific performance with
damages.[30]

In Rosencor Development Corporation vs.


Court of Appeals,[31] the term statute of
frauds is descriptive of statutes which
require certain classes of contracts to be in
writing. The statute does not deprive the
parties of the right to contract with respect
to the matters therein involved, but merely
regulates the formalities of the contract
necessary to render it enforceable. The
purpose of the statute is to prevent fraud
and perjury in the enforcement of
obligations, depending for their existence
on the unassisted memory of witnesses, by
requiring certain enumerated contracts and
transactions to be evidenced by a writing
signed by the party to be charged. The
statute is satisfied or, as it is often stated, a
contract or bargain is taken within the
statute by making and executing a note or
memorandum of the contract which is
sufficient to state the requirements of the
statute.[32] The application of such
statute presupposes the existence of a
perfected contract. However, for a note or
memorandum to satisfy the statute, it must
be complete in itself and cannot rest partly
in writing and partly in parol. The note or
memorandum must contain the names of
the parties, the terms and conditions of the
contract and a description of the property
sufficient to render it capable of
identification.[33] Such
note
or
memorandum must contain the essential
elements of the contract expressed with
certainty that may be ascertained from the
note or memorandum itself, or some other
writing to which it refers or within which
it is connected, without resorting to parol
evidence.[34] To be binding on the persons
to
be
charged,
such
note
or
memorandum must be signed by the said
party or by his agent duly authorized in
writing.[35]

In City of Cebu v. Heirs of Rubi,[36] we


held that the exchange of written
correspondence between the parties may
constitute sufficient writing to evidence
the agreement for purposes of complying
with the statute of frauds.
In this case, we agree with the findings of
the appellate court that there was no
perfected contract of sale between the
respondents-owners, as sellers, and the
petitioners, as buyers.
There is no documentary evidence on
record that the respondents-owners
specifically
authorized
respondent
Fernandez to sell their properties to
another, including the petitioners. Article
1878 of the New Civil Code provides that
a special power of attorney is necessary to
enter into any contract by which the
ownership of an immovable is transmitted
or acquired either gratuitously or for a
valuable consideration,[37] or to create or
convey real rights over immovable
property,[38] or for any other act of strict
dominion.[39] Any sale of real property by
one purporting to be the agent of the
registered owner without any authority
therefor in writing from the said owner is
null and void.[40] The declarations of the
agent alone are generally insufficient to
establish the fact or extent of her
authority.[41] In this case, the only evidence
adduced by the petitioners to prove that
respondent Fernandez was authorized by
the respondents-owners is the testimony
of petitioner Antonio Litonjua that
respondent Fernandez openly represented
herself to be the representative of the
respondents-owners,[42] and
that
she
promised to present to the petitioners on
December 8, 1996 a written authority to
sell the properties.[43] However, the

petitioners claim was belied by


respondent Fernandez when she testified,
thus:
Q Madam Witness, what else
did you tell to the plaintiffs?
A

I told them that I was there


representing myself as one
of the owners of the
properties, and I was just
there to listen to his proposal
because that time, we were
just looking for the best offer
and I did not have yet any
written authorities from my
brother and sisters and
relatives. I cannot agree on
anything yet since it is just a
preliminary meeting, and so,
I have to secure authorities
and relate the matters to my
relatives, brother and sisters,
sir.

Q And what else was taken up?


A

Mr. Antonio Litonjua told


me that they will be leaving
for another country and he
requested me to come back
on the first week of
December and in the
meantime, I should make an
assurance that there are no
tenants in our properties, sir.
[44]

The petitioners cannot feign ignorance of


respondent Fernandez lack of authority to
sell the properties for the respondentsowners. It must be stressed that the
petitioners are noted businessmen who
ought to be very familiar with the
intricacies of business transactions, such
as the sale of real property.

The settled rule is that persons dealing


with an assumed agent are bound at their
peril, and if they would hold the principal
liable, to ascertain not only the fact of
agency but also the nature and extent of
authority, and in case either is
controverted, the burden of proof is upon
them to prove it.[45] In this case,
respondent Fernandez specifically denied
that she was authorized by the
respondents-owners to sell the properties,
both in her answer to the complaint and
when
she
testified. The
Letter
dated January 16, 1996 relied upon by the
petitioners was signed by respondent
Fernandez alone, without any authority
from the respondents-owners. There is no
evidence on record that the respondentsowners ratified all the actuations of
respondent Fernandez in connection with
her dealings with the petitioners. As such,
said letter is not binding on the
respondents as owners of the subject
properties.
Contrary to the petitioners contention, the
letter of January 16, 1996[46] is not a note
or memorandum within the context of
Article 1403(2) because it does not
contain the following: (a) all the essential
terms and conditions of the sale of the
properties; (b) an accurate description of
the property subject of the sale; and, (c)
the names of the respondents-owners of
the properties. Furthermore, the letter
made reference to only one property, that
covered by TCT No. T-36755.
We note that the petitioners themselves
were uncertain as to the specific area of
the properties they were seeking to
buy. In their complaint, they alleged to
have agreed to buy from the respondentsowners 33,990 square meters of the total

acreage of the two lots consisting of


36,742 square meters. In their Letter to
respondent Fernandez datedJanuary 5,
1996, the petitioners stated that they
agreed to buy the two lots, with a total
area of 36,742 square meters.[47] However,
in their Letter dated February 1, 1996, the
petitioners declared that they agreed to
buy a portion of the properties consisting
of 33,990 square meters.[48] When he
testified, petitioner Antonio Litonjua
declared that the petitioners agreed to buy
from the respondents-owners 36,742
square meters at P150 per square meter or
for the total price of P5,098,500.[49]

Issue: Whether there was a valid contract


of agency in this case.

The failure of respondent Fernandez to


object to parol evidence to prove (a) the
essential terms and conditions of the
contract asserted by the petitioners and,
(b) her authority to sell the properties for
the respondents-registered owners did not
and should not prejudice the respondentsowners who had been declared in default.

Generally, the agency may be oral,


unless the law requires a specific form.
[28]
However, a special power of
attorney is necessary for an agent to, as
in this case, borrow money, unless it be
urgent and indispensable for the
preservation of the things which are
under administration.[29] Since nothing
in this case involves the preservation of
things
under
administration,
a
determination of whether Soriano had
the special authority to borrow money
on behalf of respondent is in order.

[50]

GOZUN v. MERCADO2
Facts: Gozun and Don Teofilo Mercado
are kumprades. During the campaign
period the spouse of Don Teofilo allegedly
entered into a contract with Mr. Gozun for
the latter to print the campaign materials
of Don Teofilo. A niece of Don Teoofilo
on the other hand obtained cash advances
from Mr. Gozun on behalf of Don Teofilo.
When Mr. Gozun had demanded for the
payment of the campaign materials, Don
Teofilo denied having auhorized his wife
and his neice to act in his behalf. He also
thought that the campaign materials were
donations from firends and political
supporters. Hence this petition.

Held: By the contract of agency a person


binds himself to render some service or to
do something in representation or on
behalf of another, with the consent or
authority of the latter.[26] Contracts
entered into in the name of another
person by one who has been given no
authority or legal representation or who
has acted beyond his powers are
classified as unauthorized contracts and
are declared unenforceable, unless they
are ratified.[27]

Lim Pin v. Liao Tian, et al.[30] held that the


requirement of a special power of attorney
refers to the nature of the authorization
and not to its form.
. . . The requirements are
met if there is a clear
mandate from the principal
specifically authorizing the
performance of the act. As
early as 1906, this Court
in Strong v. GutierrezRepide (6 Phil. 680) stated
that such a mandate may be
either oral or written. The
one thing vital being that it

shall be express. And more


recently, We stated that, if
the special authority is not
written, then it must
be duly established by
evidence:
the
Rules
require,
for
attorneys
to
compromise
the
litigation of their
clients, a special
authority. And
while the same does
not state that the
special authority be
in writing the Court
has every reason to
expect that, if not in
writing, the same be
duly established by
evidence other than
the
self-serving
assertion of counsel
himself that such
authority
was
verbally
given
him.[31]
Petitioner submits that his following
testimony suffices to establish that
respondent had authorized Lilian to obtain
a loan from him, viz:
Q : Another
caption
appearing
on Exhibit A is
cash advance, it
states given on 331-95 received by
Mrs. Lilian Soriano
in behalf of Mrs.
Annie
Mercado,
amount
P253,000.00, will

you kindly tell the


Court and explain
what does that
caption means?
A : It is the amount
representing
the
money borrowed
from me by the
defendant
when
one morning they
came very early
and
talked
to
me and told me that
they were not able
to go to the bank to
get money for the
allowances of Poll
Watchers who were
having a seminar at
the
headquarters
plus other election
related
expenses
during that day, sir.
Q : Considering that this
is a substantial
amount
which
according to you
was
taken
by Lilian Soriano,
did you happen to
make
her
acknowledge
the
amount at that
time?
A : Yes, sir.
Petitioners
testimony
failed
to
categorically state, however, whether the
loan was made on behalf of respondent or
of his wife. While petitioner claims that
Lilian was authorized by respondent,
the statement of account marked as
Exhibit A states that the amount was
received by Lilian in behalf of Mrs.
Annie Mercado.

Invoking Article 1873[33] of the Civil


Code, petitioner submits that respondent
informed
him
that
he
had
authorized Lilian to obtain the loan,
hence,
following
Macke v.
[34]
Camps which holds that one who
clothes another with apparent authority
as his agent, and holds him out to the
public as such, respondent cannot be
permitted to deny the authority.
Petitioners submission does not
persuade. As
the
appellate
court
observed:
. . . Exhibit B
[the receipt issued
by
petitioner] presented by
plaintiff-appellee to
support
his
claim
unfortunately
only
indicates the Two Hundred
Fifty Three Thousand
Pesos
(P253,0000.00)
was received
by
one Lilian R. Soriano on 31
March 1995, but without
specifying for what reason
the said amount was
delivered and in what
capacity
did Lilian R.Soriano receiv
ed [sic] the money. The
note reads:

RECEIVED
FROM JMG
THE
AMOUNT
OF 253,000
TWO
HUNDRED
FIFTY
THREE
THOUSAN
D PESOS
(SIGNED)
LILIAN R.
SORIANO
3-31-95
Nowhere in the note can
it be inferred that
defendant-appellant was
connected with the said
transaction. Under Article
1317 of the New Civil
Code, a person cannot be
bound by contracts he did
not authorize to be
entered into his behalf.[35]
It bears noting that Lilian signed in the
receipt in her name alone, without
indicating therein that she was acting
for and in behalf of respondent. She
thus bound herself in her personal
capacity and not as an agent of
respondent or anyone for that matter.

3-31-95
261,120
ADVANCE
MONEY
FOR
TRAINEE
RECEIVED
BY

It is a general rule in the law of


agency that, in order to bind the
principal by a mortgage on real
property executed by an agent, it
must upon its face purport to be
made, signed and sealed in the
name of the principal, otherwise,
it will bind the agent only. It is
not enough merely that the agent
was in fact authorized to make

the mortgage, if he has not acted


in the name of the principal.
xxx
On the amount due him and the other two
printing presses, petitioner explains that
he was the one who personally and
directly contracted with respondent and he
merely sub-contracted the two printing
establishments in order to deliver on time
the campaign materials ordered by
respondent.
Respondent counters that the claim of subcontracting is a change in petitioners
theory of the case which is not allowed on
appeal.
In Oco
Court ruled:

v.

Limbaring,[37] this

The parties to a contract are the real


parties in interest in an action upon it, as
consistently held by the Court. Only the
contracting parties are bound by the
stipulations in the contract; they are the
ones who would benefit from and could
violate it. Thus, one who is not a party
to a contract, and for whose benefit it
was not expressly made, cannot
maintain an action on it. One cannot do
so, even if the contract performed by
the
contracting
parties
would
incidentally inure to one's benefit.
In light thereof, petitioner is the real party
in interest in this case. The trial courts
findings on the matter were affirmed by
the appellate court.[39] It erred, however,
in not declaring petitioner as a real party
in interest insofar as recovery of the cost
of campaign materials made by
petitioners mother and sister are
concerned, upon the wrong notion that
they should have been, but were
not, impleaded as plaintiffs.

In sum, respondent has the obligation to


pay the total cost of printing his campaign
materials delivered by petitioner in the
total of P1,924,906, less the partial
payment of P1,000,000, or P924,906.
CABALES v. CA
Facts: When Rufino Cabales died
intestate, his wife Saturnina and his six (6)
children, Bonifacio, Albino, Francisco,
Leonora, Alberto and petitioner Rito,
survived and succeeded him. Article 996
of the New Civil Code provides that [i]f
a widow or widower and legitimate
children or descendants are left, the
surviving spouse has in the succession the
same share as that of each of the
children. Verily, the seven (7) heirs
inherited
equally
on
subject
property. Petitioner Rito and Alberto,
petitioner Nelsons father, inherited in
their own rights and with equal shares as
the others.
But before partition of subject land was
effected, Alberto died. By operation of
law, his rights and obligations to oneseventh of subject land were transferred to
his legal heirs his wife and his son
petitioner Nelson.
Issue:
Held: We shall now discuss the effects of
the two (2) sales of subject land to the
rights of the parties.
The first sale with pacto de retro to Dr.
Corrompido by the brothers and coowners Bonifacio, Albino and Alberto was
valid but only as to their proindivisoshares to the land. When Alberto

died prior to repurchasing his share, his


rights and obligations were transferred to
and assumed by his heirs, namely his wife
and his son, petitioner Nelson. But the
records show that it was Saturnina,
Albertos mother, and not his heirs, who
repurchased for him. As correctly ruled
by the Court of Appeals, Saturnina was
not subrogated to Albertos or his heirs
rights to the property when she
repurchased the share.
In Paulmitan v. Court of Appeals,[3] we
held that a co-owner who redeemed the
property in its entirety did not make her
the owner of all of it. The property
remained in a condition of co-ownership
as the redemption did not provide for a
mode of terminating a co-ownership.
[4]
But the one who redeemed had the
right to be reimbursed for the redemption
price and until reimbursed, holds a lien
upon the subject property for the amount
due.[5] Necessarily,
when
Saturnina
redeemed for Albertos heirs who had then
acquired his pro-indiviso share in subject
property, it did not vest in her ownership
over
the pro-indiviso share
she
redeemed. But she had the right to be
reimbursed for the redemption price and
held a lien upon the property for the
amount due until reimbursement. The
result is that the heirs of Alberto, i.e., his
wife and his son petitioner Nelson,
retained ownership over their proindiviso share.
Upon redemption from Dr. Corrompido,
the subject property was resold to
respondents-spouses
by
the
coowners. Petitioners Rito and Nelson were
then minors and as indicated in the Deed
of Sale, their shares in the proceeds were
held in trust by respondents-spouses to be
paid and delivered to them upon reaching
the age of majority.

