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V.

Parties to a contract
1.) JUAN LAO and CANDELARIA C.
LAO, petitioners, vs. HON. MELECIO A. GENATO, as
Presiding Judge, Court of First Instance, Branch I,
Misamis Occidental, SOTERO A. DIONISIO, JR., as
Administrator of the Intestate Estate of ROSENDA
ABUTON, SOTERO B. DIONISIO III, WILLIAM L. GO,
ERLINDA DIAZ, represented by RESTITUTO N.
ABUTON, Attorney-In-Fact, ESTER AIDA D. BAS,
Heirs of ROSALINDA D. BELLEZA, represented by
FELICENDA D. BELLEZA, Attorney-In-Fact,
LUZMINDA D. DAJAO, ADELAIDA D. NUEZA,
represented by Atty. MAURICIO O. BAS, SR.,
Attorney-In-Fact, and FLORIDA A.
NUQUI, respondents.
( SPECIAL CAPACITY GUARDIANS , AGENTS ,
ADMINISTRATORS )
Felipe G. Tac-an for petitioners.
Alaric P. Acosta for private respondent as Administrator.
Eligio O. Dajao for respondent Ester Aida D. Bas.
Ramon C. Berenquel for respondent William L. Go.

DECISION

CUEVAS, J :
p

Petition for CERTIORARI with prayer for the declaration of nullity


of the Order

dated February 18, 1981 of the then Court of First

Instance of Misamis Occidental Branch I which confirmed and


approved the two Deeds of Sale, both dated August 15, 1980,
involving a commercial property belonging to the estate of the
deceased Rosenda Abuton.

llcd

PETITIONER SPOUSES WERE PROMISEES in a Mutual Agreement of

Promise to Sell executed between them and private respondent


Sotero B. Dionisio III, son of respondent Sotero A. Dionisio, Jr., heir
and administrator of the intestate estate of the deceased,
whereby the promisor bound himself to sell the subject property
to petitioners. Private respondents, except Sotero Dionisio III and
William Go, are the children and only compulsory heirs of the
deceased.
On June 25, 1980, respondent administrator Sotero Dionisio, Jr.,
WITH DUE NOTICE TO ALL HIS CO-HEIRS, filed with the Probate
Court in Special Proceedings No. 842 a Motion for Authority to
Sell certain properties of the deceased to settle the outstanding
obligations of the estate.
On July 8, 1980, after hearing, there being no opposition, the
LOWER COURT ISSUED AN ORDER

AUTHORIZING THE

ADMINISTRATOR TO SELL THE THEREIN DESCRIBED PROPERTIES


OF THE ESTATE AND SUCH OTHER PROPERTIES UNDER HIS
ADMINISTRATION AT THE BEST PRICE OBTAINABLE, and directing
him to submit to the court for approval the transaction made by
him.
On August 15, 1980, respondent-administrator pursuant to said
authorization, SOLD TO HIS SON, Sotero Dionisio III, the subject
property for P75,000,00 per deed of sale

acknowledged before

Notary Public Triumfo R. Velez. + ON THE SAME DATE, Sotero

Dionisio III executed a deed of sale

of the SAME PROPERTY IN

FAVOR OF RESPONDENT WILLIAM GO for a consideration of


P80,000.00. On August 18, 1980, title was transferred to
respondent Go.
On August 27, 1980, respondent-heir Florida Nuqui, filed a Motion
for Annulment/Revocation of the Deeds of Absolute Sale for the
reasons that the sale and subsequent transfer of title of the
property were made in violation of the court's order of July 8,
1980 and that the CONSIDERATION OF THE TWO SALES WERE
GROSSLY INADEQUATE as in fact many are willing to buy the

property for P400,000.00 since it is located along the corner of


two main streets in the commercial center of Oroquieta City.

prcd

The respondent-administrator filed an opposition to said motion


of co-heir Nuqui alleging that the actual consideration of the sale
made by him is P200,000.00 and that it is the agreement of the
heirs that if any of the heirs or close relatives is interested in
buying the property, PREFERENCE WILL BE GIVEN TO HIM or her
in order to keep the property within the family of the deceased.
On September 9, 1980, respondent Nuqui filed a Reply to said
Opposition, stating that the two sales ( SON OF ADMIN AND GO)
were but a single transaction simultaneously hatched and
consummated in one occasion as shown by the Notary Public's
document Nos. 56 & 57 and with the same witnesses; that the
sales were in reality a single deal between the administrator and
William Go, because SOTERO DIONISIO III IS WITHOUT MEANS or
income and so has no capacity to buy the property; and that the
transaction is an evidence of the administrator's intent to defraud
the estate and his co-heirs, for had it not been for the Motion for

Annulment, he would not have disclosed the true and actual


consideration of the sale.
On September 10, 1980, all the co-heirs of respondentadministrator filed a Manifestation to Adopt the Motion for
Annulment/Revocation of Deeds of Absolute Sale. They likewise
filed a Manifestation on February 5, 1981 alleging that the Court
order merely authorized the sale of the subject property but did
not approve the same. = Thus, their prayer for the
CANCELLATION OF THE REGISTRATION OF SALE TRANSACTION
between respondent-administrator and his son, and that between
the latter and respondent William Go.

cdll

Respondent Go filed a Motion for Leave to Intervene to protect his


rights, manifesting that he paid Sotero Dionisio III the actual
consideration of P225,000.00 and being a purchaser in good faith
and for value, his title to the property is indefeasible pursuant to
law.
**** On February 6, 1981, petitioner spouses filed a
"Manifestation In Intervention of Interest to Purchase Property
Authorized by the Court to be Sold", wherein they alleged that
respondent-administrator, WITHOUT REVEALING THAT THE
PROPERTY HAD ALREADY BEEN SOLD TO WILLIAM GO, entered
into a Mutual Agreement of Promise to Sell ( LAO )

to herein

petitioners, for the amount of P270,000 which was reduced to


P220,000.00; that immediately upon the execution of the
agreement, petitioners paid the earnest money in the amount of
P70,000.00 by IBAA Check No. OQT-40063026 drawn out in favor
of Sotero Dionisio III, as requested by respondent-administrator;
that it was agreed upon that the balance of P150,000.00 shall
immediately be paid upon the production of the Transfer
Certificate of Title and the execution of the final Deed of Sale;
that although the agreement was executed in the name of Sotero

Dionisio III, the latter was MERELY A NOMINAL PARTY, FOR


TECHNICALLY ACCORDING TO THE ADMINISTRATOR, HE
EXECUTED A DEED OF ABSOLUTE SALE IN FAVOR OF HIS SON,
**** but the negotiations and transactions were directly and
personally entered into between the administrator and
petitioners; that the contract of sale has been perfected
considering that the earnest money was already paid; that
despite repeated demands, the administrator refused to execute
a final Deed of Sale in favor of petitioners, who later on found out
that the subject property was sold to William Go; that both
contracts of sale were made to defraud the estate and the other
heirs; that assuming the consideration of P200,000.00 was
supplied by William Go to Sotero Dionisio III who was not gainfully
employed, then the contract of sale to Go would be without
consideration, hence, it would become fictitious and simulated
and there is no other recourse left to the court but to declare the
sale null and void. Petitioners also manifested that in the event
that the court should finally declare the sale null and void, they
are still interested to purchase the property for the same amount
of P220,000.00 as previously agreed upon.
****At the hearing of the said incident involving the questioned
sales, petitioners submitted a copy of the Contract of
Mortgage

dated July 18, 1980 EXECUTED BY RESPONDENT-

ADMINISTRATOR IN FAVOR OF JUAN LAO, one of the


petitioners, whereby the former mortgaged "all his undivided
interest in the estate of his deceased mother, Rosenda Abuton
Vda. de Nuqui, subject matter of Intestate Estate No. 842, now
pending before the Court of First Instance of Oroquieta City,
Branch I."
Respondent heir Florida A. Nuqui filed an Opposition to William
Go's Motion to Intervene averring therein that the deed of sale

executed by Sotero Dionisio, Jr. in favor of Sotero Dionisio III


CREATED NO LEGAL FORCE AND EFFECT, SINCE THE VALIDITY OF
THE SALE ABSOLUTELY DEPENDED ON ITS APPROVAL BY THE
COURT; that it therefore follows that the succeeding sale to Go
and consequent issuance of the title to him are also null and void
from their inception; and that the admission by William Go of the
actual and true consideration of the sale at this stage, hardly
bespeaks of his "innocence" or "good faith".

llcd

( TTO SOLVE THE ISSUES REGARDING THE SALE ) After several


days of hearing, respondent Judge allowed all the interested
parties TO BID FOR THE PROPERTY AT THE HIGHEST OBTAINABLE
PRICE PURSUANT TO HIS ORDER of July 8, 1980.
On February 16, 1981, in open court, respondent Go offered to
buy the property in the amount of P280,000.00. Petitioners
counter-offered at P282,000.00, spot cash. On that same day, all
the heirs, except the administrator, filed a Motion ExParte,

stating among other things, that the offer of William Go

appears the highest obtainable price and that the offer of


petitioners is not well taken as the same has not been made
within a reasonable period of five (5) days from February 11,
1981.
On February 17, 1981, all the parties, with the exception of the
Lao spouses and Sotero Dionisio III, submitted for approval an
Amicable Settlement

stating
"xxx xxx xxx

That after the administrator, Sotero A. Dionisio, Jr., had


accounted for the actual price received by him out of the
transaction between him and Sotero B. Dionisio III in the
amount of Two Hundred Thousand (P200,000.00) Pesos
and that in the interest of a peaceful settlement

William L. Go has offered and is ready, able and willing to


pay to the heirs an additional amount of Eighty Thousand
(P80,000.00) Pesos an arrangement which is most
advantageous to the heirs and which they willingly accept
to their satisfaction, the heirs of Rosenda Abuton hereby
declare that they have no objection to the confirmation
and approval of the sales/transactions executed by Sotero
A. Dionisio, Jr., in favor of Sotero B. Dionisio III and that
executed by Sotero B. Dionisio III in favor of the
intervenor, William L. Go, and they likewise have no more
objection to the lifting and cancellation of the notice of lis
pendens from TCT No. 8807.

