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SAMONTE v.

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

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.

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.

Issue: W/N prescription has already set in.

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. RT-476 in their names
covering that portion owned by Abao.

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]

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

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.

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 non-production 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,
Riga was
docked
at
while Hansa
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,Oregon, 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.
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
consideration.[19]
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 recognized as a
valid and binding undertaking,[22] as in this case.
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 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]
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.
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.

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

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?
(2) Was its sale by Florentino without Elisera's
consent valid?

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.
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.

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-in-interest 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, respondent-spouses, 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.

bar an action between the same parties respecting


the title or ownership over the property,[21] which
action
was
precisely
resorted
to
by
respondent-spouses in this case.

Issue: W/N there was vitiation of consent on the


part of Felix Paragas.

Art. 1602. The contract shall be


presumed to be an equitable
mortgage, in any of the
following cases:

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 party-litigants.[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

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.:

(1)

When the price of the


sale with right to
repurchase
is
unusually inadequate;

(2)

When the vendor


remains in possession
as lessee or otherwise;

(3)

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)

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 or otherwise shall be
considered as interest which shall be
subject to the usury laws.[22]
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 respondent-spouses 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.
That the realty taxes paid by respondent-spouses
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 Colleges, practically
bullied respondent-spouses 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
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:
IN FAVOR EXCEPT .118 .SEC
OF THE GOVERNMENT OR
,ANY OF ITS BRANCHES
,OR INSTITUTIONS ,UNITS
OR LEGALLY CONSTITUTED
,BANKING CORPORATIONS
LANDS ACQUIRED UNDER
FREE
PATENT
OR
HOMESTEAD PROVISIONS
SHALL NOT BE SUBJECT TO
ENCUMBRANCE
OR
ALIENATION FROM THE
L OF DATE OF THE APPROVA

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:
der is prohibited A grantee or homestea
from alienating to a private individual a
land grant within five years from the time
A .that the patent or grant is issued
violation of this prohibition renders a
This .sale void, 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 notipso facto .make a sale void
tary does The absence of approval by the Secre
nota 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
producing the effect of ,may be secured later
dopting the transaction as if the ratifying and a
.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
non-refundable; 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.
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.
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
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, as presently worded,
states:
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
impossible.

become

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 above-quoted
section of CAIs letter from which the
restriction on the non-transferability 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.
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
circumstances.41
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
non-transferability 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 non-transferable.

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 articles amount


to 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