As to petitioner Rito, the contract of sale


was unenforceable as correctly held by the
Court of Appeals. Articles 320 and 326 of
the New Civil Code[6] state that:
Art. 320. The father, or in his
absence the mother, is the legal
administrator
of the property
pertaining to the child under
parental authority. If the property
is worth more than two thousand
pesos, the father or mother shall
give a bond subject to the
approval of the Court of First
Instance.
Art. 326. When the property
of the child is worth more than two
thousand
pesos, the father or
mother shall be considered a
guardian of the childs
property,
subject to the duties and
obligations of guardians under the
Rules of
Court.
In other words, the father, or, in his
absence, the mother, is considered legal
administrator of the property pertaining to
the child under his or her parental
authority without need of giving a bond in
case the amount of the property of the
child does not exceed two thousand pesos.
[7]
Corollary to this, Rule 93, Section 7 of
the Revised Rules of Court of 1964,
applicable to this case, automatically
designates the parent as legal guardian of
the child without need of any judicial
appointment in case the latters property
does not exceed two thousand pesos,
[8]
thus:
Sec. 7. Parents as guardians.
When the property of the child
under parental authority is worth
two thousand pesos or less, the
father or the mother, without the

necessity of court appointment,


shall be his legal guardian x x x
x[9]
Saturnina was clearly petitioner Ritos
legal guardian without necessity of court
appointment considering that the amount
of his property or one-seventh of subject
property was P1,143.00, which is less than
two thousand pesos. However, Rule 96,
Sec. 1[10] provides that:
Section
1. To
what
guardianship
shall
extend.
A guardian
appointed shall have the
care and custody of the
person of his ward, and the
management of his estate,
or the management of the
estate only, as the case may
be. The guardian of the
estate of a nonresident shall
have the management of all
the estate of the ward
within the Philippines, and
no court other than that in
which such guardian was
appointed
shall
have
jurisdiction
over
the
guardianship.
Indeed, the legal guardian only has the
plenary power of administration of the
minors property. It does not include
the power of alienation which needs
judicial
authority.[11] Thus,
when
Saturnina, as legal guardian of
petitioner Rito, sold the latters proindiviso share in subject land, she did
not have the legal authority to do so.
Article 1403 of the New Civil
Code provides, thus:

Art. 1403. The following


contracts are unenforceable,
unless they are ratified:
(1) Those entered
into in the name of another
person by one who has
been given no authority or
legal representation, or
who has acted beyond his
powers;
x

Accordingly, the contract of sale as to


the pro-indiviso share of petitioner Rito
was unenforceable. However, when he
acknowledged receipt of the proceeds of
the sale on July 24, 1986, petitioner Rito
effectively ratified it. This act of
ratification rendered the sale valid and
binding as to him.
With respect to petitioner Nelson, on
the other hand, the contract of sale was
void. He was a minor at the time of the
sale. Saturnina or any and all the other
co-owners were not his legal guardians
with judicial authority to alienate or
encumber his property. It was his
mother who was his legal guardian and,
if duly authorized by the courts, could
validly sell his undivided share to the
property. She did not. Necessarily,
when Saturnina and the others sold the
subject property in its entirety to
respondents-spouses, they only sold and
transferred
title
to
their proindiviso shares and not that part which
pertained to petitioner Nelson and his
mother. Consequently,
petitioner
Nelson and his mother retained
ownership over their undivided share of
subject property.[12]

But may petitioners redeem the subject


land from respondents-spouses? Articles
1088 and 1623 of the New Civil Code are
pertinent:
Art. 1088. Should any of
the heirs sell his hereditary
rights to a stranger before
the partition, any or all of the
co-heirs may be subrogated to
the rights of the purchaser by
reimbursing him for the price
of the sale, provided they do
so within the period of one
month from the time they
were notified in writing of
the sale by the vendor.
Art. 1623. The right of
legal
pre-emption
or
redemption shall not be
exercised except within
thirty days from the notice in
writing by the prospective
vendor, or by the vendor, as
the case may be. The deed of
sale shall not be recorded
in the Registry of Property,
unless accompanied by an
affidavit of the vendor that he
has given written
notice
thereof
to all
possible
redemptioners.
The right of redemption
of co-owners excludes that of
adjoining owners.
Clearly, legal redemption may only be
exercised by the co-owner or co-owners
who did not part with his or their proindiviso share in the property held in
common. As demonstrated, the sale as
to the undivided share of petitioner Rito
became valid and binding upon his
ratification on July 24, 1986. As a

result, he lost his right to redeem


subject property.
However, as likewise established, the
sale as to the undivided share of
petitioner Nelson and his mother was
not valid such that they were not
divested
of
their
ownership
thereto. Necessarily, they may redeem
the subject property from respondentsspouses. But they must do so within
thirty days from notice in writing of the
sale by their co-owners vendors. In
reckoning this period, we held in Alonzo
v. Intermediate Appellate Court,[13] thus:
x x x we test a law by its results;
and likewise, we may add, by its
purposes. It is a cardinal rule that,
in seeking the meaning of the law,
the first concern of the judge
should be to discover in its
provisions the intent of the
lawmaker. Unquestionably,
the
law should never be interpreted in
such a way as to cause injustice as
this is never within the legislative
intent. An indispensable part of
that intent, in fact, for we presume
the good motives of the legislature,
is to render justice.
Thus, we interpret and
apply
the
law
not
independently of but in
consonance
with
justice. Law and justice are
inseparable, and we must
keep them so. x x x x
x x x x While we may not
read into the law a purpose
that is not there, we
nevertheless have the
right to read out of it the
reason
for
its
enactment. In doing so,

we defer not to the letter that


killeth but to the
spirit
that vivifieth, to give effect to
the lawmakers will.
In
requiring
written
notice, Article 1088 (and
Article 1623 for that matter)
[14]
seeks to ensure that the
redemptioner
is
properly
notified of the sale and to
indicate the date of such
notice as the starting time of
the 30-day
period
of
redemption. Considering the
shortness of the period, it is
really necessary, as a general
rule, to pinpoint the precise
date it is
supposed
to
begin, to obviate the problem
of alleged delays, sometimes
consisting of only a day or
two.
In the instant case, the right of redemption
was invoked not days but years after the
sale was made in 1978. We are not
unmindful of the fact that petitioner
Nelson was a minor when the sale was
perfected. Nevertheless, the records show
that in 1988, petitioner Nelson, then of
majority age, was informed of the sale of
subject property. Moreover, it was noted
by the appellate court that petitioner
Nelson was likewise informed thereof in
1993 and he signified his intention to
redeem
subject
property
during
a barangay conciliation process. But he
only filed the complaint for legal
redemption and damages on January
12, 1995, certainly more than thirty
days from learning about the sale.
In the face of the established facts,
petitioner Nelson cannot feign ignorance
of the sale of subject property in 1978. To

require strict proof of written notice of the


sale would be to countenance an obvious
false claim of lack of knowledge thereof,
thus commending the letter of the law
over its purpose, i.e., the notification of
redemptioners.
The Court is satisfied that there was
sufficient notice of the sale to petitioner
Nelson. The thirty-day redemption
period commenced in 1993, after
petitioner
Nelson
sought
the barangay conciliation process to
redeem his property. By January 12,
1995, when petitioner Nelson filed a
complaint for legal redemption and
damages, it is clear that the thirty-day
period had already expired.
Petitioner Nelson, as correctly held by
the Court of Appeals, can no longer
redeem subject property. But he and
his mother remain co-owners thereof
with respondents-spouses. Accordingly,
title to subject property must include
them.
PENALBER v. RAMOS
Facts: The Bonifacio property was offered
for sale by its owner Mendoza. Petitioner
told respondent spouses Ramos that she
was going to buy the lot, but the title to
the same will be in the latters
names. The money from the hardware
store managed by respondent spouses
Ramos shall be used to buy the Bonifacio
property, which shall then be mortgaged
by the respondent spouses Ramos so that
they could obtain a loan for building a
bigger
store. The
purchase
price
of P80,000.00 was paid for the Bonifacio
property. On 20 September 1984, the
respondent spouses Ramos returned the
management
of
the
store
to

petitioner. Thereafter, petitioner allowed


her son Johnson to inventory the stocks of
the store. Johnson found out that the
purchase price of P80,000.00 for the
Bonifacio property was already fully
paid. When petitioner told the respondent
spouses Ramos to transfer the title to the
Bonifacio property in her name, the
respondent spouses Ramos refused, thus,
prompting petitioner to file a complaint
against them.
Issue: (1) W/N the existence of a trust
agreement between her and respondent
spouses Ramos was clearly established,
and (2) W/N such trust agreement was
valid and enforceable.
Held: It bears stressing that petitioner has
the burden of proving her cause of action
in the instant case and she may not rely on
the weakness of the defense of respondent
spouses Ramos. Burden of proof is the
duty of any party to present evidence to
establish his claim or defense by the
amount of evidence required by law,
which is preponderance of evidence in
civil
cases. Preponderance
of
evidence[37] is the weight, credit, and
value of the aggregate evidence on
either side and is usually considered to
be synonymous with the term "greater
weight of the evidence" or "greater
weight of the credible evidence. It is
evidence which is more convincing to
the court as worthy of belief than that
which is offered in opposition thereto.
[38]
Therefore, the party, whether plaintiff
or defendant, who asserts the affirmative
of the issue has the burden of proof to
obtain a favorable judgment. For the
plaintiff, the burden of proof never parts.
[39]
For the defendant, an affirmative
defense is one which is not a denial of an
essential ingredient in the plaintiffs cause
of action, but one which, if established,

will be a good defense i.e., an avoidance


of the claim.[40]
From the allegations of the petitioners
Complaint in Civil Case No. 3672, the
alleged verbal trust agreement between
petitioner and respondent spouses Ramos
is in the nature of an express trust as
petitioner explicitly agreed therein to
allow the respondent spouses Ramos to
acquire title to the Bonifacio property in
their names, but to hold the same property
for petitioners benefit. Given that the
alleged trust concerns an immovable
property, however, respondent spouses
Ramos counter that the same is
unenforceable since the agreement was
made verbally and no parol evidence may
be admitted to prove the existence of an
express trust concerning an immovable
property or any interest therein.
On this score, we subscribe to the ruling
of the RTC in its Order dated 17 July 2000
that said spouses were deemed to have
waived their objection to the parol
evidence as they failed to timely object
when petitioner testified on the said
verbal agreement. The requirement in
Article 1443 that the express trust
concerning an immovable or an interest
therein be in writing is merely for
purposes of proof, not for the validity of
the trust agreement. Therefore, the
said article is in the nature of a statute
of frauds. The term statute of frauds is
descriptive of statutes which require
certain classes of contracts to be in
writing. The statute does not deprive
the parties of the right to contract with
respect to the matters therein involved,
but merely regulates the formalities of
the contract necessary to render it
enforceable.[41] The effect of noncompliance is simply that no action can
be proved unless the requirement is

complied with. Oral evidence of the


contract will be excluded upon timely
objection. But if the parties to the
action, during the trial, make no
objection to the admissibility of the oral
evidence to support the contract
covered by the statute, and thereby
permit such contract to be proved
orally, it will be just as binding upon
the parties as if it had been reduced to
writing.[42]

said stocks were determined to


be P226,951.05. When
respondent
spouses Ramos returned the management
of the store to petitioner on 20 September
1984, another inventory[46] of the stocks
was made, with the total value of the
stocks
falling
to P110,004.88. The
difference of P116,946.16 was attributed
to the purchase of the Bonifacio property
by the respondent spouses Ramos using
the profits from the sales of the store.

Per petitioners testimony,[43] the Bonifacio


property was offered for sale by its
owner Mendoza. Petitioner
told
respondent spouses Ramos that she was
going to buy the lot, but the title to the
same will be in the latters names. The
money from the hardware store managed
by respondent spouses Ramos shall be
used to buy the Bonifacio property, which
shall then be mortgaged by the respondent
spouses Ramos so that they could obtain a
loan for building a bigger store. The
purchase price of P80,000.00 was paid for
the Bonifacio property. On 20 September
1984, the respondent spouses Ramos
returned the management of the store to
petitioner. Thereafter, petitioner allowed
her son Johnson to inventory the stocks of
the store. Johnson found out that the
purchase price of P80,000.00 for the
Bonifacio property was already fully
paid. When petitioner told the respondent
spouses Ramos to transfer the title to the
Bonifacio property in her name, the
respondent spouses Ramos refused, thus,
prompting petitioner to file a complaint
against them.

A careful perusal of the records of the case


reveals that respondent spouses Ramos
did indeed fail to interpose their
objections regarding the admissibility of
the afore-mentioned testimonies when the
same were offered to prove the alleged
verbal trust agreement between them and
petitioner. Consequently,
these
testimonies were rendered admissible in
evidence. Nevertheless,
while
admissibility of evidence is an affair of
logic and law, determined as it is by its
relevance and competence, the weight
to be given to such evidence, once
admitted, still depends on judicial
evaluation.[47] Thus,
despite
the
admissibility of the said testimonies, the
Court holds that the same carried little
weight in proving the alleged verbal trust
agreement between petitioner and
respondent spouses.