WHEREFORE, it is most respectfully prayed that an order


issued by this Hon. Court confirming and approving the
transaction executed by Sotero A. Dionisio, Jr., in favor of
Sotero B. Dionisio III and that between the latter and
William L. Go, and to direct the Register of Deeds of the
Province of Misamis Occidental at Oroquieta City, for the
cancellation of the notice of lis pendens annotated on
Transfer Certificate of Title No. 8807, and to finally
consider the matter treated in the Motion of Florida A.
Nuqui dated August 27, 1980 and adopted by all the
other heirs forever closed and terminated.
Oroquieta City, February 17, 1981.
xxx xxx xxx"

On February 18, 1981, petitioners filed an opposition to the


approval of the Amicable Settlement on the following grounds:
(a) They have an interest in the property as vendees in a promise
to sell and as Mortgagee of an undivided share of one of the heirs

but they were not signatories to the amicable settlement, hence


it is contrary to Article 2028 of the Civil Code providing that "A
compromise is a contract whereby the parties, by making
reciprocal concessions, avoid litigation or put an end to one
already commenced"
(b) The Amicable Settlement seeks the confirmation and approval
of the questioned transactions but as borne out by the pleadings
and oral arguments, the Deed of Absolute Sale executed by the
administrator in favor of his son is without consideration,
therefore, it is fictitious and simulated hence it cannot be
confirmed or ratified pursuant to Article 1409 of the New Civil
Code;

LexLib

(c) The Amicable Settlement is a device to defraud the


Government of Capital Gains Tax, charges and other fees because
the Deeds of Sales do not reflect the true consideration; and
(d) The Deeds of Sale sought to be confirmed included the
undivided share of Sotero A. Dionisio, Jr. which is presently
mortgaged to herein-spouses, which was executed prior to the
sale, thus, if approved, the Court would abet the commission of
the crime of estafa as the mortgage has not yet been paid and
released.
Petitioners likewise pointed out in their opposition that
respondent Judge had intimated in open court that somebody
offered to buy the property for the price of P300,000.00 but since
there was no formal offer in writing, they (petitioners) are ready
and willing to buy the property at that amount, which definitely is
the best price obtainable in the market and most beneficial to all
the heirs.
Despite said opposition, respondent Judge issued an Order
February 18, 1981 approving the Amicable Settlement,

on

confirming and ratifying the two questioned Deeds of Sale.


Petitioners' motion for reconsideration having been denied, they
now come before Us through the instant petition raising the
ISSUE OF WHETHER OR NOT RESPONDENT JUDGE IS GUILTY OF
GRAVE ABUSE OF DISCRETION IN 1) APPROVING THE AMICABLE
SETTLEMENT AND CONFIRMING THE TWO (2) DEEDS OF SALE IN
QUESTION; and 2) in not accepting the offer of the petitioners in
the amount of P300,000.00 for the purchase of the lot in
question.

( OBLIGATIONS OF ADMINISTRATOR )
Sotero Dionisio, Jr. is the Administrator of the estate of his
deceased mother Rosenda Abutan. As such Administrator, he
occupies a position of the highest trust and confidence. He is
required to exercise reasonable diligence and act in entire good
faith in the performance of that trust. Although he is not a
guarantor or insurer of the safety of the estate nor is he expected
to be infallible, yet the same degree of prudence, care and
judgment which a person of a fair average capacity and ability
exercises in similar transactions of his own, serves as the
standard by which his conduct is to be judged. ( DILIGENCE OF
GFF )
In the discharge of his functions, the administrator should act
with utmost circumspection in order to preserve the estate and
guard against its dissipation so as not to prejudice its creditors
and the heirs of the decedents who are entitled to the net residue
thereof.

In the case at bar, the sale was made necessary "in order to
settle other existing obligations of the estate". This purpose is
clearly manifested in the Motion for Authority to Sell

10

filed by

Dionisio, Jr. The subsisting obligations referred to, although not


specified, must be those due and owing to the creditors of the
estate and also the taxes due the government. In order to
guarantee faithful compliance with the authority granted

11

COURT OREDERS TO SUBMIT PROOF OF TRANSACTIONS IN COURT


) respondent Judge, through the aforesaid Order made it an
emphatic duty on the part of the administrator Dionisio ". . . to
submit to this Court for approval the transactions made by him."
( INCAPCITY OF SON- BUYER TO PAY PRICE ) The sale was made.
But of all people, to his very son Sotero Dionisio III and for the
grossly low price of only P75,000.00. That sale was indubitably
shown to be fictitious, it clearly appearing that Dionisio III has no
income whatsoever. In fact, he is still a dependent of his father,
administrator Dionisio, Jr. On top of that, not a single centavo of
the P75,000.00 stated consideration was ever accounted for nor
reported by Dionisio, Jr. to the probate court. Neither did he
submit said transaction as mandated by the order authorizing
him to sell, to the probate court for its approval and just so its
validity and fairness may be passed upon and resolved. It was
only upon the filing by one of the heirs, Florida A. Nuqui, of the
"Motion for Annulment/Revocation of Deeds of Absolute
Sale"

12questioning

the genuineness and validity of the

transactions, that Dionisio, Jr. was compelled to admit that the


actual consideration for the sale made by him was
P200,000.00.

13

This sale is one of the illegal and irregular

transactions that was confirmed and legalized by His HONOR's


approval of the assailed Amicable Settlement. No doubt,

respondent Judge's questioned approval violates Article 1409 of


the New Civil Code and cannot work to confirm nor serve to ratify
a fictitious contract which is non-existent and void from the very
beginning. The fact that practically all the heirs are partiessignatories to the said Compromise Agreement is of no moment.
Their assent to such an illegal scheme does not legalize the same
nor does it impose any obligation upon respondent Judge to
approve the same to the prejudice not only of the creditors of the
estate, and the government by the non-payment of the correct
amount of taxes legally due from the estate.

LexLib

The offer by the petitioner of P300,000.00 for the purchase of the


property in question does not appear seriously disputed on
record. As against the price stated in the assailed Compromise
Agreement, the former amount is decidedly more beneficial and
advantageous not only to the estate, the heirs of the decedents,
but more importantly to its creditors, for whose account and
benefit the sale was made. No satisfactory and convincing reason
appeared given for the rejection and/or non-acceptance of said
offer thus giving rise to a well-grounded suspicion that a collusion
of some sort exists between the administrator and the heirs to
defraud the creditors and the government.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the assailed
Order dated February 18, 1981 of the respondent Judge
approving the questioned Amicable Settlement is declared NULL
and VOID and hereby SET ASIDE. Consequently, the
= sale in favor of Sotero Dionisio III and by the latter to William
Go is likewise declared NULL and VOID. The Transfer Certificate of
Title issued to the latter is hereby ordered CANCELLED.

The proper Regional Trial Court of Misamis Occidental to whom


this case is now assigned is hereby ordered to conduct new
proceedings for the sale of the property involved in this case.
No pronouncement as to costs.
SO ORDERED.

2.)DAVID

P. FORNILDA P. FORNILDA, EMILIA P.

FORNILDA OLILI, LEODADIA P. FORNILDA LABAYEN


and ANGELA P. FORNILDA
GUTIERREZ, petitioners, vs. THE BRANCH 164,
REGIONAL TRIAL COURT IVTH JUDICIAL REGION,
PASIG, JOAQUIN C. ANTONIL, Deputy Sheriff, RTC,
4JR Tanay, Rizal and ATTY. SERGIO I.
AMONOY,respondents.
Irene C. Ishiwata for petitioner A. Gutierrez.
Sergio I. Amonoy for and in his own behalf.
SYLLABUS
1. CIVIL LAW; ARTICLE 1491 CIVIL CODE; PROHIBITION TO
LAWYERS WITH RESPECT TO PROPERTIES OR RIGHTS UNDER
LITIGATION; RATIONALE. A LAWYER is prohibited from acquiring
either by purchase or assignment the property or rights involved
which are the object of the litigation in which they intervene by
virtue of their profession (Padilla, Vol. II Civil Law, 1974 Ed., p.
230 citing Hernandez vs. Villanueva, 40 Phil. 773 and Rubias vs.
Batiller; 51 SCRA 130). The prohibition on purchase is all

embracing to include not only sales to private individuals but also


public or judicial sales (ibid., p. 221). The rationale advanced for
the PROHIBITION IS THAT PUBLIC POLICY DISALLOWS THE
TRANSACTIONS IN VIEW OF THE FIDUCIARY RELATIONSHIP
involved i.e., the relation of trust and confidence and the peculiar
control exercised by these persons (Paras, Civil Code, Vol. V,
1973., p. 70).
2. ID.; ID.; ID.; SUBJECT TRANSACTION FALLS SQUARELY WITHIN
THE STATUTORY PROHIBITION. The transaction involved falls
squarely within the prohibition against any acquisition by a
lawyer of properties belonging to parties they represent which
are still in suit. For, while the Project of Partition was approved on
12 January 1965, it was not until 6 August 1969 that the estate
was declared closed and terminated (Record on Appeal, Civil Case
No. 3103, p. 44). At the time the mortgage was executed,
therefore, the relationship of lawyer and client still existed, the
very relation of trust and confidence sought to be protected by
the prohibition, when a lawyer occupies a vantage position to
press upon or dictate terms to an harassed client. What is more,
the mortgage was executed only eight (8) days after approval of
the Project of Partition thereby evincing a clear intention on
Respondent Amonoy's part to protect his own interests and ride
roughshod over that of his clients. The fact that the properties
were first mortgaged and only subsequently acquired in an
auction sale long after the termination of the intestate
proceedings will not remove it from the scope of the prohibition.
To rule otherwise would be to countenance indirectly what cannot
be done directly.
3. ID.; MORTGAGE CONTRACT, NULL AND VOID AB INITIO; ACTION
FOR DECLARATION OF INEXISTENCE OF CONTRACTS DOES NOT
PRESCRIBE. Considering that the mortgage contract, entered

into in contravention of Article 1491 of the Civil Code, supra, is


expressly prohibited by law, the same must be held inexistent
and void ab initio (Director of Lands vs. Abagat, 53 Phil. 147).
= Being a void contract, the action or defense for the declaration
of its inexistence is imprescriptible (Article 1410, Civil Code). The
defect of a void or inexistent contract is permanent. Mere lapse of
time cannot give it efficacy. Neither can the right to set up the
defense of illegality be waived (Article 1409, Civil Code).
4. REMEDIAL LAW; ACTIONS; TRIAL COURT DID NOT ACQUIRE
JURISDICTION OVER SUBJECT MATTER; JUDGMENT RENDERED DID
NOT ATTAIN FINALITY; RES JUDICATA NO APPLICABLE. The
Controverted Parcels could not have been the object of any
mortgage contract in favor of Respondent Amonoy and
consequently neither of a foreclosure sale. By analogy, the
illegality must be held to extend to whatsoever results directly
from the illegal source (Article 1422, Civil Code). Such being the
case, the Trial Court did not acquire any jurisdiction over the
subject matter of the Foreclosure Case and the judgment
rendered therein could not have attained any finality and could
be attacked at any time. Neither could it have been a bar to the
action brought by petitioners for its annulment by reason of res
judicata. (Municipality of Antipolo vs. Zapanta, No. L-65334,
December 26, 1984, 133 SCRA 820). Two of the requisites of the
rule of prior judgment as a bar to a subsequent case, namely, (1)
a final judgment and (2) that it must have been rendered by a
Court having jurisdiction over the subject matter, are
conspicuously absent.
5. CIVIL LAW; CONTRACTS; ARTICLE 1412, CIVIL CODE;
RECOVERY OF WHAT HAS BEEN GIVEN TO PARTY AT FAULT,
WARRANTED. Since the nullity of the transaction herein
involved proceeds from the illegality of the cause or object of

the contract, and the act DOES NOT CONSTITUTE A CRIMINAL


OFFENSE, the return to petitioners of the Controverted Parcels is
in order. "Art. 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed: . . . 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." (Civil Code)

DECISION

MELENCIO-HERRERA, J :
p

The Petition entitled "Petisiyung Makapagpasuri Taglay ang


Pagpapapigil ng Utos", translated as one for Certiorari with
Preliminary Injunction, was filed on 27 September 1985 by three
(3) petitioners, namely David P. Fornilda, Emilia P. Fornilda-Olili,
and Angela P. Fornilda-Gutierrez. They seek the reversal of the
Order of respondent Trial Court, dated 25 July 1985, granting a
Writ of Possession, as well as its Orders, dated 25 April 1986 and
16 May 1986 (p. 241, Rollo), directing and authorizing respondent
Sheriff to demolish the houses of petitioners Angela and Leocadia
Fornilda (who is listed as a petitioner but who did not sign the
Petition). Neither is Juan P. Fornilda a signatory.

LLjur

The facts disclose that the deceased, Julio M. Catolos, formerly


owned six (6) parcels of land located in Tanay, Rizal, which are
the controverted properties in the present litigation. His estate
was the subject of settlement in Special Proceedings No. 3103 of

the then Court of First Instance of Rizal, at Pasig, Branch I.


Francisca Catolos, Agues Catolos, Alfonso I. Fornilda and Asuncion
M. Pasamba were some of the legal heirs and were represented in
the case by Atty. Sergio Amonoy (hereinafter referred to as
Respondent Amonoy). A Project of Partition was filed in the
Intestate Court whereby the Controverted Parcels were
adjudicated to Alfonso I. Fornilda and Asuncion M. Pasamba.
On 12 January 1965, the Court approved the Project of Partition. It
was not until 6 August 1969, however, that the estate was
declared closed and terminated after estate and inheritance
taxes had been paid, the claims against the estate settled and all
properties adjudicated.
Eight (8) days thereafter, or on 20 January 1965, Alfonso I.
Fornilda and Asuncion M. Pasamba executed a Contract of
Mortgage wherein they mortgaged the Controverted Parcels to
Respondent Amonoy as security for the payment of his attorney's
fees for services rendered in the aforementioned intestate
proceedings, in the amount of P27,600.00 (Annex "A", Comment).
Asuncion M. Pasamba died on 24 February 1969 while Alfonso I.
Fornilda passed away on 2 July 1969. Petitioners are some of the
heirs of Alfonso I. Fornilda.
Since the mortgage indebtedness was not paid, on 21
January 1970, Respondent Amonoy instituted foreclosure
proceedings before the Court of First Instance of Rizal, at Pasig,
Branch VIII, entitled "Sergio I. Amonoy vs. Heirs of Asuncion M.
Pasamba and Heirs of Alfonso I. Fornilda" [Civil Case No. 12726]
(Annex "B", ibid.). Petitioners, as defendants therein, alleged that
the amount agreed upon as attorney's fees was only P11,695.92
and that the sum of P27,600.00 was unconscionable and

unreasonable. Appearing as signatory counsel for Respondent


Amonoy was Atty. Jose S. Balajadia.

prLL

On 28 September 1972, the Trial Court

= rendered judgment in the Foreclosure Case ordering the


Pasamba and Fornilda heirs to pay Respondent Amonoy, within
ninety (90) days from receipt of the decision, the sums of
P27,600.00 representing the attorney's fees secured by the
mortgage; P11,880.00 as the value of the harvest from two (2)
parcels of land; and 25% of the total of the two amounts, or
P9,645.00, as attorney's fees, failing which the Controverted
Parcels would be sold at public auction (Annex "C", ibid.)
On 6 February 1973, the Controverted Parcels were foreclosed
and on 23 March 1973, an auction sale was held with Respondent
Amonoy as the sole bidder for P23,760.00 (Annex "D", ibid.). Said
sale was confirmed by the Trial Court on 2 May 1973 (Annex "E",
ibid.).
- To SATISFY THE DEFICIENCY, another execution sale was
conducted with Respondent Amonoy as the sole bidder for
P12,137.50. On the basis of an Affidavit of Consolidation of
Ownership by Respondent Amonoy, the corresponding tax
declarations covering the Controverted Parcels were consolidated
in his name.

LLphil

On 19 December 1973, or a year after the judgment in the


Foreclosure Case, an action for Annulment of Judgment entitled
"Maria Penano, et al. vs. Sergio Amonoy, et al." (Civil Case No.
18731) was filed before the then Court of First Instance of Rizal,
at Pasig [the Annulment Case] (Annex "F", ibid.) Petitioners were
also included as plaintiffs. Appearing for the plaintiffs in that case
was Atty. Jose F. Tiburcio. Squarely put in issue were the propriety
of the mortgage, the validity of the judgment in the Foreclosure

Case, and the tenability of the acquisitions by Respondent


Amonoy at the Sheriff's sale. Of particular relevance to the
instant Petition is the contention that the mortgage and the
Sheriff's sales were null and void as contrary to the positive
statutory injunction in Article 1491 (5) of the Civil Code, which
prohibits attorneys from purchasing, even at a public or judicial
auction, properties and rights in litigation, and that the Trial
Court, in the Foreclosure Case, had never acquired jurisdiction
over the subject matter of the action, i.e., the Controverted
Parcels.

LLjur

On 7 November 1977, the ( ALLOW CREDITORS TO BE BIDDERS )


Trial Court

dismissed the Annulment Case holding that the

particular disqualification in Article 1491 of the Civil Code is not


of general application nor of universal effect but must be
reconciled with the rule that PERMITS JUDGMENT CREDITORS TO
BE BIDDERS AT SHERIFFS SALES, So that Respondent Amonoy
was "clearly not prohibited from bidding his judgment and his
acquisitions therefore are sanctioned by law" (Annex "G", ibid.).
On 22 July 1981, the Court of Appeals (in CA-G.R. No. 63214-R)
(the Appealed Case)

affirmed the aforesaid judgment predicated

on three principal grounds: (1) that no legal impediment exists to


bar an heir from encumbering his share of the estate after a
project of partition has been approved, that act being a valid
exercise of his right of ownership; (2) res judicata, since
petitioners never questioned the capacity of Respondent Amonoy
to acquire the property in the Foreclosure Case; and (3) the
complaint in the Annulment Case did not allege extrinsic fraud
nor collusion in obtaining the judgment so that the action must
fail.

prLL

Upon remand of the Foreclosure Case to respondent Regional Trial


Court, Branch 164, at Pasig, Respondent Sheriff, on 26 August
1985, notified petitioners to vacate the premises (p. 17, Rollo),
subject of the Writ of Possession issued on 25 July 1985 (p. 18,
Rollo).
On 27 September 1985, petitioners came to this Court in a
pleading entitled "Petisiyung Makapagpasuri Taglay ang
Pagpapapigil ng Utos". On 11 November 1985, we dismissed the
petition for non-payment of docket and other fees. However,
upon payment thereof, the Order of dismissal was set aside and
respondents were directed to submit their Comment.

cdrep

In his Comment, Respondent Amonoy denies that he had


acquired the Controverted Parcels through immoral and illegal
means contending that "the question of attorney's fees, the
mortgage to secure the same, the sale of the mortgaged
properties at public auction, which was confirmed by the Court,
and ultimately, the ownership and possession over them, have all
been JUDICIALLY ADJUDICATED." (p. 146, Rollo)
We gave due course to the petition and required the filing of the
parties' respective memoranda.
Meanwhile, on motion of Respondent Amonoy, dated 24 April
1986, respondent Trial Court, in the Foreclosure Case, issued
Orders dated 25 April and 16 May 1986 authorizing the
demolition of the houses and other structures of petitioners
Leocadia and Angela Fornilda (p. 241, Rollo). On 1 June 1986 the
house of Angela Fornilda was totally demolished while that of
Leocadia was spared due to the latter's assurance that she would
seek postponement.

llcd

On 1 June 1986, in a pleading entitled "Mahigpit na Musiyun Para


Papanagutin Kaugnay ng Paglalapastangan", followed by a

"Musiyung Makahingi ng Utos sa Pagpapapigil ng Pagpapagiba at


Papanagutin sa Paglalapastangan" petitioners applied for a
Restraining Order, which we granted on 2 June 1986, enjoining
respondents and the Sheriff of Rizal from demolishing petitioners'
houses (p. 221, Rollo). In a pleading entitled "Mahigpit na
Musiyun para Papanagutin Kaugnay ng Paglalapastangan" and
"Masasamang Gawain (Mal-Practices)" and "Parinindigan
(Memorandum)" both filed on 16 June 1988, PETITIONERS
LIKEWISE CHARGED RESPONDENT AMONOY WITH
MALPRACTICE AND PRAYED FOR HIS DISBARMENT (pp. 224;
226, Rollo).
In Respondent Amonoy's "Comment and Manifestations" filed on
30 June 1986, he indicated that the Restraining Order received by
the Deputy Sheriff of Rizal only on 6 June 1986 had already
become moot and academic as Angela Fornilda's house had been
demolished on 2 June 1986 while Leocadia offered to buy the
small area of the land where her house is built and he had
relented.

cdphil

In the interim, Respondent Amonoy was appointed as Assistant


Provincial Fiscal of Rizal, and subsequently as a Regional Trial
Court Judge in Pasay City.
( ISSUE ) The threshold ISSUE IS WHETHER OR NOT THE
MORTGAGE CONSTITUTED ON THE CONTROVERTED
PARCELS IN FAVOR OF RESPONDENT AMONOY COMES
WITHIN THE SCOPE OF THE PROHIBITION IN ARTICLE 1491
OF THE CIVIL CODE.
The pertinent portions of the said Articles read:

"Art. 1491. The following persons cannot


acquire by purchase even at a public or

judicial or auction, either in person or


through the mediation of another:
xxx xxx xxx
(5) Justices, judges, prosecuting
attorneys, . . . the property and rights in
litigation or levied upon on execution
before the court within whose jurisdiction
or territory they exercise their respective
functions; this prohibition includes the act
of acquiring by assignment and shall
apply to lawyers, with respect to the
property and rights which may be the
object of any litigation in which they may
take part by virtue of their profession."
(Emphasis supplied)
Under the aforequoted provision, a lawyer is prohibited from
acquiring either by purchase or assignment the property or rights
involved which are the object of the litigation in which they
intervene by virtue of their profession (Padilla, Vol. II Civil Law,
1974 Ed., p. 230 citing Hernandez vs. Villanueva, 40 Phil. 773
and Rubias vs. Batiller, 51 SCRA 130). The prohibition on
purchase is all embracing to include not only sales to private
individuals but also public or judicial sales (ibid., p. 221).
The rationale advanced for the prohibition is that public policy
disallows the transactions in view of the fiduciary relationship
involved i.e., the relation of trust and confidence and the peculiar
control exercised by these persons (Paras, Civil Code, Vol. V,
1973., p. 70).
In the instant case, it is undisputed that the Controverted Parcels
were part of the estate of the late Julio M. Catolos, subject of

intestate estate proceedings, wherein RESPONDENT AMONOY


ACTED AS COUNSEL FOR SOME OF THE HEIRS from 1959 until
1968 by his own admission (Comment, p. 145, Rollo); that these
properties were adjudicated to Alfonso Fornilda and Asuncion M.
Pasamba in the Project of Partition approved by the Court on 12
January 1965; that on 20 January 1965, or only eight (8) days
thereafter, and while he was still intervening in the case as
counsel, these properties were mortgaged by petitioners'
predecessor-in-interest to Respondent Amonoy to secure
payment of the latter's attorney's fees in the amount of
P27,600.00; that since the mortgage indebtedness was not paid,
Respondent Amonoy instituted an action for judicial foreclosure of
mortgage on 21 January 1970; that the mortgage was
= subsequently ordered foreclosed and auction sale followed
where Respondent Amonoy was the SOLE BIDDER FOR
P23,600.00; and that being short of the mortgage indebtedness,
he applied for and further obtained a deficiency judgment.

prcd

= Telling, therefore, is the fact that the transaction involved falls


squarely within the prohibition against any acquisition by a
lawyer of properties belonging to parties they represent which
are still in suit. For, while the Project of Partition was approved on
12 January 1965, it was not until 6 August 1969 that the estate
was declared closed and terminated (Record on Appeal, Civil Case
No. 3103, p. 44).
- At the time the mortgage was executed, therefore, the
relationship of lawyer and client still existed, the very relation of
trust and confidence sought to be protected by the prohibition,
when a lawyer occupies a vantage position to press upon or
dictate terms to a harassed client. What is more, the mortgage
was executed only eight (8) days after approval of the Project of
Partition thereby evincing a clear intention on Respondent

Amonoy's part to protect his own interests and ride roughshod


over that of his clients. From the time of the execution of the
mortgage in his favor, Respondent Amonoy had already asserted
a title adverse to his clients' interests at a time when the
relationship of lawyer and client had not yet been severed.