Similarly, Johnson testified[44] that


on 22 March 1982, petitioner turned over
the management of the hardware store to
respondent spouses Ramos. During that
time, an inventory[45] of the stocks of the
store was made and the total value of the

Petitioners allegations as to the


existence of an express trust agreement
with respondent spouses Ramos,
supported only by her own and her son
Johnsons testimonies, do not hold
water. As correctly ruled by the Court of
Appeals, a
resulting
difference
of P116,946.15
in
the beginning
inventory of the stocks of the hardware
store
(before
management
was
transferred to respondent spouses
Ramos) and the second inventory

thereof
(after
management
was
returned to petitioner), by itself, is not
conclusive proof that the said amount
was used to pay the purchase price of
the Bonifacio property, such as would
make it the property of petitioner held
merely in trust by respondent spouses
Ramos. Such a conclusion adopted by
the RTC is purely speculative and non
sequitur. The resulting difference in the
two inventories might have been caused
by other factors and the same is capable
of other interpretations (e. g., that the
amount thereof may have been written
off as business losses due to a bad
economic condition, or that the stocks
of the store might have been damaged
or otherwise their purchase prices have
increased dramatically, etc.), the
exclusion of which rested upon the
shoulders of petitioner alone who has
the burden of proof in the instant
case. This petitioner miserably failed to
do. The fact that respondent spouses
Ramos
never
denied
the P116,946.15 difference, or that they
failed to present proof that they indeed
used the said amount to pay the other
obligations and liabilities of petitioner is
not sufficient to discharge petitioners
burden to prove the existence of the
alleged express trust agreement.
GONZALES v. PEREZ
Facts: Pedro Gonzales won in a public
bidding and acquired a lot in Marikina.
However, this still needs approval from
the Provincial Governor. Marcos Perez on
the other hand bought the subject property
from Pedro Gonzales. The heirs of both
Gonzales and Perez have different
contentions. Petitioners contend that
Marcos, who is respondents' predecessorin-interest, could not have legally bought

the disputed parcel of land from


petitioners' predecessor-in-interest, Pedro,
in September 1966 because, during that
time, Pedro had not yet acquired
ownership of the subject lot. Petitioners'
assertion is based on the premise that as of
February 29, 1968, the Deed of Sale
between Pedro and the Municipality of
Marikina was still subject to approval by
the Provincial Governor of Rizal, as
required under Section 2196 of the
Revised
Administrative
Code.
Considering that on the supposed date of
sale in favor of Marcos, the requisite
approval of the Provincial Governor was
not yet secured, petitioners conclude that
Pedro could not be considered as the
owner of the subject property and, as
such, he did not yet possess the right to
transfer ownership thereof and, thus,
could not have lawfully sold the same to
Marcos.
Issue: W/N the Deed of Sale between
Pedro and Marcos is authentic and duly
executed.
Held: On the question of whether
the subject Deed of Sale is invalid on the
ground that it does not appear in a public
document, Article 1358 of the same Code
enumerates the acts and contracts that
should be embodied in a public document,
to wit:
Art.
1358.
The
following must appear in a
public document:
(1)
Acts
and
contracts which have for
their object the creation,
transmission,
modification
or
extinguishment of real

rights over immovable


property; sales of real
property or of an interest
therein are governed by
Articles 1403, No. 2 and
1405;
(2) The
cession,
repudiation or renunciation
of hereditary rights or of
those of the conjugal
partnership of gains;
(3) The power to
administer property, or any
other power which has for
its object an act appearing
or which should appear in a
public document, or should
prejudice a third person;
and
(4) The cession of
actions or rights proceeding
from an act appearing in a
public document.
All other contracts
where the amount involved
exceeds five hundred pesos
must appear in writing, even
a private one. But sales of
goods, chattels or things in
action are governed by
Articles 1403, No. 2 and
1405.
On the other hand, pertinent
portions of Article 1403 of the Civil Code
provide as follows:
Art.
1403.
The
following contracts are
unenforceable, unless they
are ratified:
xxxx

(2) Those that do not


comply with the Statute of
Frauds as set forth in this
number. In the following
cases
an
agreement
hereafter made shall be
unenforceable by action,
unless the same, or some
note or memorandum
thereof, be in writing, and
subscribed by the party
charged, or by his agent;
evidence, therefore, of the
agreement
cannot
be
received without the writing,
or a secondary evidence of
its contents:
(a)
An agreement
that by its terms is
not to be performed
within a year from
the making thereof;
xxxx
(e) An agreement
for the leasing for a
longer period than
one year, or for the
sale of real property
or of an interest
therein; x x x[27]
Under Article 1403(2), the sale of
real property should be in writing
and subscribed by the party
charged for it to be enforceable.
[28]
In the case before the Court,
the Deed of Sale between Pedro
and Marcos is in writing and
subscribed by Pedro and his wife
Francisca; hence, it is enforceable
under the Statute of Frauds.

However, not having been subscribed


and sworn to before a notary public, the
Deed of Sale is not a public document
and, therefore, does not comply with
Article 1358 of the Civil Code.
Nonetheless, it is a settled rule that the
failure to observe the proper form
prescribed by Article 1358 does not
render the acts or contracts enumerated
therein invalid. It has been uniformly
held that the form required under the
said Article is not essential to the
validity or enforceability of the
transaction, but merely for convenience.
[29]
The Court agrees with the CA in
holding that a sale of real property,
though not consigned in a public
instrument or formal writing, is,
nevertheless, valid and binding among
the parties, for the time-honored rule is
that even a verbal contract of sale of
real estate produces legal effects
between
the
parties.[30] Stated
differently, although a conveyance of
land is not made in a public document,
it does not affect the validity of such
conveyance. Article 1358 does not
require the accomplishment of the acts
or contracts in a public instrument in
order to validate the act or contract but
only to insure its efficacy.[31] Thus, based
on the foregoing, the Court finds that
the CA did not err in ruling that the
contract of sale between Pedro and
Marcos is valid and binding.
BUCTON v. RURAL BANK
Facts: Petitioner in this case, now
deceased, filed this instant case averring
that she is the owner of a parcel of land
located in CDO City . According to her,

Concepcion borrowed the title of her


property. Concepcion then obtained a loan
from the Rural Bank and mortgaged the
property of Bucton using a forged SPA.
Upon failing to pay the loan from the
bank, Buctons property was foreclosed.
Moreover, the house and lot mortgaged by
Concepcion are covered by two separate
titles. The bank on the other hand averred
that on the other hand, relies on the
presumption of regularity of the notarized
SPA.70 It insists that it was not negligent
as it inspected the property before it
approved the loan,71 unlike petitioner who
was negligent in entrusting her title to
Concepcion.
Held:
The Real Estate Mortgage was entered
into by Concepcion in her own
personal
capacity.
As early as the case of Philippine Sugar
Estates Development Co. v. Poizat,76 we
already ruled that in order to bind the
principal by a deed executed by an agent,
the deed must upon its face purport to be
made, signed and sealed in the name of
the principal.77 In other words, the mere
fact that the agent was authorized to
mortgage the property is not sufficient
to bind the principal, unless the deed
was executed and signed by the agent
for and on behalf of his principal. This
ruling was adhered to and reiterated with
consistency in the cases of Rural Bank of
Bombon (Camarines Sur), Inc. v. Court of
Appeals,78Gozun v. Mercado,79 and Far
East Bank and Trust Company (Now Bank
of the Philippine Island) v. Cayetano.80
In Philippine Sugar Estates Development
Co., the wife authorized her husband to
obtain a loan and to secure it with
mortgage on her property. Unfortunately,
although the real estate mortgage stated

that it was executed by the husband in his


capacity as attorneyinfact of his wife,
the husband signed the contract in his
own name without indicating that he
also signed it as the attorneyinfact of
his wife.
In Rural Bank of Bombon, the agent
contracted a loan from the bank and
executed a real estate mortgage.
However, he did not indicate that he
was acting on behalf of his principal.
In Gozun, the agent obtained a cash
advance but signed the receipt in her
name alone, without any indication that
she was acting for and on behalf of her
principal.
In Far East Bank and Trust Company, the
mother executed an SPA authorizing her
daughter to contract a loan from the bank
and to mortgage her properties. The
mortgage, however, was signed by the
daughter and her husband as
mortgagors in their individual
capacities, without stating that the
daughter was executing the mortgage
for and on behalf of her mother.
Similarly, in this case, the authorized
agent failed to indicate in the mortgage
that she was acting for and on behalf of
her principal. The Real Estate
Mortgage, explicitly shows on its face,
that it was signed by Concepcion in her
own name and in her own personal
capacity. In fact, there is nothing in the
document to show that she was acting
or signing as an agent of petitioner.
Thus, consistent with the law on agency
and established jurisprudence,
petitioner cannot be bound by the acts
of Concepcion.
In light of the foregoing, there is no need

to delve on the issues of forgery of the


SPA and the nullity of the foreclosure
sale. For even if the SPA was valid, the
Real Estate Mortgage would still not
bind petitioner as it was signed by
Concepcion in her personal capacity
and not as an agent of petitioner.
Simply put, the Real Estate Mortgage is
void and unenforceable against
petitioner.
Respondent bank was negligent.
At this point, we find it significant to
mention that respondent bank has no one
to blame but itself. Not only did it act with
undue haste when it granted and released
the loan in less than three days, it also
acted negligently in preparing the Real
Estate Mortgage as it failed to indicate
that Concepcion was signing it for and on
behalf of petitioner. We need not belabor
that the words as attorneyinfact of,
as agent of, or for and on behalf of,
are vital in order for the principal to be
bound by the acts of his agent. Without
these words, any mortgage, although
signed by the agent, cannot bind the
principal as it is considered to have
been signed by the agent in his personal
capacity.
MODINA v. CA
Facts:
This case involves parcels of land
registered under the name of Ramon
Chiang.

Chiang theorized that the subject


properties were sold to him by his wife,
Merlinda Plana Chiang as evidenced by a
Deed of Sale and were subsequently sold
by Chiang to the petitioner Serafin

Modina. (Dates of sale:August 3, 1979


and August 24, 1979, respectively.)

Modina brought a Complaint for


Recovery of Possession with Damages
against the private respondents before the
RTC.

Upon learning the institution of the


said case, Merlinda presented a
Complaint-in-intervention, seeking the
declaration of nullity of the Deed of Sale
between her husband and MODINA on
the ground that the titles of the parcels of
land in dispute were never legally
transferred to her husband.

She contended that fraudulent acts


were allegedly employed by her husband
to obtain a Torrens Title in his favor.
However, she confirmed the validity of
the lease contracts with the other private
respondents.

MERLINDA also admitted that the


said parcels of land were those ordered
sold by the CFI of Iloilo in Intestate
Estate of Nelson Plana where she was
appointed as the administratix, being the
widow of the deceased, her first husband.
An Authority to Sell was issued by the
said Probate Court for the sale of the same
properties.

RTC ruled in favor of the wife


Merlinda declaring the two sales in
August 1979 as void and inexistent.

Upon appeal, the CA affirmed in


toto the RTC ruling.
Issues: 1. WON the sale of subject lots
should be nullified. YES
2. WON petitioner Modina
purchaser in good faith. NO

was

Held: Anent the first issue, petitioner


theorizes that the sale in question is null
and void for being violative of Article

1490[3] of the New Civil Code prohibiting


sales between spouses. Consequently,
what
is
applicable
is
Article
[4]
1412 supra on the principle of in pari
delicto, which leaves both guilty parties
where they are, and keeps undisturbed the
rights of third persons to whom the lots
involved were sold; petitioner stressed.
Petitioner anchors his submission on the
following statements of the Trial Court
which the Court of Appeals upheld, to wit:
Furthermore, under Art. 1490,
husband and wife are prohibited to sell
properties to each other. And where, as
in this case, the sale is inexistent for
lack of consideration, the principle of
in pari delicto non oritur actio does not
apply. (Vasquez vs Porta, 98 Phil 490).
Thus, Art. 1490 provides:
Art. 1490. The husband and the wife
cannot sell property to each other, except:
(1) when a separation of property was
agreed upon in the marriage settlements;
or
(2) when there has been a judicial
separation of property under Art. 191.
The exception to the rule laid down in Art.
1490 of the New Civil Code not having
existed with respect to the property
relations of Ramon Chiang and Merlinda
Plana Chiang, the sale by the latter in
favor of the former of the properties in
question is invalid for being prohibited by
law. Not being the owner of subject
properties, Ramon Chiang could not
have validly sold the same to plaintiff
Serafin Modina. The sale by Ramon
Chiang in favor of Serafin Modina is,
likewise, void and inexistent.

xxx xxx

xxx[5]

The Court of Appeals, on the other hand,


adopted the following findings a quo: that
there is no sufficient evidence establishing
fault on the part of MERLINDA, and
therefore, the principle of in pari delicto is
inapplicable and the sale was void for
want
of
consideration. In
effect,
MERLINDA can recover the lots sold by
her
husband
to
petitioner
MODINA. However, the Court of
Appeals ruled that the sale was void for
violating Article 1490 of the Civil Code,
which prohibits sales between spouses.
The principle of in pari delicto non
oritur actio[6] denies all recovery to the
guilty parties inter se. It applies to cases
where the nullity arises from the
illegality of the consideration or the
purpose of the contract.[7] When two
persons are equally at fault, the law
does not relieve them. The exception to
this general rule is when the principle is
invoked with respect to inexistent
contracts.[8]
In the petition under consideration, the
Trial Court found that subject Deed of
Sale was a nullity for lack of any
consideration.[9] This
finding
duly
supported by evidence was affirmed by
the Court of Appeals. Well-settled is the
rule that this Court will not disturb such
finding absent any evidence to the
contrary.[10]
Under Article 1409[11] of the New Civil
Code, enumerating void contracts, a
contract without consideration is one
such void contract. One of the
characteristics of a void or inexistent
contract is that it produces no effect. So
also, inexistent contracts can be invoked
by any person whenever juridical effects
founded thereon are asserted against
him. A transferor can recover the object

of
such
contract
by accion
reivindicatoria and any possessor may
refuse to deliver it to the transferee, who
cannot enforce the transfer.[12]
Thus,
petitioners
insistence
that
MERLINDA cannot attack subject
contract of sale as she was a guilty party
thereto is equally unavailing.
But the pivot of inquiry here is whether
MERLINDA is barred by the principle
of in pari delicto from questioning subject
Deed of Sale.
It bears emphasizing that as the contracts
under controversy are inexistent contracts
within legal contemplation, Articles 1411
and 1412 of the New Civil Code are
inapplicable. In pari delicto doctrine
applies only to contracts with illegal
consideration or subject matter,
whether the attendant facts constitute
an offense or misdemeanor or whether
the consideration involved is merely
rendered illegal.[13]
The statement below that it is likewise
null and void for being violative of Article
1490 should just be treated as a surplusage
or an obiter dictum on the part of the Trial
Court as the issue of whether the parcels
of land in dispute are conjugal in nature or
they fall under the exceptions provided for
by law, was neither raised nor litigated
upon before the lower Court. Whether the
said lots were ganancial properties was
never brought to the fore by the parties
and it is too late to do so now.
Futhermore, if this line of argument be
followed, the Trial Court could not have
declared subject contract as null and void
because only the heirs and the creditors
can question its nullity and not the
spouses themselves who executed the
contract with full knowledge of the
prohibition.[14]

Records show that in the complaint-inintervention of MERLINDA, she did not


aver the same as a ground to nullify
subject Deed of Sale. In fact, she denied
the existence of the Deed of Sale in favor
of her husband. In the said Complaint, her
allegations referred to the want of
consideration of such Deed of Sale. She
did not put up the defense under Article
1490, to nullify her sale to her husband
CHIANG because such a defense would
be inconsistent with her claim that the
same sale was inexistent.
The Trial Court debunked petitioners
theory that MERLINDA intentionally
gave away the bulk of her and her late
husbands estate to defendant CHIANG as
his exclusive property, for want of
evidentiary anchor. They insist on the
Deed of Sale wherein MERLINDA made
the misrepresentation that she was a
widow and CHIANG was single, when at
the time of execution thereof, they were in
fact already married. Petitioner insists
that
this
document
conclusively
established bad faith on the part of
MERLINDA and therefore, the principle
of in pari delicto should have been
applied.
These issues are factual in nature and it is
not for this Court to appreciate and
evaluate the pieces of evidence introduced
below. An appellate court defers to the
factual findings of the Trial Court, unless
petitioner can show a glaring mistake in
the appreciation of relevant evidence.
Since one of the characteristics of a void
or inexistent contract is that it does not
produce any effect, MERLINDA can
recover the property from petitioner
who never acquired title thereover.
As to the second issue, petitioner stresses
that his title should have been respected
since he is a purchaser in good faith and

for value. The Court of Appeals,


however, opined that he (petitioner) is not
a purchaser in good faith. It found that
there were circumstances known to
MODINA which rendered their
transaction fraudulent under the
attendant circumstances.
As a general rule, in a sale under the
Torrens system, a void title cannot give
rise to a valid title. The exception is
when the sale of a person with a void
title is to a third person who purchased
it for value and in good faith.
A purchaser in good faith is one who buys
the property of another without notice that
some other person has a right to or interest
in such property and pays a full and fair
price at the time of the purchase or before
he has notice of the claim or interest of
some other person in the property.
In the case under scrutiny, petitioner
cannot claim that he was a purchaser in
good faith. There are circumstances
which are indicia of bad faith on his part,
to wit: (1) He asked his nephew,
Placido Matta, to investigate the origin
of the property and the latter learned
that the same formed part of the
properties of MERLINDAs first
husband; (2) that the said sale was
between the spouses; (3) that when the
property was inspected, MODINA met
all the lessees who informed that
subject lands belong to MERLINDA
and they had no knowledge that the
same lots were sold to the husband.
It is a well-settled rule that a purchaser
cannot close his eyes to facts which would
put a reasonable man upon his guard to
make the necessary inquiries, and then
claim that he acted in good faith. His
mere refusal to believe that such defect
exists, or his wilful closing of his eyes to
the possibility of the existence of a defect

in his vendors title, will not make him an


innocent purchaser for value, if it
afterwards develops that the title was in
fact defective, and it appears that he had
such notice of the defect as would have
led to its discovery had he acted with that
measure of precaution which may
reasonably be required of a prudent man
in a like situation.[15]
Thus, petitioner cannot claim that the sale
between him and MODINA falls under the
exception provided for by law.
With regard to the third issue posed by
petitioner - whether the Trial Courts
decision allowing recovery on the part of
Merlinda Chiang of subject properties was
void - petitioners contention is
untennable. It is theorized that as the sale
by MERLINDA was by virtue of an Order
to Sell issued in the Intestate Estate
Proceedings of her late husband, Nelson
Plana - to allow recovery will defeat the
said order of the Probate Court. Petitioner
equated the aforesaid Order to Sell as a
judgment, which another court in a regular
proceeding has no jurisdiction to reverse.
Petitioner is under the mistaken
impression that as the Order to Sell had
become a judgment in itself as to the
validity of the sale of the properties
involved, any question as to its nullity
should have been brought before the Court
of Appeals on appeal when the said Order
was issued.
It is a well-settled rule that a Court of First
Instance (now Regional Trial Court) has
jurisdiction over a case brought to rescind
a sale made upon prior authority of a
Probate Court. This does not constitute an
interference or review of the order of a coequal Court since the Probate Court has no
jurisdiction over the question of title to
subject
properties. Consequently,
a

separate action may be brought to


determine the question of ownership.
DOMINGO v. CA
Facts: On May 29, 1991, private
respondent Delia Soledad A. Domingo
filed the petition entitled "Declaration of
Nullity of Marriage and Separation of
Property" against Roberto Domingo. The
petition, which was filed before Pasig
RTC, alleged the following:
(a) they were married on November 29,
1976;
(b) unknown to her (Delia), he had a
previous marriage with Emerina dela Paz
on April 25, 1969 which marriage is valid
and still existing;
(c) she came to know of the prior marriage
only sometime in 1983 when Emerina
sued them for bigamy;
(d) since 1979, she has been working in
Saudi Arabia and is only able to stay in
the Philippines when she would avail of
the one-month annual vacation leave
granted by her employer;
(e) Roberto has been unemployed and
completely dependent upon her for
support and subsistence;
(f) Her personal properties amounting to
P350,000.00 are under the possession of
Roberto, who disposed some of the said
properties without her knowledge and
consent;
(g) while on her vacation, she discovered
that he was cohabiting with another
woman.
Petitioner filed a Motion to Dismiss on the
ground that the declaration of their
marriage, which is void ab initio, is
superfluous and unnecessary. He further
suggested that private respondent should
have filed an ordinary civil action for
the recovery of the properties alleged to
have been acquired by their union.

RTC and CA dismissed the petitioner's


motion for lack of merit.
Issue: 1) Whether or not a petition for
judicial delaration of a void marriage is
necessary. (If in the affirmative, whether
the same should be filed only for purpose
of remarriage.)
2) Whether or not the petition entitled
"Declaration of Nullity of Marriage and
Separation of Property" is the proper
remedy of private respondent to recover
certain real and personal properties
allegedly belonging to her exclusively.
Held: Just over a year ago, the Court made
the pronouncement that there is a
necessity for a declaration of absolute
nullity of a prior subsisting marriage
before contracting another in the recent
case of Terre v. Terre. 19 The Court, in
turning down the defense of respondent
Terre who was charged with grossly
immoral conduct consisting of contracting
a second marriage and living with another
woman other than complainant while his
prior marriage with the latter remained
subsisting, said that "for purposes of
determining whether a person is legally
free to contract a second marriage, a
judicial declaration that the first marriage
was null and void ab initio is essential."
As regards the necessity for a judicial
declaration of absolute nullity of marriage,
petitioner submits that the same can be
maintained only if it is for the purpose of
remarriage. Failure to allege this purpose,
according to petitioner's theory, will
warrant dismissal of the same.
Article 40 of the Family Code provides:

Art. 40. The absolute nullity of a previous


marriage may be invoked for purposes of
remarriage on the basis solely of a final
judgment declaring such previous
marriage void. (n)
Crucial to the proper interpretation of
Article 40 is the position in the provision
of the word "solely." As it is placed, the
same shows that it is meant to qualify
"final judgment declaring such previous
marriage void." Realizing the need for
careful craftsmanship in conveying the
precise intent of the Committee members,
the provision in question, as it finally
emerged, did not state "The absolute
nullity of a previous marriage may be
invoked solely for
purposes
of
remarriage . . .," in which case "solely"
would clearly qualify the phrase "for
purposes of remarriage." Had the
phraseology been such, the interpretation
of petitioner would have been correct and,
that is, that the absolute nullity of a
previous
marriage
may
be
invoked solely for purposes of remarriage,
thus rendering irrelevant the clause "on
the basis solely of a final judgment
declaring such previous marriage void."
That Article 40 as finally formulated
included the significant clause denotes
that such final judgment declaring the
previous marriage void need not be
obtained only for purposes of remarriage.
Undoubtedly, one can conceive of other
instances where a party might well invoke
the absolute nullity of a previous marriage
for purposes other than remarriage, such
as in case of an action for liquidation,
partition, distribution and separation of
property between the erstwhile spouses, as
well as an action for the custody and
support of their common children and the
delivery of the latters' presumptive
legitimes. In such cases, evidence needs

must be adduced, testimonial or


documentary, to prove the existence of
grounds rendering such a previous
marriage an absolute nullity. These need
not be limited solely to an earlier final
judgment of a court declaring such
previous marriage void. Hence, in the
instance where a party who has previously
contracted a marriage which remains
subsisting desires to enter into another
marriage which is legally unassailable, he
is required by law to prove that the
previous one was an absolute nullity. But
this he may do on the basis solely of a
final judgment declaring such previous
marriage void.
This leads us to the question: Why the
distinction? In other words, for purposes
of remarriage, why should the only legally
acceptable basis for declaring a previous
marriage an absolute nullity be a final
judgment declaring such previous
marriage void? Whereas, for purposes
other than remarriage, other evidence is
acceptable?
Marriage, a sacrosanct institution,
declared by the Constitution as an
"inviolable social institution, is the
foundation of the family;" as such, it
"shall be protected by the State." 20 In
more explicit terms, the Family Code
characterizes it as "a special contract of
permanent union between a man and a
woman entered into in accordance with
law for the establishment of conjugal, and
family life." 21 So crucial are marriage and
the family to the stability and peace of the
nation that their "nature, consequences,
and incidents are governed by law and not
subject to stipulation . . ." 22 As a matter of
policy, therefore, the nullification of a
marriage for the purpose of contracting
another cannot be accomplished merely on
the basis of the perception of both parties

or of one that their union is so defective


with respect to the essential requisites of a
contract of marriage as to render it
void ipso jure and with no legal effect
and nothing more. Were this so, this
inviolable social institution would be
reduced to a mockery and would rest on
very shaky foundations indeed. And the
grounds for nullifying marriage would be
as diverse and far-ranging as human
ingenuity and fancy could conceive. For
such a social significant institution, an
official state pronouncement through the
courts, and nothing less, will satisfy the
exacting norms of society. Not only would
such an open and public declaration by the
courts definitively confirm the nullity of
the contract of marriage, but the same
would be easily verifiable through records
accessible to everyone.
That the law seeks to ensure that a prior
marriage is no impediment to a second
sought to be contracted by one of the
parties may be gleaned from new
information required in the Family Code
to be included in the application for a
marriage license, viz, "If previously
married, how, when and where the
previous marriage was dissolved and
annulled." 23
Reverting to the case before us,
petitioner's interpretation of Art. 40 of the
Family Code is, undoubtedly, quite
restrictive. Thus, his position that private
respondent's failure to state in the petition
that the same is filed to enable her to
remarry will result in the dismissal of SP
No.
1989-J
is
untenable.
His
misconstruction of Art. 40 resulting from
the misplaced emphasis on the term
"solely" was in fact anticipated by the
members of the Committee.

Dean Gupit commented the word "only"


may be misconstrued to refer to "for
purposes of remarriage." Judge Diy stated
that
"only"
refers
to
"final
judgment." Justice Puno suggested that
they say "on the basis only of a final
judgment." Prof. Baviera suggested that
they use the legal term "solely" instead of
"only,"
which
the
Committee
approved. 24 (Emphasis supplied)
Pursuing his previous argument that the
declaration for absolute nullity of
marriage is unnecessary, petitioner
suggests that private respondent should
have filed an ordinary civil action for the
recovery of the properties alleged to have
been acquired during their union. In such
an eventuality, the lower court would not
be acting as a mere special court but
would be clothed with jurisdiction to rule
on the issues of possession and ownership.
In addition, he pointed out that there is
actually nothing to separate or partition as
the petition admits that all the properties
were acquired with private respondent's
money.
The Court of Appeals disregarded this
argument and concluded that "the prayer
for declaration of absolute nullity of
marriage may be raised together with the
other incident of their marriage such as the
separation of their properties."
When a marriage is declared void ab
initio, the law states that the final
judgment therein shall provide for "the
liquidation, partition and distribution of
the properties of the spouses, the custody
and support of the common children, and
the delivery of their presumptive
legitimes, unless such matters had been
adjudicated
in
previous
judicial
proceedings." 25 Other specific effects

flowing therefrom, in proper cases, are the


following:
Art. 43. xxx xxx xxx
(2) The absolute community of property
or the conjugal partnership, as the case
may be, shall be dissolved and liquidated,
but if either spouse contracted said
marriage in bad faith, his or her share of
the net profits of the community property
or conjugal partnership property shall be
forfeited in favor of the common children
or, if there are none, the children of the
guilty spouse by a previous marriage or, in
default of children, the innocent spouse;
(3) Donations by reason of marriage shall
remain valid, except that if the donee
contracted the marriage in bad faith, such
donations made to said donee are revoked
by operation of law;
(4) The innocent spouse may revoke the
designation of the other spouse who acted
in bad faith as a beneficiary in any
insurance policy, even if such designation
be stipulated as irrevocable; and
(5) The spouse who contracted the
subsequent marriage in bad faith shall be
disqualified to inherit from the innocent
spouse by testate and intestate succession.
(n)
Art. 44. If both spouses of the subsequent
marriage acted in bad faith, said marriage
shall be void ab initio and all donations by
reason of marriage and testamentary
disposition made by one in favor of the
other are revoked by operation of law.
(n) 26
Based on the foregoing provisions, private
respondent's ultimate prayer for separation
of property will simply be one of the

necessary consequences of the judicial


declaration of absolute nullity of their
marriage. Thus, petitioner's suggestion
that in order for their properties to be
separated, an ordinary civil action has to
be instituted for that purpose is baseless.
The Family Code has clearly provided the
effects of the declaration of nullity of
marriage, one of which is the separation of
property according to the regime of
property relations governing them. It
stands to reason that the lower court
before whom the issue of nullity of a first
marriage is brought is likewise clothed
with jurisdiction to decide the incidental
questions
regarding
the
couple's
properties. Accordingly, the respondent
court committed no reversible error in
finding that the lower court committed no
grave abuse of discretion in denying
petitioner's motion to dismiss SP No.
1989-J.
BAUTISTA v. SILVA3
Facts: The Silva spouses own a certain
parcel of land. Through an alleged SPA,
Mr. Silva was allegedly allowed by his
wife to sell such parcel of land to the
Bautista spouses. Based on the evidence
presented, the RTC also found that the
signature appearing on the Special Power
of Attorney (SPA) as that of Berlina Silva
is a forgery, and that consequently the
Deed of Absolute Sale executed by Pedro
in favor of Spouses Bautista is not
authorized by Berlina.
Issue: To what extent, therefore, should an
inquiry into a notarized special power of
attorney go in order for one to qualify as a
buyer for value in good faith?
Held: In sum, all things being equal, a
person dealing with a seller who has
possession and title to the property but

whose capacity to sell is restricted,


qualifies as a buyer in good faith if he
proves that he inquired into the title of the
seller as well as into the latter's capacity to
sell; and that in his inquiry, he relied on
the notarial acknowledgment found in the
seller's duly notarized special power of
attorney. He need not prove anything
more for it is already the function of the
notarial acknowledgment to establish the
appearance of the parties to the document,
its due execution and authenticity.52
Note that we expressly made the
foregoing rule applicable only under the
operative words "duly notarized" and "all
things being equal." Thus, said rule should
not apply when there is an apparent flaw
afflicting the notarial acknowledgment of
the special power of attorney as would
cast doubt on the due execution and
authenticity of the document; or when the
buyer has actual notice of circumstances
outside the document that would render
suspect its genuineness.
In Domingo v. Reed,53 we found that the
special power of attorney relied upon by
the buyers contained a defective notarial
acknowledgment in that it stated there that
only the agent-wife signed the document
before the notary public while the
principal-husband did not. Such flaw
rendered the notarial acknowledgment of
no effect and reduced the special power of
attorney into a private document. We
declared the buyer who relied on the
private special power of attorney a buyer
in bad faith.
In Lao v. Villones-Lao,54 and Estacio v.
Jaranilla,55 we found that the buyers knew
of circumstances extrinsic to the special
power of attorney which put in question
the actual execution of said document.
In Domingo Lao, the buyer knew that the

agent-wife was estranged from the


principal-husband but was living within
the same city. In the Estacio case, we
found admissions by the buyers that they
knew that at the time of the purported
execution of the special power of attorney,
the alleged principal was not in the
Philippines. In both cases we held that the
buyers were not in good faith, not because
we found any outward defect in the
notarial acknowledgment of the special
powers of attorney, but because the latter
had actual notice of facts that should have
put them on deeper inquiry into the
capacity to sell of the seller.
In the present case, petitioners knew that
Berlina was in Germany at the time they
were buying the property and the SPA
relied upon by petitioners has a defective
notarial acknowledgment. The SPA was a
mere photocopy56and we are not
convinced that there ever was an original
copy of said SPA as it was only this
photocopy that was testified to by
petitioner Nida Bautista and offered into
evidence by her counsel.57 We emphasize
this fact because it was actually this
photocopy that was relied upon by
petitioners before they entered into the
deed of sale with Pedro. As admitted to by
petitioner Nida Bautista, upon inspection
of the photocopy of the SPA, they gave
Pedro an advanced payment of
Php55,000.00; this signifies that, without
further investigation on the SPA,
petitioners had agreed to buy the subject
property from Pedro.
But then said photocopy of the SPA
contains no notarial seal. A notarial seal is
a mark, image or impression on a
document which would indicate that the
notary
public
has officially signed
it.58 There being no notarial seal, the
signature of the notary public on the

notarial
certificate
was
therefore
incomplete. The notarial certificate being
deficient, it was as if the notarial
acknowledgment was unsigned. The
photocopy of the SPA has no notarial
acknowledgment to speak of. It was a
mere private document which petitioners
cannot foist as a banner of good faith.
All told, it was not sufficient evidence of
good faith that petitioners merely relied on
the photocopy of the SPA as this turned
out to be a mere private document. They
should have adduced more evidence that
they looked beyond it. They did not.
Instead, they took no precautions at all.
They verified with Atty. Lucero whether
the SPA was authentic but then the latter
was not the notary public who prepared
the document. Worse, they purposely
failed to inquire who was the notary
public who prepared the SPA. Finally,
petitioners conducted the transaction in
haste. It took them all but three days or
from March 2 to 4, 1988 to enter into the
deed of sale, notwithstanding the
restriction on the capacity to sell of
Pedro.59 In no way then may petitioners
qualify as buyers for value in good faith.
That said, we come to the third issue on
whether petitioners may retain the portion
of Pedro Silva in the subject property.
Certainly not. It is well-settled that the
nullity of the sale of conjugal property
contracted by the husband without the
marital consent of the wife affects the
entire property, not just the share of the
wife.60 We see no reason to deviate from
this rule.
RAMIREZ v. RAMIREZ
Facts: On October 8, 1996, petitioner
filed a complaint against respondent Ma.