LLphil

The fact that the properties were first mortgaged and only
subsequently acquired in an auction sale long after the
termination of the intestate proceedings will not remove it from
the scope of the prohibition. To rule otherwise would be to
countenance indirectly what cannot be done directly.
There is no gainsaying that petitioners' predecessor-in-interest, as
an heir, could encumber the property adjudicated to him; that the
Complaint in the Annulment Case did not contain any specific
allegation of fraud or collusion in obtaining the judgment
appealed from as opined by the Court of Appeals in the Appealed
Case; and that the auction sale of the properties to Respondent
Amonoy was judicially confirmed and ownership and possession
of the Controverted Parcels ultimately transferred to him.
Nonetheless, considering that the mortgage contract, entered
into in contravention of Article 1491 of the Civil Code,supra, is
expressly prohibited by law, the same must be held inexistent
and void ab initio (Director of Lands vs. Abagat, 53 Phil. 147).
"Art. 1409. The following contracts are inexistent and void
from the beginning:
(1) Those whose cause, object or purpose is contrary to
law, morals, good customs, public order or public policy;
xxx xxx xxx
(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right


to set up the defense of illegality be waived." (Civil Code)

Being a void contract, the action or defense for the declaration of


its inexistence is imprescriptible (Article 1410, Civil Code). The
defect of a void or inexistent contract is permanent. Mere lapse of
time cannot give it efficacy. Neither can the right to set up the
defense of illegality be waived (Article 1409, Civil Code).
The Controverted Parcels could not have been the object of any
mortgage contract in favor of Respondent Amonoy and
consequently neither of a foreclosure sale. By analogy, the
illegality must be held to extend to whatsoever results directly
from the illegal source (Article 1422, Civil Code). Such being the
case, the Trial Court did not acquire any jurisdiction over the
subject matter of the Foreclosure Case and the judgment
rendered therein could not have attained any finality and could
be attacked at any time. Neither could it have been a bar to the
action brought by petitioners for its annulment by reason of res
judicata. (Municipality of Antipolo vs. Zapanta, No. L-65334,
December 26, 1984, 133 SCRA 820). Two of the requisites of the
rule of prior judgment as a bar to a subsequent case, namely, (1)
a final judgment and (2) that it must have been rendered by a
Court having jurisdiction over the subject matter, are
conspicuously absent.

LLpr

And since the nullity of the transaction herein involved proceeds


from the illegality of the cause or object of the contract, and the
act does not constitute a criminal offense, the return to
petitioners of the Controverted Parcels is in order.

"Art. 1412. If the act in which the unlawful or forbidden


cause consists does not constitute a criminal offense, the
following rules shall be observed:
xxx xxx xxx
(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." (Civil Code).

WHEREFORE, Certiorari is granted; the Order of respondent Trial


Court, dated 25 July 1985, granting a Writ of Possession, as well
as its Orders, dated 25 April 1986 and 16 May 1986, directing and
authorizing respondent Sheriff to demolish the houses of
petitioners Angela and Leocadia Fornilda are hereby set aside,
and the Temporary Restraining Order heretofore issued, is made
permanent. The six (6) parcels of land herein controverted are
hereby ordered returned to petitioners unless some of them have
been conveyed to innocent third persons.
With respect to petitioners' prayer for disbarment by reason of
malpractice of Respondent Amonoy embodied in their pleading
entitled "Mahigpit na Musiyun para Papanagutin Kaugnay ng
Paglalapastangan" and "Masasamang Gawain (Mal-Practices)"
and "Paninindigan (Memorandum)" both filed on 16 June 1988,
Respondent Sergio I. Amonoy is hereby required, within fifteen
(15) days from notice hereof, to submit an Answer thereto. After
receipt of the same, a new docket number will be assigned to the
case.
Costs against respondent, Sergio I. Amonoy.
SO ORDERED.

Paras, Sarmiento and Regalado, JJ., concur.


Padilla, J., took no part.
(Fornilda v. Br. 164, RTC IVth Judicial Region, Pasig, G.R. No.
72306, [October 5, 1988], 248 PHIL 523-534)
|||

3.)

THE DIRECTOR OF

LANDS, petitioner, vs. SILVERETRA ABABA, ET AL.,


claimants, JUAN LARRAZABAL, MARTA C. DE
LARRAZABAL, MAXIMO ABARQUEZ and ANASTACIA

CABIGAS, petitioners-appellants, ALBERTO


FERNANDEZ, adverse claimant-appellee.
Juanito Ll. Abao for petitioners-appellants.
Alberto B. Fernandez in his own behalf.
SYNOPSIS
After winning a case for annulment of a contract of sale
with right of repurchase and recovery of the parcels of land
subject matter thereof, petitioner Abarquez REFUSED TO
COMPLY WITH HIS CONTRACTUAL OBLIGATION TO HIS
COUNSEL TO GIVE THE LATTER 1/2 OF THE PROPERTY
RECOVERED AS ATTORNEY'S FEES, ANd instead offered to sell
the whole parcels of land to the petitioner-spouses Larrazabal.
=Hence, his counsel, Atty. Fernandez, filed an affidavit of adverse
claim with the Register of Deeds of Cebu, ANNOTATING his
claim on petitioner Abarquez' Transfer Certificate of Title.
-Despite said annotation, Abarquez sold 2/3 of the lands to
petitioner-spouses Larrazabal. SUBSEQUENTLY, THE LATTER
FILED A CANCELLATION proceeding of the adverse claim before
the trial court where it was dismissed. The petitioner-spouses
appealed from the order of dismissal directly to the Supreme
Court contending among others that a contract for a contingent
fee is violative of Article 1491 of the New Civil Code.
The Supreme Court affirmed the trial court's decision and held
that a CONTRACT FOR A CONTINGENT FEE IS NOT COVERED BY
ARTICLE 1491 of the New Civil Code since the transfer of 1/2 of
the property in litigation takes effect only after the finality of a
favorable judgment and not during the pendency of the litigation
of the property in question; that Canon 13 of the Canons of

Professional Ethics expressly recognizes contingent fees as an


exception to Canon 10; that the adverse-claimant's contingent
fee is valid; and that the registration thereof as the only remedy
open to him, substantially complied with Section 110 of Act 496.
SYLLABUS
Of the Ruling of the Court
1. ATTORNEY AND CLIENT; CONTINGENT FEES; PROHIBITION
UNDER ARTICLE 1491, N.C.C. CONSTRUED. ( G ) The
prohibition in Article 1491 of the New Civil Code applies only to a
sale or assignment to the lawyer by his client of the property
which is the subject of litigation. For the prohibition to operate,
the sale or assignment of the property must take place DURING
THE PENDENCY OF THE LITIGATION involving the property.
****The prohibition does not apply to cases where after
completion of litigation the lawyer accepts on account of
his fee, an interest in the assets realized by the litigation.
There is a clear distinction between such cases and one in
which the lawyer speculates on the outcome of the matter
in which he is employed.
2. ID.; ID.; SCHOOLS OF THOUGHT. Spanish civilists differ in
their views on whether or not a contingent fee contract (quota
litis agreement) is covered by Article 1491, with Manresa
advancing that it is covered and Castoln maintaining that it is not
covered. The Supreme Court of Spain, in its sentencia of 12
November 1917, has ruled that Article 1459 of the Spanish Civil
Code (Article 1491 of our Civil Code) does not apply to a contract
for a contingent fee because it is not contrary to morals or to law.
3. ID.; CANONS OF PROFESSIONAL ETHICS, NOT INFRINGED BY
CONTRACT FOR CONTINGENT FEE. Contingent fees are not

prohibited in the Philippines. They are impliedly sanctioned by


law and are subject to the supervision of the court in order that
clients may be protected from unjust charges.
4. ID.; ID.; ID.; REASON FOR ALLOWANCE. R - The reason for
allowing compensation for professional services based on
contingent fees is that of a person could not secure counsel
by a promise of large fees in case of success, to be derived from
the subject matter of the suit, it would often place the poor in
such a condition as to amount to a practical denial of justice. It
not infrequently happens that persons are injured through the
negligence or willful misconduct of others, but by reason of
poverty are unable to employ counsel to assert their rights. In
such event their only means of redress lies in gratuitous service,
which is rarely given, or in their ability to find someone who will
conduct the case for a contingent fee. That relations of this kind
are often abused by speculative attorneys or that suits of this
character are turned into a sort of commercial traffic by the
lawyer does not destroy the beneficial result to one who is so
poor to employ counsel.
5. ID.; CONTINGENT FEE CONTRACT SUBJECT TO SUPERVISION OF
COURTS. A contingent fee contract is always subject to the
supervision of the courts with respect to the stipulated amount
and may be reduced or nullified. So that in the event that there is
any undue influence or fraud in the execution of the contract or
that the fee is excessive, the client is not without remedy
because the court will amply protect him.
6. ID.; PROFESSIONAL ETHICS; CONTRACT FOR CONTINGENT FEE
IS VALID. Canon 13 of the Canons of Professional Ethics
expressly recognizes contingent fees by way of exception to
Canon 10. For while Canon 10 prohibits a lawyer from purchasing
". . . any interest in the subject matter of the litigation he is