Cecilia Ramirez before the Regional Trial


Court of Olongapo City (RTC) for
annulment of: 1) a Deed of Donation; 2)
Waiver of Possessory Rights; and 3)
Transfer Certificates of Title (TCT)
Nos. T-5618 and T-5617.[1] Petitioner
claimed that respondent caused the
execution of the Deed of Donation and
Waiver of Possessory Rights to acquire
ownership
over
the
land
and
improvements then covered by TCT Nos.
T-4575 and T-4576. Using the Deed of
Donation, respondent allegedly succeeded
in having TCT Nos. T-4575 and T-4576
cancelled and TCT Nos. T-5618 and T5617 issued in her name. Furthermore,
petitioner alleged that with the Waiver of
Possessory Rights, respondent was able to
cause the Office of the City Assessor to
transfer to her name the tax declarations
on the improvements in the land. The
Deed of Donation and Waiver of
Possessory Rights
were
allegedly
executed by petitioner and his wife,
Dolores
Ramirez,
on January
29,
1993 and October 24, 1995, respectively.
However, the death certificate presented
showed that Dolores died on April 5,
1991 and, consequently, could not have
executed
the
assailed
documents.
Petitioner repudiated the other signatures
appearing on the two documents that were
purportedly his and insisted that he did not
intend to transfer the properties to
respondent. In her Answer, respondent
alleged that her father, petitioner, would
not have filed the case were it not for the
fact that he remarried despite his age of 84
years. She further claimed that it was her
fathers idea to cause the preparation of
the Deed of Donation and Waiver of
Possessory Rights to save on expenses for
publication and inheritance taxes.

Issue: W/N petitioner and respondent are


in pari delicto.
Held: As one of the modes of acquiring
ownership, donations are governed by
Title 3, Book III, of the Civil
Code. Donations inter vivos are
additionally governed by the general
provisions on obligations and contracts in
all that is not determined by the title
governing donations.[5] Hence, the rule
on pari delicto under
the
general
provisions of contracts is applicable to the
present case.
The Court agrees with the rulings of the
CA and the RTC that petitioner and
respondent
are
in pari delicto. Nevertheless, both courts
erred on the applicable law. Article 1412
of the Civil Code, which they applied,
refers to a situation where the cause of the
contract is unlawful or forbidden but does
not constitute a violation of the criminal
laws, thus:
ARTICLE 1412. If the act in
which the unlawful or forbidden
cause consists does not constitute a
criminal offense, the following
rules
shall be observed:
(1)
When the
fault is on the part of both
contracting parties, neither
may recover what he has
given by virtue of the
contract, or demand the
performance of the other's
undertaking;
(2)
When only
one of the contracting
parties is at fault, he cannot
recover what he has given
by reason of the contract,

or ask for the fulfillment of


what has been promised
him. The other, who is not
at fault, may demand the
return of what he has given
without any obligation to
comply with his promise.
On the other hand, where the act
involved constitutes a criminal offense,
the applicable provision is Article 1411:
ARTICLE 1411. When the
nullity proceeds from the illegality of
the cause or object of the contract,
and the act constitutes a criminal
offense, both parties being in pari
delicto, they shall have no action
against each other, and both shall be
prosecuted. Moreover, the
provisions of the Penal Code
relative to the disposal of effects or
instruments of a crime shall be
applicable to the things or the price of
the
contract.
This rule shall be applicable
when only one of the parties is
guilty; but the innocent one may
claim what he has given, and shall
not be bound to comply with his
promise.
Petitioner alleged that the signatures of
Dolores on the Deed of Donation and on
the Waiver of Possessory Rights are a
forgery. Respondent does not deny this
allegation. Forging a persons signature
corresponds to the felony of falsification
under Section 4, Title IV of the Revised
Penal Code. Hence, the act of forging
Doloress signature constitutes a criminal

offense under the terms of Article 1411 of


the Civil Code.
The Court now proceeds to determine if
there is ground to hold the parties
in pari delicto under Article 1411 of the
Civil Code. Under this article, it must be
shown that the nullity of the contract
proceeds from an illegal cause or object,
and the act of executing said contract
constitutes a criminal offense. The second
requirement has already been discussed
and is found to be present.
On the first element, petitioner claims that
the object or cause of the Deed of
Donation
and
of
the
Waiver
of Possessory Rights is the transferred real
properties and that there is nothing illegal
about them. He maintains that the
illegality instead stems from the act of
forgery which pertains to consent, which
is not material to the application of Article
1411. The argument is untenable. Object
and cause are two separate elements of a
donation and the illegality of either
element gives rise to the application of the
doctrine of pari delicto. Object is the
subject matter of the donation, while
cause is the essential reason which moves
the parties to enter into the transaction.
Petitioner wrongly asserts that the donated
real properties are both the object and
cause of the donation. In fact, the donated
properties
pertain
only
to
the
object. Therefore, while he is correct in
stating that the object of the donation is
legal, his argument misses the point
insofar as the cause is concerned. The
cause which moved the parties to execute
the Deed of Donation and the Waiver
of Possessory Rights, the motive behind
the forgery, is the desire to evade the
payment of publication expenses and

inheritance taxes, which became due upon


the death of Dolores.[6] Undeniably, the
Deed of Donation and the Waiver
of Possessory Rights were executed for an
illegal cause, thus completing all the
requisites for the application of Article
1411.
Both petitioner and respondent are,
therefore, in pari delicto. Neither one may
expect positive relief from the courts from
their illegal acts and transactions.
Consequently, they will be left as they
were at the time the case was filed.
BAUTISTA v. BAUTISTA
A void extrajudicial partition does not
prescribe
Facts: On April 21, 1981, Isidro and four
of his five children Pacita, Gil, Alegria,
and Angelica executed a Deed of ExtraJudicial Partition[1] of the property in
which Isidro waived his share in favor of
his said four children. Teofilo was
excluded from the partition. Alegria and
Angelica, who, under the Deed of ExtraJudicial Partition, acquired of the
property, sold the same, by Deed of
Absolute Sale dated May 14, 1981, to
their sibling Pacita and her common-law
husband Pedro Tandoc (Pedro). Pacita and
Pedro then sold the properties to
Cesar Tamondong,
Pedros
nephew.
Teofilo, represented by his attorney-in-fact
Francisco Muoz, filed a Complaint
claiming that his co-heirs defrauded him
of his rightful share of the property and
that the deed of sale executed by Pacita in
favor of Cesar Tamondong was fictitious
as it was impossible for her to have
executed the same in Manila, she being
already seriously ill at the time. By way of

cross-claim[9] against
Pedro
and
Cesar Tamondong,
the
answering
defendants-respondents claimed that a few
weeks after the partition, Pacita
approached Angelica and Alegria to
borrow their share in the property on her
representation that it would be used as
security for a business loan; and that
agreeing to accommodate Pacita, Angelica
and Alegria signed
a
document
which Pacita prepared which turned out to
be the deed of absolute sale
in Pacitas favor. In their Answer with
Counterclaim,[10] Pedro
and
Cesar Tamondong claimed that they were
buyers in good faith.[11] In any event, they
contended that prescription had set in, and
that the complaint was a mere rehash of a
previous complaint for falsification of
public document which had been
dismissed by the prosecutors office.
Issue: W/N prescription had already set in.
Held: The petition is impressed with
merit.
As gathered from the above-quoted
portion of its decision, the Court of
Appeals applied the prescriptive periods
for annulment on the ground of fraud and
for reconveyance of property under a
constructive trust.
The extra-judicial partition executed by
Teofilos
co-heirs
was
invalid,
[21]
however. So Segura v. Segura instructs:
x x x The partition in the present
case was invalid because it
excluded six of the nine heirs who
were entitled to equal
shares in
the partitioned property. Under the
rule, no extra-judicial settlement
shall be binding upon any person

who has
not
participated
therein or had no notice
thereof. As the partition was a
total nullity and did not affect the
excluded
heirs, it
was
not
correct for the trial court to hold
that their right to challenge the
partition had prescribed after two
years x x x
The deed of extra-judicial partition in
the case at bar being invalid, the action
to have it annulled does not prescribe.
[23]

Since the deed of extra-judicial


partition is invalid, it transmitted no
rights
to
Teofilos
co-heirs.
[24]
Consequently,
the
subsequent
transfer by Angelica andAlegria of of
the property to Pacita and her husband
Pedro, as well as the transfer of of the
property
to
Cesar Tamondong is
invalid, hence, conferring no rights
upon the transferees under the
principle of nemo dat quod non habet.
HULST v. PR BUILDERS4
Facts:
The Petitioner and his spouse, both Dutch
Nationals,
entered into a Contract to Sellwith
PR
Builders, Inc. to purchase a 210-sq m
residential
unit
in
the
respondent'stownhouse project in Batanagas.
When PR Builder's failed to comply with their
verbalpromise to complete the project, the
spouses Hulst filed a complaint for
recession
of contract with interest, damages and
attorney's fees before the Housing an
d LandRegulatory Board (HLURB),
which then was granted. A Writ of

Execution was thenaddressed to the ExOfficio Sheriff of the RTC of Tanauan,


Batangas, but upon thecomplaint of the
respondent, the levy was set aside, leaving
only the respondent'spersonal properties to be
levied first. The Sheriff set a public auction of
the said leviedproperties, however, the
respondent filed a motion to quash Writ of levy
on
the
groundthat the s heriff mad e an over
lev y s ince the aggreg ate apprais ed
value of the properties at P6,500 per sq m is
P83,616,000. Instead of resolving the objection
of therespondent's regarding the auction, the
Sheriff proceeded with the auction since
therewas no restraining order from the HLURB.
The 15 parcels of land was then awarded
toHolly Properties Realty at a bid of
P5,450,653. On the same day, the Sheriff
remittedthe legal fees and submitted to
contracts of sale to HLURB, however, he then
receivedorders to suspend proceedings on the
auction for the reason that the market value
of the properties was not fair. There was
disparity between the appraised value and
thevalue made by the petitioner and the Sheriff,
which should've been looked into by theSheriff
before making the sale. While an
inadequacy in price is not a ground to
annulsuch sale, the court is justified to
such intervention
where
the price shocks theconscience.
Issue: W/N the Hulst spouses can recover.
Held: Before resolving the question
whether the CA erred in affirming the
Order of the HLURB setting aside the
levy made by the sheriff, it behooves this
Court to address a matter of public and
national importance which completely
escaped the attention of the HLURB
Arbiter and the CA: petitioner and his
wife are foreign nationals who are
disqualified under the Constitution from
owning real property in their names.

Section 7 of Article XII of the 1987


Constitution provides:

effect.28 It does not create, modify or


extinguish a juridical relation.29

Sec. 7. Save in cases of hereditary


succession, no private lands shall be
transferred or conveyed except to
individuals,
corporations,
or
associations qualified to acquire or hold
lands of the public domain. (Emphasis
supplied).

Generally, parties to a void agreement


cannot expect the aid of the law; the
courts leave them as they are, because
they are deemed in pari delicto or "in
equal fault."30 In pari delicto is "a
universal doctrine which holds that no
action arises, in equity or at law, from an
illegal contract; no suit can be maintained
for its specific performance, or to recover
the property agreed to be sold or
delivered, or the money agreed to be paid,
or damages for its violation; and where
the parties are in pari delicto, no
affirmative relief of any kind will be given
to one against the other."31

The capacity to acquire private land is


made dependent upon the capacity to
acquire or hold lands of the public
domain. Private land may be transferred or
conveyed only to individuals or entities
"qualified to acquire lands of the public
domain." The 1987 Constitution reserved
the right to participate in the disposition,
exploitation, development and utilization
of lands of the public domain for Filipino
citizens25 or corporations at least 60
percent of the capital of which is owned
by Filipinos.26 Aliens, whether individuals
or corporations, have been disqualified
from acquiring public lands; hence, they
have also been disqualified from acquiring
private lands.27
Since petitioner and his wife, being Dutch
nationals, are proscribed under the
Constitution from acquiring and owning
real property, it is unequivocal that the
Contract to Sell entered into by petitioner
together with his wife and respondent is
void. Under Article 1409 (1) and (7) of the
Civil Code, all contracts whose cause,
object or purpose is contrary to law or
public policy and those expressly
prohibited or declared void by law are
inexistent and void from the beginning.
Article 1410 of the same Code provides
that the action or defense for the
declaration of the inexistence of a contract
does not prescribe. A void contract is
equivalent to nothing; it produces no civil

This rule, however, is subject to


exceptions32 that permit the return of that
which may have been given under a void
contract to: (a) the innocent party (Arts.
1411-1412, Civil Code);33 (b) the debtor
who pays usurious interest (Art. 1413,
Civil Code);34 (c) the party repudiating
the void contract before the illegal
purpose is accomplished or before
damage is caused to a third person and
if public interest is subserved by
allowing recovery (Art. 1414, Civil
Code);35 (d) the incapacitated party if the
interest of justice so demands (Art. 1415,
Civil Code);36 (e) the party for whose
protection the prohibition by law is
intended if the agreement is not illegal per
se but merely prohibited and if public
policy would be enhanced by permitting
recovery (Art. 1416, Civil Code);37 and (f)
the party for whose benefit the law has
been intended such as in price ceiling laws
(Art. 1417, Civil Code)38 and labor laws
(Arts. 1418-1419, Civil Code).39
It is significant to note that the agreement
executed by the parties in this case is a

Contract to Sell and not a contract of sale.