conducting", Canon 13, on the other hand, allows reasonable


contingent fee contract, thus: "A contract for a contingent fee
where sanctioned by law, should be reasonable under all
circumstances of the case, including the risk and uncertainty of
the compensation, but should always be subject to the
supervision of a court, as to its reasonableness." The distinction is
between buying an interest in the litigation as a speculation,
which Canon 10 condemns, and agreeing, in a case which the
lawyer undertakes primarily in his professional capacity, to
accept his compensation contingent on the outcome.
7. ID.; ID.; NATURE. Canons of Professional Ethics have already
received judicial recognition by being cited and applied by the
Supreme Court of the Philippines in its opinion. And they have
likewise been considered sources of Legal Ethics. More
importantly, the American Bar Association, speaking through
Chairman Howe of the Ethics Committee, opined that "The
Canons of Professional Ethics are legislative expressions of
professional opinion." Therefore, the Canons have some binding
effect.
8. LAND REGISTRATION; SECTION 110, REGISTRATION OF
INTEREST OR ADVERSE CLAIM, ALLOWED. An adverse claim
may be registered only by whoever claims any part or interest in
registered land adverse to the registered owner, arising
subsequent to the date of the original registration, if no other
provision is made in this Act (496) for registering the same. A
contract for a contingent fee being valid, it vested in the adverseclaimant an interest or right over the lots in question to the
extent of one-half thereof. The interest become vested in
adverse-claimant after the case was won on appeal because only
then did the assignment of the one half portion of the lots in
question became effective and binding. Since the interest or

claim of counsel in the lots in question arose long after the


original registration, there is no other provision of the Land
Registration Act under which the interest or claim may be
registered except as an adverse claim under Section 110 of the
Act. The interest or claim cannot be registered as an attorney's
charging lien. There being substantial compliance with Section
110 of Act 496, the registration of the adverse claim is valid.
Being valid, its registration should not be canceled because it is
only when such claim is found unmeritorious that the registration
thereof may be canceled.
9. ID.; ID.; EFFECT. The annotation of an adverse claim is an
measure designed to protect the interest of a person over a piece
of real property where the registration of such interest or right is
not otherwise provided for by the Land Registration Act, and
serves as a notice and warning to third parties dealing with said
property that someone is claiming an interest in the same or a
better right than the registered owner thereof.
10. PLEADING AND PRACTICE; RULE 138, SECTION 37, SCOPE.
A charging lien under Section 37, Rule 138 of the Revised Rules of
Court is limited only to money judgments and not to judgments
for the annulment of a contract or for delivery of real property.

DECISION

MAKASIAR, J :
p

This is an appeal from the order of the Court of First Instance of


Cebu dated March 19, 1966 denying the petition for the
cancellation of an adverse claim registered by the adverse
claimant on the transfer certificate of title of the petitioners.

The adverse claimant, Atty. Alberto B. Fernandez was retained as


counsel by petitioner, Maximo Abarquez, in Civil Case No. R-6573
of the Court of First Instance of Cebu, entitled "Maximo Abarquez
vs. Agripina Abarquez", for the annulment of a contract of sale
with right of repurchase and for the recovery of the land which
was the subject matter thereof. The Court of First Instance of
Cebu rendered a decision on May 29, 1961 adverse to the
petitioner and so he appealed to the Court of Appeals.
Litigating as a pauper in the lower court and engaging the
services of his lawyer on a contingent basis, petitioner, unable to
compensate his lawyer whom he also retained for his appeal,
executed a document on June 10, 1961 in the Cebuano-Visayan
dialect whereby he obliged himself to give to his lawyer or onehalf (1/2) of whatever he might recover from Lots 5600 and 5602
should the appeal prosper. The contents of the document as
translated are as follows:

Cdpr

"AGREEMENT
"KNOW ALL MEN BY THESE PRESENTS:
"That I, MAXIMO ABARQUEZ, plaintiff in Case No. R-6573
of the Court of First Instance of Cebu, make known
through this agreement that for the services rendered by
Atty. Alberto B. Fernandez, who is my lawyer in this case,
if the appeal is won up to the Supreme Court, I promise
and will guarantee that I will give to said lawyer one-half
(1/2) of what I may recover from the estate of my father
in Lots No. 5600 and 5602 which are located at Bulacao,
Pardo, City of Cebu. That with respect to any money
which may be adjudged to me from Agripina Abarquez,
except 'Attorney's Fees', the same shall pertain to me and
not to said lawyer.

"IN WITNESS WHEREOF, I have caused my right


thumbmark to be affixed hereto this 10th of June, 1961,
at the City of Cebu.
THUMBMARK
MAXIMO ABARQUEZ"

(p. 5, Petitioner-Appellant's Brief, p. 26, rec.).


( NATURE OF PROPERTY ) The real property sought to be
recovered in Civil Case No. R-6573 was actually the share of the
petitioner in Lots 5600 and 5602, which were part of the estate of
his deceased parents and which were partitioned among the heirs
which included petitioner Maximo Abarquez and his elder sister,
Agripina Abarquez, the defendant in said civil case.
This PARTITION was made pursuant to a project of partition
approved by the Court which provided, among others, that Lots
Nos. 5600 and 5602 were to be divided into three equal parts,
one third of which shall be given to Maximo Abarquez. However,
Agripina Abarquez claimed the share of her brother, stating that
the latter executed an instrument of pacto de retro prior to the
partition conveying to her any or all rights in the estate of their
parents.
- Petitioner discovered later that the claim of his sister over his
share was based on an instrument he was induced to sign prior to
the partition, an instrument he believed all along to be a mere
acknowledgment of the receipt of P700.00 which his sister gave
to him as a consideration for taking care of their father during the
latter's illness and never an instrument of pacto de retro. Hence,
he instituted an action to annul the alleged instrument of pacto
de retro.

The Court of Appeals in a decision promulgated on August 27,


1963 reversed the decision of the lower court and annulled the
deed of pacto de retro. Appellee Agripina Abarquez filed a motion
for reconsideration but the same was denied in a resolution dated
January 7, 1964 (p. 56, Record on Appeal; p. 13, Rec.) and the
judgment became final and executory on January 22, 1964.

cdrep

Subsequently, Transfer Certificate of Title No. 31841 was issued


on May 19, 1965 in the name of Maximo Abarquez, married to
Anastacia Cabigas, over his adjudged share in Lots Nos. 5600 and
5602 containing an area of 4,085 square meters (p. 110, ROA; p.
13, rec.). These parcels of land later became the subject matter
of the adverse claim filed by the claimant.
**The case having been resolved and title having been issued to
petitioner, adverse claimant waited for petitioner to comply with
his obligation under the document executed by him on June 10,
1961 by delivering the one-half (1/2) portion of the said parcels of
land.
Petitioner refused to comply with his obligation and instead
offered to sell the whole parcels of land covered by TCT No.
31841 to petitioner-spouses Juan Larrazabal and Marta C. de
Larrazabal. ( OFFERED TO SELL TO 3RD PERSON ) = ATTY FILED IN
COURT . Upon being informed of the intention of the petitioner,
adverse claimant immediately took steps to protect his interest
by filing with the trial court a motion to annotate his attorney's
lien on TCT No. 31841 on June 10, 1965 and by notifying the
prospective buyers of his claim over the one-half portion of the
parcels of land.
Realizing later that the motion to annotate attorney's lien was a
wrong remedy, as it was not within the purview of Section 37,
rule 138 of the Revised Rules of Court, but before the same was

denied by the trial court, adverse claimant filed an affidavit of


adverse claim on July 19, 1966 with the Register of Deeds of
Cebu (p. 14, ROA; p. 13, rec.). By virtue of the registration of said
affidavit. the adverse claim for one-half (1/2) of the lots covered
by the June 10, 1961 document was annotated on TCT No. 31841.
( VS) Notwithstanding the annotation of the adverse claim,
petitioner-spouses Maximo Abarquez and Anastacia Cabigas
conveyed by deed of absolute sale on July 29, 1965 two thirds
(2/3 of the lands covered by TCT No. 31841 to petitioner-spouses
Juan Larrazabal and Marta C. de Larrazabal. When the new
transfer certificate of title No. 32996 was issued, the annotation
of adverse claim on TCT No. 31841 necessarily had to appear on
the new transfer certificate of title. This adverse claim on TCT No.
32996 became the subject of cancellation proceedings filed by
herein petitioner-spouses on March 7, 1966 with the Court of First
Instance of Cebu (p. 2, ROA; p. 13, rec.). The adverse claimant,
Atty. Alberto B. Fernandez, filed his opposition to the petition for
cancellation on March 18, 1966 (p. 20, ROA; p. 13, rec.). The trial
court resolved the issue on March 19, 1966, when it declared
that:
". . . the petition to cancel the adverse claim should be
denied. The admission by the petitioners that the lawyers
(Attys. Fernandez and Batiguin) are entitled to only onethird of the lot described in Transfer Certificate of Title No.
32966 is the best proof of the authority to maintain said
adverse claim" (p. 57, ROA; p. 13 rec.).

Petitioner-spouses decided to appeal the order of dismissal to this


Court and correspondingly filed the notice of appeal or April 1,
1966 with the trial court. On April 2, 1966, petitioner-spouses
filed the appeal bond and subsequently filed the record on appeal
on April 6, 1966. The records of the case were forwarded to this

Court through the Land Registration Commission of Manila and


were received by this Court on May 5, 1966.

prLL

Counsel for the petitioner-spouses filed the printed record on


appeal on July 12, 1966. Required to file the appellants' brief,
counsel filed one on August 29, 1966 while that of the appellee
was filed on October 1, 1966 after having been granted an
extension to file his brief.
The case was submitted for decision on December 1, 1966.
Counsel for the petitioners filed a motion to expunge appellees'
brief on December 8, 1966 for having been filed beyond the
reglementary period, but the same was denied by this Court in a
resolution dated February 13, 1967.
( ISSUE ) The pivotal issue to be resolved in the instant case is
the validity or nullity of the registration of the adverse claim of
Atty. Fernandez, resolution of which in turn hinges on the question
of whether or not the contract for a contingent fee, basis
of the interest of Atty. Fernandez, is prohibited by the
Article 1491 of the New Civil Code and Canon 13 of the
Canons of Professional Ethics.
Petitioners contend that a contract for a contingent fee violates
Article 1491 because it involves an assignment of a property
subject of litigation. That article provides:
"Article 1491. The following persons cannot acquire by
purchase even at a public or judicial auction, either in
person or through the mediation of another:
"xxx xxx xxx
"(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of justice,

the property and rights in litigation or levied upon an


execution before the court within whose jurisdiction or
territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment
and shall apply to lawyers, with respect to the property
and rights which may be the object of any litigation in
which they may take part by virtue of their profession"
(emphasis supplied).