A distinction between the two is material
in the determination of when ownership is
deemed to have been transferred to the
buyer or vendee and, ultimately, the
resolution of the question on whether the
constitutional proscription has been
breached.
In a contract of sale, the title passes to the
buyer upon the delivery of the thing sold.
The vendor has lost and cannot recover
the ownership of the property until and
unless the contract of sale is itself resolved
and set aside.40 On the other hand, a
contract to sell is akin to a conditional sale
where the efficacy or obligatory force of
the vendor's obligation to transfer title is
subordinated to the happening of a future
and uncertain event, so that if the
suspensive condition does not take place,
the parties would stand as if the
conditional
obligation
had
never
41
existed. In other words, in a contract to
sell, the prospective seller agrees to
transfer ownership of the property to the
buyer upon the happening of an event,
which normally is the full payment of the
purchase price. But even upon the
fulfillment of the suspensive condition,
ownership does not automatically transfer
to the buyer. The prospective seller still
has to convey title to the prospective
buyer by executing a contract of absolute
sale.42
Since the contract involved here is a
Contract to Sell, ownership has not yet
transferred to the petitioner when he filed
the suit for rescission. While the intent to
circumvent the constitutional proscription
on aliens owning real property was
evident by virtue of the execution of the
Contract to Sell, such violation of the law
did not materialize because petitioner
caused the rescission of the contract

before the execution of the final deed


transferring ownership.
Thus, exception (c) finds application in
this case. Under Article 1414, one who
repudiates the agreement and demands his
money before the illegal act has taken
place is entitled to recover. Petitioner is
therefore entitled to recover what he has
paid, although the basis of his claim for
rescission, which was granted by the
HLURB, was not the fact that he is not
allowed to acquire private land under the
Philippine Constitution. But petitioner is
entitled to the recovery only of the amount
of P3,187,500.00,
representing
the
purchase price paid to respondent. No
damages may be recovered on the basis of
a void contract; being nonexistent, the
agreement produces no juridical tie
between the parties involved.43 Further,
petitioner is not entitled to actual as well
as
interests
thereon,44 moral
and
exemplary damages and attorney's fees.

QUIMPO v. BELTRAN
Facts: Eustaquia Perfecto-Abad died
intestate in 1948 leaving these parcels of
land to her grandchild and great
grandchildren, namely, Joaquin Quimpo
and respondents Consuelo, Ireneo, Danilo,
Marites, Anita and Helen, all surnamed
Abad. The properties are herein
designated as Parcels I,II,III,IV
In 1966, Joaquin and respondents
undertook an oral partition of parcels III
and IV. Half of the properties was given to
Joaquin and the other half to the
respondents. No document of partition
was executed. Consuelo and Ireneo
occupied their respective shares in the San
Jose property (Parcel III), and installed
several tenants over their share in parcel

IV. Joaquin, on the other hand, became the


administrator of the remaining undivided
properties and of the shares of respondents
Danilo, Marites, Anita and Helen, who
were still minors at that time.
In 1989, Danilo, Marites, Anita and Helen
wanted to take possession of the portions
allotted to them, but Joaquin prevented
and refused to heed respondents demand
for partition of parcels I and II, prompting
them to file a complaint for judicial
partition and/or recovery of possession
with accounting and damages with the
RTC.
Joaquin asserted absolute ownership over
parcels III and IV, claiming that he
purchased these lands from Eustaquia in
1946. He, likewise alleged that Consuelos
occupation of the portion of the San Jose
property was by mere tolerance. During
the pendency of the case, Joaquin died.
Accordingly, he was substituted by his
heirs.
RTC ruled in favor of the respondents and
CA affirmed the decision.
Issue: 1) WON the petitioners did acquire
ownership over the subject parcels of land
by way of deeds of absolute sale executed
in their favor (No)
2) WON co-ownership exists among
petitioners and respondents over the
subject parcels of land (Yes)
4) WON laches has timebarred the
respondents from assailing the absolute
ownership of petitioners over the subject
parcels of land (No)
Held: Petitioners fail to convince us that
the CA committed reversible error in
affirming the trial court and in giving no

weight to the pieces of evidence they


presented.
The stated consideration for the sale
are P5,000.00 and P6,000.00, respectively,
an amount which was so difficult to raise
in the year 1946. Respondents established
that at the time of the purported sale
Joaquin Quimpo was not gainfully
employed. He
was
studying
in Manila and Eustaquia was the one
supporting him; that when Eustaquia died
two (2) years later, Joaquin was not able
to continue his studies. The Quimpos
failed to override this. Except for the
incredible and unpersuasive testimony of
Joaquins daughter, Adelia Magsino, no
other testimonial or documentary evidence
was offered to prove that Joaquin was
duly employed and had the financial
capacity to buy the subject properties in
1946.
In Rongavilla v. Court of Appeals,
[9]
reiterated in Cruz v. Bancom Finance
Corp,[10] we held that a deed of sale, in
which the stated consideration has not
been, in fact, paid is a false contract; that
it is void ab initio. Furthermore, Ocejo
v. Flores,[11] ruled that a contract of
purchase and sale is null and void and
produces no effect whatsoever where it
appears that the same is without cause or
consideration which should have been the
motive thereof, or the purchase price
which appears thereon as paid but which
in fact has never been paid by the
purchaser to the vendor.
Likewise, both the trial court and the CA
found that Eustaquia was 91 years old,
weak and senile, at the time the deeds of
sale were executed. In other words, she
was already mentally incapacitated by

then, and could no longer be expected to


give her consent to the sale. The RTC and
CA cannot, therefore, be faulted for not
giving credence to the deeds of sale in
favor of Joaquin.
Petitioners also presented Tax Declaration
Nos. 3650,[12] 3708,[13] and 3659[14] to
substantiate Joaquins claim of absolute
dominion over parcels III and IV. But we
note that these tax declarations are all in
the name of Eustaquia PerfectoAbad. These documents, therefore, do not
support their claim of absolute dominion
since
1946,
but
enervate
it
instead. Besides, the fact that the disputed
property may have been declared for
taxation purposes in the name of Joaquin
Quimpo does not necessarily prove
ownership for it is well settled that a tax
declaration or tax receipts are not
conclusive evidence of ownership.[15] The
CA, therefore, correctly found this proof
inadequate to establish Joaquins claim of
absolute dominion.
For forty-three (43) years, Consuelo and
Ireneo occupied their portions of the San
Jose property and significantly, Joaquin
never disturbed their possession. They
also installed tenants in parcel IV, and
Joaquin did not prevent them from doing
so, nor did he assert his ownership over
the same. These unerringly point to the
fact that there was indeed an oral partition
of parcels III and IV.
In Maglucot-aw
held, viz.:

v.

Maglucot,[16] we

[P]artition may be inferred from


circumstances sufficiently strong
to support the presumption. Thus,
after a long possession in
severalty, a deed of partition may

be presumed. It has been held that


recitals in deeds, possession and
occupation of land, improvements
made thereon for a long series of
years, and acquiescence for 60
years, furnish sufficient evidence
that there was an actual partition of
land either by deed or by
proceedings in the probate court,
which had been lost and were not
recorded.
Furthermore, in Hernandez v. Andal,
we explained that:

[17]

On general principle, independent


and in spite of the statute of frauds,
courts of equity have enforced oral
partition when it has been
completely or partly performed.
Regardless of whether a
parol partition or
agreement to partition is
valid and enforceable at
law, equity will in proper
cases, where the parol
partition has actually been
consummated by the taking
of possession in severalty
and the exercise of
ownership by the parties of
the respective portions set
off to each, recognize and
enforce such parol partition
and the rights of the parties
thereunder. Thus, it has
been held or stated in a
number of cases involving
an oral partition under
which the parties went into
possession, exercised acts
of ownership, or otherwise
partly performed the
partition agreement, that
equity will confirm such

partition and in a proper


case decree title in
accordance with the
possession in severalty.
In numerous cases it has
been held or stated that
parol partitions may be
sustained on the ground
of estoppel of the parties to
assert the rights of a tenant
in common as to parts of
land divided by parol
partition as to which
possession in severalty was
taken and acts of individual
ownership were
exercised. And a court of
equity will recognize the
agreement and decree it to
be valid and effectual for
the purpose of concluding
the right of the parties as
between each other to hold
their respective parts in
severalty.
A parol partition may also
be sustained on the ground
that the parties thereto have
acquiesced in and ratified
the partition by taking
possession in severalty,
exercising acts of
ownership with respect
thereto, or otherwise
recognizing the existence
of the partition.
A number of cases have
specifically applied the
doctrine of part
performance, or have stated
that a part performance is
necessary, to take a parol
partition out of the
operation of the statute of

frauds. It has been held


that where there was a
partition in fact between
tenants in common, and a
part performance, a court
of equity would have
regard to and enforce such
partition agreed to by the
parties.
The CA, therefore, committed no
reversible error in sustaining the oral
partition over parcels III and IV and in
invalidating the deeds of sale between
Eustaquia and Joaquin.
Similarly, we affirm the CA ruling that
respondents are co-owners of the subject
four (4) parcels of land, having inherited
the same from a common ancestor
Eustaquia
Perfecto-Abad. Petitioners
assertion that respondents failed to prove
their relationship to the late Eustaquia
deserves scant consideration.
During the pre-trial, Joaquin Quimpo
admitted that:
Eustaquia Perfecto Abad
and Diego Abad had two
(2) children by the names
of Leon Abad and Joaquin
Abad; that Leon Abad has
three (3) children namely:
Anastacia, Wilfredo and
Consuelo, all surnamed
Abad; that Joaquin Abad
has only one (1) child, a
daughter by the name of
Amparo; that Wilfredo has
four (4) children, namely,
Danilo, Helen, Marites and
Anita; Amparo has one
child, son Joaquin Quimpo,
x x x [18]

Consuelo was the grandchild of Eustaquia,


while respondents Danilo, Helen, Marites,
Anita and also Joaquin Quimpo were
Eustaquias great grandchildren. As such,
respondents can rightfully ask for the
confirmation of the oral partition over
parcels III and IV, and the partition of
parcels I and II. Jurisprudence is replete
with rulings that any co-owner may
demand at any time the partition of the
common property unless a co-owner has
repudiated the co-ownership. This action
for partition does not prescribe and is not
subject to laches.
ALINAS v. ALINAS
Facts: Spouses Onesiforo and Rosario
Alinas (petitioners) separated sometime in
1982. They left behind two lots identified,
one with a bodega standing on it and the
other
with
petitioners'
house.
RespondentVictor Alinas is the brother of
petitioner. Petitioners alleged that they
entrusted
their
properties
to
respondents.Sometime in 1993, petitioners
discovered that their two lots were already
titled
in
the
name
of
the
respondentspouses. Onesiforos signature
appeared in an Absolute Deed of Sale
selling
one
of
the
lots
to
respondentspouses. Records also show a
notarized document whereby petitioner
acknowledged that his brother used
hisown money to redeem one of the lots
mortgaged and foreclosed and thus his
brother became the owner.Petitioners filed
with the RTC a complaint for the recovery
of possession and ownership of their
conjugal properties with damages against
respondent spouses.
Issue: W/N the sale of conjugal property
by the husband petitioner to respondent

spouses isvalid despite the lack of consent


on the part of the wife.
Held: However, with regard to Lot 896-B-9-B
(with house), the Court finds it patently
erroneous for the CA to have applied the
principle of equity in sustaining the validity of
the sale of Onesiforos one-half share in the
subject property to respondent spouses.
Although petitioners were married before the
enactment of the Family Code on August 3,
1988, the sale in question occurred in
1989. Thus, their property relations are
governed by Chapter IV on Conjugal
Partnership of Gains of the Family Code.
The CA ruling completely deviated from the
clear dictate of Article 124 of the Family Code
which provides:
Art. 124. The administration
and enjoyment of the conjugal
partnership property shall
belong to both spouses
jointly. x x x
In the event that one spouse is
incapacitated or otherwise unable to
participate in the administration of the
conjugal properties, the other spouse
may assume sole powers of
administration.These powers do not
include the powers of disposition or
encumbrance which must have the
authority of the court or the written
consent of the other spouse. In the
absence of such authority or consent
the disposition or encumbrance
shall be void. x x x (Underscoring
and emphasis supplied)
In Homeowners Savings & Loan
Bank v. Dailo,[19] the Court categorically stated
thus:

In Guiang v.
Court
of
Appeals, it was held that the
sale of a conjugal property
requires the consent of both
the husband and wife. In
applying Article 124 of the
Family Code, this Court
declared that the absence of
the consent of one renders
the entire sale null and void,
including the portion of the
conjugal
property
pertaining to the husband
who
contracted
the
sale. x x x
xxxx
x x x By express provision of
Article 124 of the Family
Code, in the absence of (court)
authority or written consent of
the other spouse, any
disposition or encumbrance of
the conjugal property shall be
void. [20]
Thus, pursuant to Article 124 of the Family
Code and jurisprudence, the sale of petitioners'
conjugal
property
made
by
petitioner Onesiforo alone is void in its
entirety.
It is true that in a number of cases, this Court
abstained from applying the literal import of a
particular provision of law if doing so would
lead to unjust, unfair and absurd results.[21]
In the present case, the Court does not see how
applying Article 124 of the Family Code would
lead to injustice or absurdity. It should be
noted that respondent spouses were well aware
that Lot 896-B-9-B is a conjugal property of
petitioners. They also knew that the
disposition being made by Onesiforo is
without the consent of his wife, as they knew

that petitioners had separated, and, the sale


documents do not bear the signature of
petitioner
Rosario. The
fact
that Onesiforo had to execute two documents,
namely: the Absolute Deed of Sale
dated March 10, 1989 and a notarized
Agreement likewise dated March 10, 1989,
reveals that they had full knowledge of the
severe infirmities of the sale. As held in Heirs
of Aguilar-Reyes v. Spouses Mijares,[22] a
purchaser cannot close his eyes to facts which
should put a reasonable man on his guard and
still claim he acted in good faith.[23] Such
being the case, no injustice is being foisted on
respondent spouses as they risked transacting
with Onesiforo alone despite their knowledge
that the subject property is a conjugal property.
Verily, the sale of Lot 896-B-9-B to
respondent spouses is entirely null and void.
However, in consonance with the salutary
principle of non-enrichment at anothers
expense, the Court agrees with the CA that
petitioners should reimburse respondent
spouses the redemption price paid for Lot 896B-9-B in the amount of P111,110.09 with
legal interest from the time of filing of the
complaint.
In Heirs of Aguilar-Reyes, the husband's sale
of conjugal property without the consent of the
wife was annulled but the spouses were
ordered to refund the purchase price to the
buyers, it was ruled that an interest of 12% per
annum on the purchase price to be refunded is
not proper. The Court elucidated as follows:
The trial court, however, erred
in imposing 12% interest per
annum on the amount due the
respondents.
In Eastern
Shipping Lines, Inc. v. Court
of Appeals, it was held that
interest on obligations not

constituting a loan or
forbearance of money is six
percent (6%) annually. If the
purchase price could be
established with certainty at
the time of the filing of the
complaint, the six percent
(6%) interest should be
computed from the date the
complaint was filed until
finality of the decision.
In Lui vs. Loy, involving a
suit
for reconveyance and
annulment of title filed by the
first buyer against the seller
and the second buyer, the
Court, ruling in favor of the
first buyer and annulling the
second sale, ordered the seller
to refund to the second buyer
(who was not a purchaser in
good faith) the purchase price
of the lots. It was held therein
that the 6% interest should be
computed from the date of the
filing of the complaint by the
first
buyer. After
the
judgment becomes final
and executory until
the
obligation is satisfied, the
amount due shall earn interest
at 12% per year, the interim
period
being
deemed
equivalent to a forbearance of
credit.
Accordingly, the amount
of P110,000.00 due
the
respondent spouses which
could be determined with
certainty at the time of the
filing of the complaint shall
earn 6% interest per annum
from June 4, 1986 until the
finality of this decision. If
the adjudged principal and

the interest (or any part


thereof)
remain unpaid
thereafter, the interest rate
shall be twelve percent
(12%) per annum computed
from the time the judgment
becomes
final
and executory until it is
fully satisfied.[24]
Thus, herein petitioners should reimburse
respondent spouses the redemption price plus
interest at the rate of 6% per annum from the
date of filing of the complaint, and after the
judgment becomes final and executory, the
amount due shall earn 12% interest per
annum until the obligation is satisfied.
CAMPOS v. PASTRANA
Facts: The father of herein petitioners (the
Campos heirs) was a lessee in the lot of
the respondents (the Pastranas). When
asked to vacate, he refused and filed a
case in court alleging that he is an
agricultural lessee. The case came up to
the SC but his petition was denied. While
the appeal in the Agrarian Case was pending
before the CA, herein respondents filed the
second case against Carlito for Recovery of
Possession and Damages with Preliminary
Mandatory Injunction (Possession Case)
involving the same fishpond subject of the
earlier agrarian case. On November 27,
1990, the RTC rendered a Decision[4] finding
Carlito to have retained possession of the
fishpond notwithstanding the expiration of the
contract of lease and ordering him to pay
rentals, the value of the produce and damages
to the herein respondents. The Decision
became final and executory and a Writ of
Execution[5] was
issued. Subsequently,
on September 19, 1995, an Alias Writ of
Execution[6] was also issued. Both were
returned unsatisfied as per Sheriffs Return of

Service dated November 14, 1995. When the


respondents were about to levy these
properties to satisfy the judgment in the
Possession Case, they discovered that
spouses Carlito and Margarita Campos
transferred these lots to their children
Rosemarie and Jesus Campos, herein
petitioners, by virtue of Deeds of Absolute
Sale dated October 18, 1985[11] and
November 2, 1988.[12] Specifically, spouses
Campos sold the residential lots to their
daughter Rosemarie for P7,000.00 and the
agricultural lots to their son Jesus
for P5,600.00.
Issue: W/N Article 1381(3)[21] of the Civil
Code on rescissible contracts applies.
H
e
l
d
:

s
o
l
u
t
e
S
a
l
e
e
x
e
c
u
t
e
d
b
y

T
h
e

t
h
e

s
u
b
j
e
c
t

S
p
o
u
s
e
s

D
e
e
d
s

C
a
m
p
o
s

o
f
A
b

t
o

t
h
e
i
r
c
h
i
l
d
r
e
n
(
h
e
r
e
i
n
p
e
t
i
t
i
o
n
e
r
s
)
a
r
e
a
b
s
o
l
u

t
e
l
y
s
i
m
u
l
a
t
e
d
a
n
d
f
i
c
t
i
t
i
o
u
s
.
The CA correctly held that the assailed Deeds
of Absolute Sale were executed when the
Possession Case was already pending,
evidently to avoid the properties subject
thereof from being attached or levied upon by
the respondents. While the sales in question
transpired
on October
18,
1985 and November 2, 1988, as reflected on
the Deeds of Absolute Sale, the same were
registered with the Registry of Deeds only
on October 25, 1990 and September 25,
1990.
We also agree with the findings of the CA that
petitioners failed to explain the reasons for the

delay in the registration of the sale, leading the


appellate court to conclude that the
conveyances were made only in 1990 or
sometime just before their actual registration
and that the corresponding Deeds of Absolute
Sale were antedated. This conclusion is
bolstered by the fact that the supposed notary
public before whom the deeds of sale were
acknowledged had no valid notarial
commission at the time of the notarization of
said documents.[26]
Indeed, the Deeds of Absolute Sale were
executed for the purpose of putting the lots in
question beyond the reach of creditors. First,
the Deeds of Absolute Sale were registered
exactly one month apart from each other and
about another one month from the time of the
promulgation of the judgment in the
Possession Case. The Deeds of Absolute Sale
were antedated and that the same were
executed when the Possession Case was
already pending.
Second, there was a wide disparity in the
alleged consideration specified in the Deeds
of Absolute Sale and the actual zonal
valuation of the subject properties as per the
BIR Certification, as follows:

Resident
ial Lots:
From
Spouses
Campos
to
daughter

Considera
tion
specified
in Deed of
Absolute
Sale

Market
Value as
per Tax
Declarat
ion

P 7,000.0
0

P 83,58
0.00[27]

,
Rosemar
ie
Campos
Agricult
ural
Lots:
From
Spouses
Campos
to son,
Jesus
Campos

P 5,600.0
0

P 25,00
0.19[29]

P 39,860.
00[30]

As correctly noted by the CA, the appraised


value of the properties subject of this
controversy may be lower at the time of the
sale in 1990 but it could not go lower
thanP7,000.00 and P5,600.00. We likewise
find the considerations involved in the
assailed contracts of sale to be inadequate
considering the market values presented in the
tax declaration and in the BIR zonal
valuation.
Third, we cannot believe that the buyer of the
1,393-square meter[31] residential land could
not recall the exact area of the two lots she
purchased. In
her
cross-examination,
petitioner Rosemarie Campos stated:

Compute
d Zonal
Valuation
(BIR
Certificati

Q:
Can you tell us the
total area of those two (2) lots
that they sold to you?
A:
It consists of One
Thousand (1,000) Square
Meters.[32]
xxxx

P 417,90
0.00

Q:

By the way, for


how much did you
buy this [piece] of
land consisting of
1,000 square meters?

A:
Seven Thousand
Pesos (P7,000.00) Your
Honor.[33]
Fourth, it appears on record that the money
judgment in the Possession Case has not been
discharged with. Per Sheriffs Service Return
dated November 14, 1995, the Alias Writ of
Execution and Sheriffs Demand for Payment
dated September 19, 1995 remain unsatisfied.
Finally, spouses Campos continue to be in
actual possession of the properties in
question. Respondents have established
through the unrebutted testimony of Rolando
Azoro that spouses Campos have their house
within Lot 3715-A and Lot 3715-B-2 and
that they reside there together with their
daughter
Rosemarie.[34] In
addition,
spousesCampos continued to cultivate the rice
lands which they purportedly sold to their son
Jesus.[35] Meantime, Jesus, the supposed new
owner of said rice lands, has relocated to
Bulacan[36] where he worked as a security
guard.[37] In other words, despite the transfer
of the said properties to their children, the
latter have not exercised complete dominion
over the same. Neither have the petitioners
shown if their parents are paying rent for the
use of the properties which they already sold
to their children.
In Suntay v. Court of Appeals,[38] we
held that:
The failure of the late Rafael
to take exclusive possession of
the property allegedly sold to
him is a clear badge of
fraud. The
fact
that,
notwithstanding the title
transfer, Federico remained in
actual possession, cultivation and
occupation of the disputed lot
from the time the deed of sale
was executed until the present, is

a circumstance which is
unmistakably added proof of the
fictitiousness of the said transfer,
the same being contrary to the
principle of ownership.
While in Spouses Santiago v. Court of
Appeals,[39] we held that the failure of
petitioners to take exclusive possession of the
property allegedly sold to them, or in the
alternative, to collect rentals from the alleged
vendor x x x is contrary to the principle of
ownership and a clear badge of simulation
that renders the whole transaction void and
without force and effect, pursuant to Article
1409 of the Civil Code.
T
h
e
i
s
s
u
a
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c
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o
f
t
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a
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f
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t

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f
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f
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i
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o
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r
s
d
i
d
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o
t
v
e
s
t

u
p
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n
t
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m
o
w
n
e
r
s
h
i
p
o
f
t
h
e
p
r
o
p
e
r
t
i
e
s
.
The fact that petitioners were able to secure
titles in their names did not operate to vest
upon them ownership over the subject
properties. That act has never been
recognized as a mode of acquiring ownership.
[40]
The Torrens system does not create or
vest title. It only confirms and records title

already existing and vested. It does not


protect a usurper from the true owner. It
cannot be a shield for the commission of
fraud.[41]
In the instant case, petitioner Rosemarie
Campos supposedly bought the residential
properties in 1985 but did not have the
assailed Deed of Absolute Sale registered with
the proper Registry of Deeds for more than
five years, or until a month before the
promulgation of the judgment in the
Possession Case. Hence, we affirm the
finding of the CA that the purported deed was
antedated. Moreover, her failure to take
exclusive possession of the property allegedly
sold, or, alternatively, to collect rentals is
contrary to the principle of ownership and a
clear badge of simulation. On these grounds,
we cannot hold that Rosemarie Campos was
an innocent buyer for value.
Likewise,
petitioner
Jesus
Campos
supposedly bought the rice land from his
parents in 1988 but did not have the assailed
Deed of Absolute Sale registered with the
proper Registry of Deeds for more than two
years, or until two months before the
promulgation of the judgment in the
Possession Case. Thus, we likewise affirm
the finding of the CA that the purported deed
was antedated. In addition, on cross, he
confirmed that he had knowledge of the prior
pending cases when he supposedly purchased
his parents rice land stating that:
Q:

A:

You never knew


that your parents and
the plaintiffs in this
case have cases in the
past prior to this case
now, is that right?
Yes, sir. I knew
about it.

Q:

A:

And in spite of
your knowledge, that
there was a pending
case between your
parents and the
plaintiffs here, you
still purchased these
two (2) lots 850 and
852
from
your
parents, is that what
you are telling us?
All I knew was
that, that case was a
different case from
the subject matter
then [sic] the lot now
in question.[42]

On these findings of fact, petitioner


Jesus Campos cannot be considered as an
innocent buyer and for value.
Since both the transferees, Rosemarie and
Jesus Campos, are not innocent purchasers for
value, the subsequent registration procured by
the presentation of the void deeds of absolute
sale is likewise null and void.
T
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d
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a
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s
c
r
i
b
e
.

Petitioners argue that respondents cause of


action had prescribed when they filed the
Nullity of the Sale Case on October 14, 1997,
or seven years after the registration of the
questioned sales in 1990.
We cannot agree. As discussed above, the sale
of subject properties to herein petitioners are
null and void. And under Article 1410 of the
Civil Code, an action or defense for the
declaration of the inexistence of a contract is
imprescriptible. Hence,
petitioners
contention that respondents cause of action is
already barred by prescription is without legal
basis.
S
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In the instant case, we have declared the


Deeds of Absolute Sale to be fictitious and
inexistent for being absolutely simulated

contracts. It is true that the CA cited instances


that may constitute badges of fraud under
Article 1387 of the Civil Code on rescissible
contracts. But there is nothing else in the
appealed decision to indicate that rescission
was contemplated under the said provision of
the Civil Code. The aforementioned badges
must have been considered merely as grounds
for
holding
that
the
sale
is
fictitious. Consequently, we find that the CA
properly applied the governing law over the
matter under consideration which is Article
1409 of the Civil Code on void or inexistent
contracts.
TECSON v. FAUSTO

respondents (heirs of Atty. Fausto) on one


hand, and Waldetrudes on the other,
presumably with the Second Plan as a new
basis. The heirs were made to believe that
it was required to facilitate the sale of
Waldetrudes share. Also, the Second
Partition Agreement failed to state the
specific areas allotted for each component
of the lots. Up to that point, they do not
have knowledge about the existence of the
second plan. The document was presented
to them by Atty. Tecson. The latter was a
family friend and a long time neighbor.
On 8 May 1978, Waldetrudes sold her
share to Aurora which in turn sold it to
Atty. Tecson.

Facts: In 1974, Atty Agustin Fausto and


his sister decided to partition a property
they owned in common designated as Lot
2189 with an area of 1015 sqm located in
Pagadian City. The mother title is silent to
the extent of the respective shares. A
subdivision plan (first plan) has been
prepared and approved. Based on the first
plan, Atty. Faustos share was 508 sqm
and his sisters 507 sqm. They executed
the partition agreement but the same was
not registered on the Registry of Deeds.
The following year, Atty. Fausto died.

On 28 May 1987, the respondents filed a


Complaint for the Declaration of Nullity
of Documents, Titles, Reconveyance and
Damages the petitioners before the
Regional Trial Court (RTC) of Pagadian
City. In essence, the respondents seek the
recovery of the portion which they believe
was unlawfully taken from the lawful
share of their predecessor-in-interest, Atty.
Fausto.

On 7 July 1977, Waldetrudes entered into


a Contract to Sell with herein petitioner
Aurora L. Tecson (Aurora). In it,
Waldetrudes undertook to sell, among
others, her ideal share in the lot. A
second subdivision plan for Lot 2189 was
prepared without the knowledge of the
respondents. The Second Plan drastically
altered the division of the subject lot. On
the plan, Waldetrudes share was increased
by 964sqm.

Held: First. The Second Plan, having


been prepared without the knowledge and
consent of any of the co-owners of Lot
2189, have no binding effect on them.

On 28 September 1977, a second partition


over the lot was executed between the

Issue: WON the respondents may recover


portion of land registered in the name of
the petitioner?