This contention is without merit. Article 1491 prohibits only the


sale or assignment between the lawyer and his client, of property
which is the subject of litigation. As WE have already stated "The
prohibition in said article applies only to a sale or assignment to
the lawyer by his client of the property which is the subject of
litigation, In other words, for the prohibition to operate, the sale
or assignment of the property must take place during the
pendency of the litigation involving the property" (Rosario Vda.
de Laig vs. Court of Appeals, et al., L-26882, November 21,
1978).

cdphil

Likewise, under American Law, the prohibition does not apply to


"cases where after completion of litigation the lawyer accepts on
account of his fee, an interest in the assets realized by the
litigation" (Drinker, Henry S., Legal Ethics, p. 100 [1953], citing
App. A, 280; N.Y. Ciu 714). "There is a clear distinction between
such cases and one in which the lawyer speculates on the
outcome of the matter in which he is employed"
(Drinker, supra, p. 100 citing A.B.A. Op. 279).
A contract for a contingent fee is not covered by Article 1491
because the transfer or assignment of the property in litigation
takes effect only after the finality of a favorable judgment. In the
instant case, the attorney's fees of Atty. Fernandez, consisting of
one-half (1/2) of whatever Maximo Abarquez might recover from

his share in the lots in question, is contingent upon the success of


the appeal. Hence, the payment of the attorney's fees, that is,
the transfer or assignment of one-half (1/2) of the property in
litigation will take place only if the appeal prospers. Therefore,
the transfer actually takes effect after the finality of a favorable
judgment rendered on appeal and not during the pendency of the
litigation involving the property in question. Consequently, the
contract for a contingent fee is not covered by Article 1491.
While Spanish civilists differ in their views on the above issue
whether or not a contingent fee contract (quota litis agreement)
is covered by Article 1491 with Manresa advancing that it is
covered, thus:
"Se ha discutido si en la incapacidad de los Procuradores
y Abogados esta incluido el pacto de quota litis. Consiste
este, como es sabido, en la estipulacion de que el
Abogado o el Procurador han de hacer suyos una parte
alicuota de la cosa que se litiga, si la sentencia es
favorable. Con este concepto a la vista, es para nosortros
indudable que el articulo que comentamos no menciona
ese pacto; pero como la incapacidad de los Abogados y
Procuradores se extinede al acto de adquirir por cesion; y
la efectividad del pacto de quota litis implica
necesariamente una cesion, estimamos que con solo el
num. 5x del articulo 1459 podria pedirse con exito la
nulidad de ese pacto tradicionalmente considerado como
ilicito.
"xxx xxx xxx

"Debe tenerse tambien en cuenta, respecto del ultimo


parrafo del articulo 1459, la sentencia del Tribunal

Supreme de 25 de Enero 1902, que delcara que si bien el


procurador no puede adquirir para si los bienes, en
cuanto a los cuales tiene incapacidad, puede adquirirlos
para otra persona en quien no concurra incapacidad
alguna" (Manresa, Comentarios al Codigo Civil Espaol,
Tomo X, p. 110 [4a ed., 1931] emphasis supplied).

Castan, maintaining that it is not covered, opines thus:


"C. Prohibiciones impuestas a las personas encargadas,
mas o menos directamente, de la administracion de
justicia. El mismo art 1.459 del Codigo civil prohibe a
los Magistrados, Jueces, individuos del Ministerio fiscal,
Secretarios de Tribunales y Juzgados y Oficiales de Justicia
adquirir por compra (aunque sea en subasta publica o
judicial por si ni por persona alguna intermedia), 'Los
bienes y derechos que estuviesen en litigio ante el
Tribunal en cuya jurisdiccion on teritorio ejercieran sus
respectivas funciones, extendiendo se esta prohibicion al
acto de adquirir por cesion', y siendo tambien extensiva
'A los Abogados y Procuradores respecto a los bienes y
derechos que fueran objeto del un litigio en que
intervengan por su profesion y oficio.'
"El fundamento de esta prohibicion es clarisimo. No solo
se trata dice Manresa de quitar la ocasion al fraude;
persiguese, ademas, el proposito de rodear a las
personas que intervienen en la administracion de justicia
de todos los prestigios que necesitan para ejercer su
ministerio, librando los de toda sospecha, que, aunque
fuere infundada, redundaria en descredito de la
institucion.

"Por no dar lugar a recelos de ninguna clase, admite el


Codigo (en el apartado penutimo del art. 1.459) algunos
casos en que, por excepcion, no se aplica el principio
prohibitivo de que venimos hablando. Tales son los de
que se trate de acciones hereditarias entre coherederos,
de cesion en pago de creditos, o de garantia de los
bienes que posean los funcionarios de justicia.
'Algunos autores (Goyena, Manresa, Valverde)
creen que en la prohibicion del art. 1.459 esta
comprendido el pacto de quota litis (o sea el
convenio por el cual se concede al Abogado o
Procurador, para el caso de obtener sentencia
favorable, una parte alicuota de la cosa o cantidad
que se litiga), porque dicho pacto supone la venta o
cesion de una parte de la cosa o drecho que es
objecto del litigio. Pero Mucius Scaevolaoberva, con
razon, que en el repetido pacto no hay propiamente
caso de compraventa ni de cesion de derechos, y
bastan para estimario nulo otros preceptos del
Codigo como los relativos a la ilicitud de la causa'"
(Castan, Derecho Civil Espaol, Tomo 4, pp. 68-69,
[9a ed., 1956], emphasis supplied).

The Supreme Court of Spain, in its sentencia of 12 November


1917, has ruled that Article 1469 of the Spanish Civil Code
(Article 1491 of our Civil Code) does not apply to a contract for a
contingent fee because it is not contrary to morals or to law,
holding that:
". . . que no es susceptible de aplicarse el precepto
contenido en el nun. 5 del art. 1.459 a un contrato en el
que se restringen los honorarios de un Abogado a un
tanto por ciento de lo que se obtuviera en el litigio, cosa

no repudiada por la moral ni por la ley" (Tolentino, Civil


Code of the Philippines, p. 36, Vol. V [1959];
Castan, supra; Manresa, supra).

In the Philippines, among the Filipino commentators, only Justice


Capistrano ventured to state his view on the said issue, thus:
"The incapacity to purchase or acquire by assignment,
which the law also extends to lawyers with respect to the
property and rights which may be the object of any
litigation in which they may take part by virtue of their
profession, also covers contracts for professional
services quota litis. Such contracts, however, have been
declared valid by the Supreme Court" (Capistrano, Civil
Code of the Philippines, p. 44, Vol. IV [1951]).

Dr. Tolentino merely restated the views of Castan and Manresa as


well as the state of jurisprudence in Spain, as follows:
"Attorneys-at-law Some writers, like Goyena, Manresa
and Valverde, believe that this article covers quota
litisagreements, under which a lawyer is to be given an
aliquot part of the property or amount in litigation if he
should win the case for his client. Scaevola and Castan,
however, believe that such a contract does not involve a
sale or assignment of rights, but it may be void under
other articles of the Code such as those referring to illicit
cause. On the other hand, the Spanish Supreme Court
has held that this article is not applicable to a contract
which limits the fees of a lawyer to a certain percentage
of what may be recovered in litigation, as this is not
contrary to morals or to law." (Tolentino, Civil Code of the
Philippines, p. 35, Vol. V [1959]; Castan, supra, emphasis
supplied).

Petitioners further contend that a contract for a contingent fee


violates the Canons of Professional Ethics, this is likewise without
merit. This posture of petitioners overlooked Canon 13 of the
Canons which expressly recognizes contingent fees by way of
exception to Canon 10 upon which petitioners relied. For while
Canon 10 prohibits a lawyer from purchasing ". . . any interest in
the subject matter of the litigation which he is conducting",
Canon 13, on the other hand, allows a reasonable contingent fee
contract, thus: "A contract for a contingent fee where sanctioned
by law, should be reasonable under all the circumstances of the
case, including the risk and uncertainty of the compensation, but
should always be subject to the supervision of a court, as to its
reasonableness." As pointed out by an authority on Legal
Ethics:

LexLib

"Every lawyer is intensely interested in the successful


outcome of his case, not only as affecting his reputation,
but also his compensation. Canon 13 specifically permits
the lawyer to contract for a contingent fee which, of
itself, negatives the thought that the Canons preclude the
lawyer's having a stake in his litigation. As pointed out by
Professor Cheatham on page 170 n. of his Case Book,
there is an inescapable conflict of interest between
lawyer and client in the matter of fees. Nor, despite some
statements to the contrary in Committee opinions, is it
believed that, particularly in view of Canon 13, Canon 10
precludes in every case an arrangement to make the
lawyer's fee payable only out of the results of the
litigation. The distinction is between buying an interest in
the litigation as a speculation, which Canon 10
condemns, and agreeing, in a case which the lawyer
undertakes primarily in his professional capacity, to
accept his compensation contingent on the outcome"

(Drinker, Henry S., Legal Ethics, p. 99, [1953], emphasis


supplied).

These Canons of Professional Ethics have already received


"judicial recognition by being cited and applied by the Supreme
Court of the Philippines in its opinion" Malcolm, Legal and Judicial
Ethics, p. 9 [1949]). And they have likewise been considered
sources of Legal Ethics. More importantly, the American Bar
Association, speaking through Chairman Howe of the Ethics
Committee, opined that "The Canons of Professional Ethics are
legislative expressions of professional opinion (A.B.A. Op. 37
[1912])" [See footnote 25, Drinker, Legal Ethics, p. 27]. Therefore,
the Canons have some binding effect.
Likewise, it must be noted that this Court has already recognized
this type of a contract as early as the case of Ulanday vs. Manila
Railroad Co. (45 Phil. 540 [1923]), where WE held that
"contingent fees are not prohibited in the Philippines, and since
impliedly sanctioned by law 'Should be under the supervision of
the court in order that clients may be protected from unjust
charges' (Canons of Professional Ethics)". The same doctrine was
subsequently reiterated in Grey vs. Insular Lumber Co. (97 Phil.
833 [1955]) and Recto vs. Harden (100 Phil. 427 [1956]).
In the 1967 case of Albano vs. Ramos (20 SCRA 171 [1967]), the
attorney was allowed to recover in a separate action her
attorney's fees of one-third (1/3) of the lands and damages
recovered as stipulated in the contingent fee contract. And this
Court in the recent case of Rosario Vda. de Laig vs. Court of
Appeals, et al. (supra), which involved a contingent fee of onehalf (1/2) of the property in question, held that "contingent fees
are recognized in this jurisdiction (Canon 13 of the Canons of
Professional Ethics adopted by the Philippine Bar association in

1917 [Appendix B, Revised Rules of Court]), which contingent


fees may be a portion of the property in litigation."

LexLib

Contracts of this nature are permitted because they redound to


the benefit of the poor client and the lawyer "especially in cases
where the client has meritorious cause of action, but no means
with which to pay for legal services unless he can, with the
sanction of law, make a contract for a contingent fee to be paid
out of the proceeds of the litigation" (Francisco, Legal Ethics, p.
294 [1949], citing Lipscomb vs. Adams 91 S.W. 1046, 1048
[1906]). Oftentimes, contingent fees are the only means by which
the poor and helpless can seek redress for injuries sustained and
have their rights vindicated. Thus:
"The reason for allowing compensation for professional
services based on contingent fees is that if a person could
not secure counsel by a promise of large fees in case of
success, to be derived from the subject matter of the suit,
it would often place the poor in such a condition as to
amount to a practical denial of justice. It not infrequently
happens that person are injured through the negligence
or willful misconduct of others, but by reason of poverty
are unable to employ counsel to assert their rights. In
such event their only means of redress lies in gratuitous
service, which is rarely given, or in their ability to find
some one who will conduct the case for a contingent fee.
That relations of this kind are often abused by speculative
attorneys or that suits of this character are turned into a
sort of commercial traffic by the lawyer, does not destroy
the beneficial result to one who is so poor to employ
counsel" (id., at p. 293, citing Warvelle, Legal Ethics, p.
92, emphasis supplied).

Justice George Malcolm, writing on contingent fees, also stated


that:
". . . the system of contingent compensation has the
merit of affording to certain classes of persons the
opportunity to procure the prosecution of their claims
which otherwise would be beyond their means. In many
cases in the United States and the Philippines, the
contingent fee is socially necessary" (Malcolm, Legal and
Judicial Ethics, p. 55 [1949], italics supplied).

Stressing further the importance of contingent fees, Professor


Max Radin of the University of California, said that:
"The contingent fee certainly increases the possibility
that vexatious and unfounded suits will be brought. On
the other hand, it makes possible the enforcement of
legitimate claims which otherwise would be abandoned
because of the poverty of the claimants. Of these two
possibilities, the social advantage seems clearly on the
side of the contingent fee. It may in fact be added by way
of reply to the first objection that vexatious and
unfounded suits have been brought by men who could
and did pay substantial attorney's fees for that purpose"
(Radin, Contingent Fees in California, 28 Cal. L. Rev. 587,
589 [1940], emphasis supplied).

Finally, a contingent fee contract is always subject to the


supervision of the courts with respect to the stipulated amount
may be reduced or nullified. So that in the event that there is any
undue influence or fraud in the execution of the contract or that
the fee is excessive, the client is not without remedy because the
court will amply protect him. As held in the case of Grey vs.

Insular Lumber Co., supra, citing the case of Ulanday vs. Manila
Railroad Co., supra:

LibLex

"Where it is shown that the contract for a contingent fee


was obtained by any undue influence of the attorney over
the client, or by any fraud or imposition, or that the
compensation is so clearly excessive as to amount to
extortion, the court will in a proper case protect the
aggrieved party."

In the present case, there is no iota of proof to show that Atty.


Fernandez had exerted any undue influence or had perpetrated
fraud on, or had in any manner taken advantage of his client,
Maximo Abarquez. And, the compensation of one-half of the lots
in question is not excessive nor unconscionable considering the
contingent nature of the attorney's fees.
With these considerations, WE find that the contract for a
contingent fee in question is not violative of the Canons of
Professional Ethics. Consequently, both under the provisions of
Article 1491 and Canons 10 and 13 of the Canons of Professional
Ethics, a contract for a contingent fee is valid.
In resolving now the issue of the validity or nullity for the
registration of the adverse claim, Section 110 of the Land
Registration Act (Act 496) should be considered. Under said
section, an adverse claim may be registered only by:
"Whoever claims any part or interest in registered land
adverse to the registered owner, arising subsequent to
the date of the original registration . . . if no other
provision is made in this Act for registering the same . . ."

( INCAB ) The contract for a contingent fee, being valid, vested in


Atty. Fernandez an interest or right over the lots in question the
extent of one-half thereof. Said interest became vested in Atty.

Fernandez after the case was won on appeal because only then
did the assignment of the one half (1/2) portion of the lots in
question became effective and binding. So that when he filed his
affidavit of adverse claim his interest was already an existing
one. There was therefore a valid interest in the lots to registered
in favor of Atty. Fernandez adverse to Maximo Abarquez.
Moreover, the interest or claim of Atty. Fernandez in the lots in
question arose long AFTER THE ORIGINAL REGISTRATION
which took place many years ago. And, there is no other provision
of the Land Registration Act under which the interest or claim
may be registered except as an adverse claim under Section 110
thereof. The interest or claim cannot be registered as an
attorney's charging lien. The lower court was correct in denying
the motion to annotate the attorney's lien. A charging lien under
Section 37, Rule 138 of the Revised Rules of Court is limited only
to money judgments and not to judgments for the annulment of a
contract or for delivery of real property as in the instant case.
Said Section provides that:

LLphil

"Section 37. An attorney shall have a hen upon the funds,


documents and papers of his client which have lawfully
come into his oppossession and may retain the same until
his lawful fees and disbursements have been paid, and
may apply such funds to the satisfaction thereof. He shall
also have a lien to the same extent upon all judgments,
for the payment of money, and executions issued in
pursuance of such judgments, which he has secured in a
litigation of his client . . ." (emphasis supplied).

Therefore, as an interest in registered land, the only adequate


remedy open to Atty. Fernandez is to register such interest as an
adverse claim. Consequently, there being a substantial
compliance with Section 110 of Act 496, the registration of the

adverse claim is held to be valid. Being valid, its registration


should not be cancelled because as WE have already stated, "it is
only when such claim is found unmeritorious that the registration
thereof may be cancelled" (Paz Ty Sin Tei vs. Jose Lee Dy Piao,
103 Phil. 867 [1958]).
The one-half (1/2) interest of Atty. Fernandez in the lots in
question should therefore be respected. Indeed, he has a better
right than petitioner-spouses, Juan Larrazabal and Marta C. de
Larrazabal. They purchased their two thirds (2/3) interest in the
lots in question with the knowledge of the adverse claim of Atty.
Fernandez. The adverse claim was annotated on the old transfer
certificate of title and was later annotated on the new transfer
certificate of title issued to them. As held by this Court:
"The annotation of an adverse claim is a measure
designed to protect the interest of a person over a piece
of real property where the registration of such interest or
right is not otherwise provided for by the Land
Registration Act. and serves as a notice and warning to
third parties dealing with said property that someone is
claiming an interest on the same or a better right than
the registered owner thereof" (Sanchez, Jr. vs. Court of
Appeals, 69 SCRA 332 [1976]; Paz Ty Sin Tei vs. Jose Le Dy
Piao, supra].

Having purchased the property with the knowledge of the


adverse claim, they are therefore in bad faith. Consequently, they
are estopped from questioning the validity of the adverse claim.
WHEREFORE, THE DECISION OF THE LOWER COURT DENYING THE
PETITION FOR THE CANCELLATION OF THE ADVERSE CLAIM
SHOULD BE, AS IT IS HEREBY AFFIRMED, WITH COSTS AGAINST

PETITIONER-APPELLANTS JUAN LARRAZABAL AND MARTA C. DE


LARRAZABAL.
SO ORDERED.
Teehankee (Chairman), Fernandez, Guerrero, De
Castro and Melencio-Herrera, JJ., concur.
(Director of Lands v. Ababa, G.R. No. L-26096, [February 27,
1979], 177 PHIL 467-483)
|||

3.)EPIFANIA SARSOSA VDA. DE BARSOBIA and


PACITA W. VALLAR, petitioners, vs. VICTORIANO
T. CUENCO,respondent.
Leodegario P. Vallar for petitioners.

Filiberto Leonardo for respondent.


SYNOPSIS
A parcel of coconut land was sold in 1936 by its Filipino
owner, petitioner Barsobia, to Ong King Po, a Chinese, and by
the latter to respondent Cuenco, a naturalized Filipino, who took
immediate possession of the land and harvested the fruits
therefrom.
- Petitioner Barsobia later unilaterally repudiated ( REJECTED )
the sale in favor of Ong and RESOLD THE LAND in 1962 to
petitioner Vallar, a Filipino. On
- December 27, 1966, respondent instituted an action for
recovery of possession and ownership against the petitioners
-. Petitioners, in their answer, averred that the sale made in favor
of Ong was in existent and that the deed of sale in his favor was
merely an evidence of indebtedness. The Trial Court dismissed
the complaint and declared petitioner Vallar the lawful owner of
the land. On appeal, the Court of Appeals reversed the decision
and declared respondent Cuenco as the absolute owner. Hence,
the present petition.
On review, the Supreme Court held that although the sale of the
land to a Chinese was void ab initio and the vendee had no rights
of ownership to transmit, the VENDOR IS BARRED FROM
ASSERTING HER CLAIM ON THE LAND -because she is guilty
of laches and the disputed land is already in the hands of a
qualified person. Hence, respondent should be declared the
rightful owner of the property in question.
Judgment of the Court of Appeals affirmed.

SYLLABUS
1. CONSTITUTIONAL LAW; NATIONAL PATRIMONY; SALE OF
LAND TO ALIENS VOID. The sale of the land in question in
1936 by Epifania to Ong King Po, a Chinese, was in existent and
void from the beginning (Art. 1409 (7), Civil Code) because
it was a contract executed against the mandatory provision of the
1933 Constitution, which is an expression of public policy to
conserve lands for the Filipinos.
****2. ID.; ID.; ID.; SUBSEQUENT SALE TO A QUALIFIED
VENDEE VALID; PRECLUDES RECOVERY BY ORIGINAL
VENDOR. The litigated property has been sold by the Chinese
vendee and is now in the hands of a naturalized Filipino, the
respondent. It is no longer owned by a disqualified vendee,
Respondent, as a naturalized citizen, was constitutionally
qualified to own the subject property. There would be no more
public policy to be served in allowing petitioner Epifania to
recover the land as it is already in the hands of a qualified
person.
3. ID.; ID.; ID.; VENDOR HELD GUILTY OF LACHES IN CASE AT BAR.
While strictly speaking, Ong King Po, respondent's vendor had
no rights of ownership to transmit, it is likewise inescapable that
petitioner Epifania had slept on her rights for 26 years from 1936
to 1962. By her long inaction or inexcusable neglect, she should
be held barred from asserting her claim to the litigated property
(Sotto vs. Teves, 86 SCRA 157).
4. CIVIL LAW; DAMAGES; ACTUAL DAMAGES RECOVERABLE IN
CASE AT BAR. The award of actual damages in respondent's
favor of P10,000.00 is justified. Respondent was deprived of the
possession of his land and the enjoyment of its fruits from March,
1962. The Court of Appeals fixed respondent's share of the sale of

copra at P10,000.00 for eight years at four (4) harvests a year.


The accuracy of this finding has not been disputed.
5. LEGAL ETHICS; ATTORNEY'S FEES; WHEN ALLOWED. The
award of attorney's fees and litigation expenses in the sum of
P2,000.00 in respondent's favor is in order considering that both
petitioners compelled respondent to litigate for the protection of
his interests. Moreover, the amount is reasonable.

DECISION

MELENCIO-HERRERA, J :
p

Sought to be reviewed herein is the judgment, dated August 18,


1970, of the Court of Appeals,

rendered in CA-G.R. No. 41318-R,

entitled "Victoriano T. Cuenco, Plaintiff-appellant, versus Epifania


Sarsosa Vda. de Barsobia and Pacita W. Vallar, Defendantsappellees," declaring Victoriano T. Cuenco (now the respondent)
as the absolute owner of the coconut land in question.
The lot in controversy is a one-half portion (on the northern side)
of two adjoining parcels of coconut land located at Barrio
Mancapagao, Sagay, Camiguin, Misamis Oriental (now Camiguin
province), with an area of 29,150 square meters, more or less.

The entire land was OWNED PREVIOUSLY by a certain Leocadia


Balisado, ( ORIGINAL OWNER ) who had sold it to the spouses
Patricio Barsobia (now deceased) and Epifania Sarsosa, one of
the petitioners herein. They are Filipino citizens.
- Epifania Sarsosa, then a widow, sold the land in controversy
to a Chinese, Ong King Po, for the sum of P1,050.00 (Exhibit
"B"). Ong King Po took actual possession and enjoyed the fruits
thereof.