Second. The Second Partition Agreement


is null and void as an absolute simulation,
[80]
albeit induced by a third party. The
fraud perpetrated by Atty. Tecson did
more than to vitiate the consent of
Waldetrudes and the respondents. It
must be emphasized that Waldetrudes
and the respondents never had any

intention of entering into a new


partition distinct from the First
Partition Agreement. The established
facts reveal that Waldetrudes and the
respondents assented to the Second
Partition Agreement because Atty. Tecson
told them that the instrument was
merely required to expedite the sale of
Waldetrudes share.[81]
In other words, the deceit employed by
Atty. Tecson goes into the very nature of
the Second Partition Agreement and not
merely to its object or principal
condition. Evidently, there is an absence
of a genuine intent on the part of the coowners to be bound under a new partition
proposing a new division of Lot
2189. The
apparent
consent
of
Waldetrudes and the respondents to the
Second Partition Agreement is, in reality,
totally wanting. For that reason, the
Second Partition Agreement is null and
void.
Third. The Second Partition Agreement
being a complete nullity, it cannot be
ratified either by the lapse of time or by its
approval by the guardianship court.[82]
Fourth. The First Plan and the First
Partition Agreement remain as the valid
and binding division of Lot 2189. Hence,
pursuant to the First Partition Agreement,
Waldetrudes is the absolute owner of Lot
2189-A with an area of only five hundred
seven (507) square meters. Atty. Fausto,
on the other hand, has dominion over Lot
2189-B with an area of five hundred eight
(508) square meters.
Fifth. Inevitably, Waldetrudes can only
sell her lawful share of five hundred seven
(507) square meters. The sales in favor of

Aurora and, subsequently, Atty. Tecson,


are thereby null and void insofar as it
exceeded the 507 square meter share of
Waldetrudes in Lot 2189. Nemo dat quod
non habet.
LANDBANK v. POBLETE5
Facts: On October 1997, respondent
Poblete obtained a loan worth P300k from
Kapantay Multi-Purpose. She mortgaged
her Lot No.29 located in Buenavista,
Sablayan, Occidental Mindoro, under
OCT No. P-12026. Kapantay, in turn, used
OCT No. P-12026 as collateral under its
Loan Account No. 97-OC-013 with Land
Bank-Sablayan Branch.
After a year, Poblete instructed her son-inlaw Domingo Balen to look for a buyer
for the Lot No. 29 in order to pay her loan
and he referred Angelito Joseph Maniego.
Both parties agreed that the lot shall
amount to P 900k but in order to reduce
taxes they will execute a P 300k agreed
price appearing in the Deed of Absolute
Sale dated November 9, 1998. In the
Deed, Poblete specifically described
herself as a widow. Balen, then, delivered
the Deed to Maniego. Instead of paying
the price, Maniego promised in an
affidavit dated November 19, 1998 stating
that the said amount will be deposited to
her Land Bank Savings Account but he
failed to do so.
On August 1999, Maniego paid
Kapantays Loan Account for P448,202.08
and on subsequent year he applied for a
loan worth P1M from Land Bank using
OCT No. P-12026 as a collateral with a
condition that the title must be first
transferred on his name. On August 14,
2000, the Registry of Deeds issued TCT
No. T-20151 in Maniegos name pursuant

to a Deed of Absolute Sale with the


signatures of Mrs. Poblete and her
husband dated August 11, 2000 and
Maniego successfully availed the Credit
Line Agreement for P1M and a Real
Estate Mortgage over TCT No. T-20151
on August 15, 2000. On November 2002,
Land Bank filed an Application for an
Extra-judicial Foreclosure against the said
Mortgage stating that Maniego failed to
pay his loan.
Poblete filed a complaint for nullification
of the Deed of Sale dated August 11, 2000
and TCT No. T-20151, Reconveyance of
the Title and Damages with a Prayer for
Temporary Restraining Order and/or
Issuance of Writ of Preliminary Injunction
against Maniego, Landbank and the
Register of Deeds. The judgment of RTC,
affirmed by the CA upon appeal, favors
the plaintiff Poblete. Hence, this petition.
Issue: WON the CA erred in upholding
the finding of the trial court declaring the
TCT No. T-20151 as null and void.
Held: It is a well-entrenched rule, as aptly
applied by the CA, that a forged or
fraudulent deed is a nullity and conveys
no title.17 Moreover, where the deed of
sale states that the purchase price has
been paid but in fact has never been
paid, the deed of sale is void ab initio for
lack of consideration.18 Since the Deed
dated 11 August 2000 is void, the
corresponding TCT No. T-20151 issued
pursuant to the same deed is likewise
void. In Yu Bun Guan v. Ong,19 the Court
ruled that there was no legal basis for the
issuance of the certificate of title and the
CA correctly cancelled the same when the
deed of absolute sale was completely
simulated, void and without effect.
In Erea v. Querrer-Kauffman,20 the Court
held that when the instrument presented

for registration is forged, even if


accompanied by the owners duplicate
certificate of title, the registered owner
does not thereby lose his title, and neither
does the mortgagee acquire any right or
title to the property. In such a case, the
mortgagee under the forged instrument is
not a mortgagee protected by law.21
The issue on the nullity of Maniegos title
had already been foreclosed when this
Court denied Maniegos petition for
review in the Resolution dated 13 July
2011, which became final and executory
on 19 January 2012.22 It is settled that a
decision that has acquired finality
becomes immutable and unalterable and
may no longer be modified in any respect,
even if the modification is meant to
correct erroneous conclusions of fact or
law and whether it will be made by the
court that rendered it or by the highest
court of the land.23 This is without
prejudice, however, to the right of
Maniego to recover from Poblete what
he paid to Kapantay for the account of
Poblete, otherwise there will be unjust
enrichment by Poblete.
Since TCT No. T-20151 has been
declared void by final judgment, the
Real Estate Mortgage constituted over
it is also void. In a real estate mortgage
contract, it is essential that the
mortgagor be the absolute owner of the
property to be mortgaged; otherwise,
the mortgage is void.24
Land Bank insists that it is a mortgagee in
good faith since it verified Maniegos title,
did a credit investigation, and inspected
Lot No. 29. The issue of being a
mortgagee in good faith is a factual
matter, which cannot be raised in this
petition.25 However, to settle the issue,
we carefully examined the records to

determine whether or not Land Bank is a


mortgagee in good faith.1wphi1
There is indeed 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.26 This is the doctrine of "the
mortgagee in good faith" based on the
rule that buyers or mortgagees dealing
with property covered by a Torrens
Certificate of Title are not required to
go beyond what appears on the face of
the title.27 However, it has been
consistently held that this rule does not
apply to banks, which are required to
observe a higher standard of
diligence.28 A bank whose business is
impressed with public interest is
expected to exercise more care and
prudence in its dealings than a private
individual, even in cases involving
registered lands.29 A bank cannot
assume that, simply because the title
offered as security is on its face free of
any encumbrances or lien, it is relieved
of the responsibility of taking further
steps to verify the title and inspect the
properties to be mortgaged.30
Applying the same principles, we do not
find Land Bank to be a mortgagee in good
faith.
Good faith, or the lack of it, is a question
of intention.31 In ascertaining intention,
courts are necessarily controlled by the
evidence as to the conduct and outward
acts by which alone the inward motive
may, with safety, be determined.32
Based on the evidence, Land Bank
processed Maniegos loan application
upon his presentation of OCT No. P-

12026, which was still under the name of


Poblete. Land Bank even ignored the fact
that Kapantay previously used Pobletes
title as collateral in its loan account with
Land Bank.33 In Bank of Commerce v. San
Pablo, Jr.,34 we held that when "the
person applying for the loan is other
than the registered owner of the real
property being mortgaged, [such fact]
should have already raised a red flag
and which should have induced the
Bank x x x to make inquiries into and
confirm x x x [the] authority to
mortgage x x x. A person who
deliberately ignores a significant fact
that could create suspicion in an
otherwise reasonable person is not an
innocent purchaser for value."
The records do not even show that Land
Bank investigated and inspected the
property to ascertain its actual occupants.
Land Bank merely mentioned that it
inspected Lot No. 29 to appraise the value
of the property. We take judicial notice of
the standard practice of banks, before
approving a loan, to send representatives
to the premises of the land offered as
collateral to investigate its real
owners.35 In Prudential Bank v. Kim
Hyeun Soon,36 the Court held that the bank
failed to exercise due diligence although
its representative conducted an ocular
inspection, because the representative
concentrated only on the appraisal of
the property and failed to inquire as to
who were the then occupants of the
property.
Land Bank claims that it conditioned the
approval of the loan upon the transfer of
title to Maniego, but admits processing the
loan based on Maniegos assurances that
title would soon be his.37 Thus, only one
day after Maniego obtained TCT No. T20151 under his name, Land Bank and

Maniego executed a Credit Line


Agreement and a Real Estate Mortgage.
Because of Land Banks haste in
granting the loan, it appears that
Maniegos loan was already completely
processed while the collateral was still
in the name of Poblete. This is also
supported by the testimony of Land
Bank Customer Assistant Andresito
Osano.38
Where the mortgagee acted with haste
in granting the mortgage loan and did
not ascertain the ownership of the land
being mortgaged, as well as the
authority of the supposed agent
executing the mortgage, it cannot be
considered an innocent mortgagee.39
Since Land Bank is not a mortgagee in
good faith, it is not entitled to protection.
The injunction against the foreclosure
proceeding in the present case should be
made permanent. Since Lot No. 29 has not
been transferred to a third person who is
an innocent purchaser for value,
ownership of the lot remains with Poblete.
This is without prejudice to the right of
either party to proceed against Maniego.
On the allegation that Poblete is in pari
delicto with Maniego, we find the
principle
inapplicable.
The pari
delictorule provides that "when two
parties are equally at fault, the law
leaves them as they are and denies
recovery by either one of them."40 We
adopt the factual finding of the RTC
and the CA that only Maniego is at
fault.
BORROMEO v. MINA
Facts:

Issue:
Held:Validity of the sale of the subject
property
to
petitioner
PD 27 prohibits the transfer of ownership
over tenanted rice and/or corn lands
after October 21, 1972except only in favor
of the actual tenant-tillers thereon. As held
in the case of Sta. Monica Industrial and
Development Corporation v. DAR
Regional
Director
for
Region
III,36 citing Heirs of Batongbacal v.
CA:37
x x x P.D. No. 27, as amended, forbids
the transfer or alienation of covered
agricultural lands after October 21,
1972 except to the tenant-beneficiary. x
x
x.
In Heirs of Batongbacal v. Court of
Appeals, involving the similar issue of
sale of a covered agricultural land under
P.D.
No.
27,
this
Court
held:cralavvonlinelawlibrary
Clearly, therefore, Philbanking committed
breach of obligation as an agricultural
lessor. As the records show, private
respondent was not informed about the
sale between Philbanking and petitioner,
and neither was he privy to the transfer of
ownership from Juana Luciano to
Philbanking. As an agricultural lessee, the
law gives him the right to be informed
about matters affecting the land he tills,
without need for him to inquire about it.
xxxx
In other words, transfer of ownership
over tenanted rice and/or corn lands
after October 21, 1972 is allowed only
in favor of the actual tenant-tillers
thereon. Hence, the sale executed by
Philbanking on January 11, 1985 in favor

of petitioner was in violation of the


aforequoted provision of P.D. 27 and its
implementing guidelines, and must thus
be declared null and void. (Emphasis and
underscoring supplied)
Records reveal that the subject
landholding fell under the coverage of PD
27 on October 21, 197238and as such,
could have been subsequently sold only to
the tenant thereof, i.e., the respondent.
Notably, the status of respondent as tenant
is now beyond dispute considering
petitioners admission of such fact.39
Likewise, as earlier discussed, petitioner is
tied down to his initial theory that his
claim of ownership over the subject
property was based on the 1982 deed of
sale. Therefore, as Garcia sold the
property in 1982 to the petitioner who is
evidently not the tenant-beneficiary of the
same, the said transaction is null and void
for
being
contrary
to
law.40
In consequence, petitioner cannot assert
any right over the subject landholding,
such as his present claim for landholding
exemption, because his title springs from a
null and void source. A void contract is
equivalent to nothing; it produces no civil
effect; and it does not create, modify or
extinguish a juridical relation.41 Hence,
notwithstanding
the
erroneous
identification of the subject landholding
by the MARO as owned by Cipriano
Borromeo, the fact remains that petitioner
had no right to file a petition for
landholding exemption since the sale of
the said property to him by Garcia in 1982
is null and void. Proceeding from this, the
finding that petitioners total agricultural
landholdings is way below the retention
limits set forth by law thus, becomes
irrelevant to his claim for landholding
exemption precisely because he has no
right
over
the
aforementioned
landholding.

The settled rule is that persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is
upon them to prove it. In this case, respondent Fernandez specifically denied that she was authorized by the respondents-owners to sell the
properties, both in her answer to the complaint and when she testified.
The Letter dated January 16, 1996 relied upon by the petitioners was signed by respondent Fernandez alone, without any authority from
the respondents-owners. There is no actuation of respondent Fernandez in connection with her dealings with the petitioners. As such, said
letter is not binding on the respondents as owners of the subject properties.
2

Contracts entered into in the name of another person by one who has been given no authority or legal representation or who has acted
beyond his powers are classified as unauthorized contracts and are unenforceable, unless they are ratified.
It is a general rule in the law agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon
its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only.
3

To establish his status as a buyer for value in good faith, a person dealing with land registered in the
name of and occupied by the seller need only show that he relied on the face of the seller's certificate of
title.1 But for a person dealing with land registered in the name of and occupied by the seller whose
capacity to sell is restricted, such as by Articles 166 2 and 1733 of the Civil Code or Article 124 4 of the
Family Code, he must show that he inquired into the latter's capacity to sell in order to establish himself
as a buyer for value in good faith.5 The extent of his inquiry depends on the proof of capacity of the
seller. If the proof of capacity consists of a special power of attorney duly notarized, mere inspection of
the face of such public document already constitutes sufficient inquiry. If no such special power of
attorney is provided or there is one but there appear flaws in its notarial acknowledgment mere
inspection of the document will not do; the buyer must show that his investigation went beyond the
document and into the circumstances of its execution.
4

Dutch spouse bought a residential lot but PR Builders has not developed lot. Spouse to rescind contract to sell and sue PR.

In pari delicto. An exception to such rule where, even as the intent to circumvent the constitutional proscription on aliens owning real
property was evident by virtue of the execution of the Contract to Sell, such violation of the law did not materialize because the buyer
cased the rescission of the contract before the execution of the final deed transferring ownership.
Under Art 1414, one who repudiates the agreement and demands his money before the illegal act has taken place is entitled to recover.
Hulst is entitled to the recovery only of the amount of P3,187,500, representing purchase price paid to PR. No damages may be
recovered on the bases of a void contract; being nonexistent, the agreement produces no juridical tie between the parties involved.
Hulst is not entitled to actual, interest, moral and exemplary damages and attorneys fees.
5

The RTC ruled that the sale between Poblete and Maniego was a nullity. The RTC found that the
agreed consideration was P900,000.00 and Maniego failed to pay the consideration. Furthermore, the
signatures of Poblete and her deceased husband were proven to be forgeries. The RTC also ruled that
Land Bank was not a mortgagee in good faith because it failed to exercise the diligence required of
banking institutions. The RTC explained that had Land Bank exercised due diligence, it would have
known before approving the loan that the sale between Poblete and Maniego had not been
consummated. Nevertheless, the RTC granted Land Banks cross-claim against Maniego.