- On August 5, 1961, Ong King Po sold the litigated property to


Victoriano T. Cuenco (respondent herein), a naturalized Filipino,
( CHINESE OWNER SOLD TO QUENCO ) for the sum of P5,000.00
(Exhibit "A"). Respondent immediately took actual possession and
harvested the fruits therefrom.
On March 6, 1962, Epifania "usurped" the controverted property,
and on July 26, 1962, Epifania (through her only daughter and
child, Emeteria Barsobia), sold a one-half (1/2) portion of the land
in question to Pacita W. Vallar, the other petitioner herein (Exhibit
"2").
Epifania claimed that it was not her intention to sell the land
to Ong King Po and that she signed the document of sale merely
to R- evidence her indebtedness to the latter in the amount
of P1,050.00. Epifania has been in possession ever since except
for the portion sold to the other petitioner VALLAR.
On September 19, 1962, respondent filed a Forcible Entry case
against Epifania before the Municipal Court of Sagay, Camiguin.
The case was dismissed for lack of jurisdiction since, as the laws
then stood, the question of possession could not be properly
determined without first settling that of ownership.
On December 27, 1966, respondent instituted before the Court of
First Instance of Misamis Oriental a Complaint for recovery of
possession and ownership of the litigated land, against Epifania
and Pacita Vallar (hereinafter referred to simply as petitioners).
In their Answer below, petitioners insisted that they were the
owners and possessors of the litigated land; that its sale to Ong
King Po, a Chinese, was inexistent and/or void ab initio; and that
the deed of sale between them was only an evidence of Epifania's
indebtedness to Ong King Po.
The trial Court rendered judgment:

"1. Dismissing the complaint with costs against plaintiff


(respondent herein);
"2. Declaring the two Deeds of Sale, Exhibits A and B,
respectively, inexistent and void from the beginning; and
"3. Declaring defendant Pacita W. Vallar as the lawful
owner and possessor of the portion of land she bought
from Emeteria Barsobia (pp. 57, 67, Record.)"

On appeal, the Court of Appeals reversed the aforementioned


Decision and decreed instead that respondent was the owner of
the litigated property, thus:
xxx xxx xxx
In view of all the foregoing considerations, the judgment
appealed from is hereby reversed. In lieu thereof, we
render judgment:
RTC DECISION : (a) Declaring the plaintiff-appellant
Victoriano T. Cuenco the ABSOLUTE OWNER OF the land
in question, with the right of possession thereof;
(b) Ordering the defendants-appellees to restore the
possession of said land to the plaintiff;
(c) Dismissing the defendants' counterclaim;
(d) Condemning the defendants to pay to the plaintiff the
sum of P10,000.00 representing the latter's share from
the sale of copra which he failed to receive since March,
1962 when he was deprived of his possession over the
land, and which defendants illegally appropriated it to
their own use and benefit, plus legal interest from the
filing of the complaint until fully paid; plus P2,000.00
representing expenses and attorney's fees;

(e) Sentencing the defendants to pay the costs.


SO ORDERED."

Following the denial of their Motion for Reconsideration,


petitioners filed the instant Petition for Review on Certiorari with
this Court on January 21, 1971. Petitioners claim that the Court of
Appeals erred:
(CA) "I. . . . when it reversed the judgment of the trial
court declaring petitioner Pacita W. Vallar as the lawful
possessor and owner of the portion of land she purchased
from Emeteria Barsobia, not a party to this case, there
being no evidence against her.
"II. . . . when it included petitioner Pacita W. Vallar to pay
P10,000.00, with legal interest from the filing of the
complaint, representing respondent's share in the harvest
and to pay the costs, there being no evidence against
her.
"III. . . . when it condemned petitioners to pay P2,000.00
representing expenses and attorney's fees, there being
no factual, legal and equitable justification.
"IV. . . . in not applying the rule on pari delicto to the
facts of the case or the doctrine enunciated . . . in the
case of Philippine Banking Corporation vs. Lui She, L17587, September 12, 1967, to . . . Petitioner Epifania
Sarsosa Vda. de Barsobia.
"V. . . . in denying, for lack of sufficient merits,
petitioners' motion for rehearing or reconsideration of its
decision."

As the facts stand, a parcel of coconut land was sold by its Filipino
owner, petitioner Epifania, to a Chinese, Ong King Po, and by the
latter to a naturalized Filipino, ( CUENCO ) respondent herein.
- In the meantime, the Filipino owner had unilaterally
REPUDIATED THE SALE SHE HAD MADE TO THE CHINESE
and had resold the property to another Filipino.
(ISSUE) The basic issue is: Who is the rightful owner of the
property? WON THE RESPONDENT INACB IS THE RIGHTFUL
OWNER , DESPITE ACQUIRING OWNERSHIP TO PROP OF SALE IS
VOID .

HELD:
There should be no question that the sale of the land in question
in 1936 by Epifania to Ong King Po was inexistent and void from
the beginning (Art. 1409 [7], Civil Code)

because it was a

contract executed against the mandatory provision of the 1935


Constitution, which is an expression of public policy to conserve
lands for the Filipinos. Said provision reads:

"Save in cases of hereditary succession, no private


agricultural land shall be transferred or assigned except
to individuals, corporations, or associations, qualified to
acquire or hold lands of the public domain."

Had this been a suit between Epifania and Ong King Po, she could
have been declared entitled to the litigated land on the basis, as
claimed, of the ruling in Philippine Banking Corporation vs. Lui
She,

reading:
". . . For another thing, and this is not only cogent but
also important. Article 1416 of the Civil Code provides as

an exception to the rule on pari delicto that when the


agreement is not illegal per se but is merely prohibited,
and the prohibition by the law is designed for the
protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he has sold or
delivered . . . "

But the factual set-up has changed. The litigated property is now
in the hands of a naturalized Filipino. It is no longer owned by a
disqualified vendee. Respondent, as a naturalized citizen, was
constitutionally qualified to own the subject property. There would
be no more public policy to be served in allowing petitioner
Epifania to recover the land as it is already in the hands of a
qualified person. Applying by analogy the ruling of this Court in
Vasquez vs. Giap and Li Seng Giap & Sons:

". . . if the ban on aliens from acquiring not only


agricultural but also urban lands, as construed by this
Court in the Krivenko case, is to preserve the nation's
lands for future generations of Filipinos, that aim or
purpose would not be thwarted but achieved by making
lawful the acquisition of real estate by aliens who became
Filipino citizens by naturalization."

While, strictly speaking, ONG KING PO, PRIVATE


RESPONDENT'S VENDOR, HAD NO RIGHTS OF OWNERSHIP
TO TRANSMIT, IT IS LIKEWISE INESCAPABLE THAT
PETITIONER EPIFANIA HAD SLEPT ON HER RIGHTS FOR 26
YEARS FROM 1936 TO 1962. BY HER LONG INACTION OR
INEXCUSABLE NEGLECT, SHE SHOULD BE HELD BARRED
FROM ASSERTING HER CLAIM TO THE LITIGATED
PROPERTY (Sotto vs. Teves, 86 SCRA 157 [1978]).

( D) "Laches has been defined as the failure or neglect,


for an unreasonable and unexplained length of time, to
do that which by exercising due diligence could or should
have been done earlier; it is negligence or omission to
assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has
abandoned it or declined to assert it. (Tijam, et al. vs.
Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA
29, 35)." (cited in Sotto vs. Teves, 86 SCRA [1978]).

Respondent, therefore, must be declared to be the rightful owner


of the property.

LexLib

The award of actual damages in respondent's favor of


P10,000.00, as well as of attorney's fees and expenses of
litigation of P2,000.00, is justified. Respondent was deprived of
the possession of his land and the enjoyment of its fruits from
March, 1962. The Court of Appeals fixed respondent's share of
the sale of copra at P10,000.00 for eight years at four (4)
harvests a year. The accuracy of this finding has not been
disputed.
However, we find merit in the assigned error that petitioner,
Pacita Vallar, should not be held also liable for actual damages to
respondent. In the absence of contrary proof, she, too, must be
considered as a vendee in good faith of petitioner Epifania.
The award of attorney's fees and litigation expenses in the sum of
P2,000.00 in respondent's favor is in order considering that both
petitioners compelled respondent to litigate for the protection of
his interests. Moreover, the amount is reasonable.

10

WHEREFORE, except for that portion holding petitioner, Pacita W.


Vallar, also liable for damages of P10,000.00, the appealed
judgment is hereby affirmed.

4.) NATIVIDAD HERRERA, assisted by her


husband EMIGDIO SALAZAR, plaintiffsappellants, vs. LUY KIM GUAN and LINO
BANGAYAN, defendants-appellees.
T. de los Santos for plaintiffs-appellants.
Rafael C. Climaco and Abelardo S. Fernandez for defendantsappellees.
SYLLABUS
1. AGENCY; DEATH OF PRINCIPAL, EFFECT OF. The death of the
principal does not render the act of an agent unenforceable,
WHERE THE LATTER HAD NO KNOWLEDGE OF SUCH
EXTINGUISHMENT OF THE AGENCY. (Article 1738, Old Civil
Code.)

2. REGISTERED LANDS; SALE TO AN ALIEN AND THEN BY THE


LATTER TO A FILIPINO CITIZEN. Although the property in
question was sold to a Chinese citizen but later on, the same
property was acquired by a Filipino citizen, who obtained a new
transfer certificate of title therefor, the VALIDITY OF THE TITLE
THUS OBTAINED CAN NO LONGER BE QUESTIONED AFTER THE
LAPSE OF THE PERIOD WITHIN WHICH IT MAY BE IMPUGNED.
3. ATTORNEY'S FEES; ABSENCE OF STIPULATION; WHEN WINNING
PARTY ENTITLED TO ATTORNEY'S FEES. In the absence of
stipulation, a winning party may be awarded attorney's fees only
in case the plaintiff's action or defendant's stand is so untenable
as to amount to gross and evident bad faith. Whereas in the case
at bar, the complaint was filed in good faith, attorney's fees
cannot be awarded to defendants simply because the judgment
was favorable to them and adverse to plaintiff, for it may amount
to imposing a premium on the right to redress grievances in
court.
4. EXPENSES OF LITIGATION; WHEN WINNING PARTY ENTITLED TO
THE SAME. A winning party may be entitled to expenses of
litigation only where he, by reason of plaintiff's clearly
unjustifiable claims or defendant's unreasonable refusal to his
demands, was compelled to incur said expenditures.

DECISION

BARRERA, J :
p

This is an appeal from the decision of the Court of First Instance


of Zamboanga City (a) dismissing plaintiff-appellant's complaint
for the recovery of three (3) parcels of land and their produce in

the sum of P320,000.00; and (b) instead, sentencing plaintiff to


pay P2,000.00 for attorney's fees and P1,000.00 for expenses of
litigation, to defendant Lino Bangayan, and P2,000.00 as
attorney's fees and P500.00 as expenses of litigation, to the other
defendant Luy Kim Guan.
The pertinent facts as found by the trial court and upon which its
decision was predicated are set forth in the following portion of
the decision appealed from:
"The plaintiff Natividad Herrera is the legitimate daughter
of Luis Herrera, now deceased and who died in China
sometime after he went to that country in the last part of
1931 or early part of 1932. The said Luis Herrera in his
lifetime was the owner of three (3) parcels of land and
their improvements, known as Lots 1740, 4465 and 4467
of Expediente No. 5, G.L.R.O. Record 477 and the area,
nature, improvements and Boundaries of each and every
of these three (3) lots are sufficiently described in the
complaint filed by the plaintiffs.
- "Before leaving for China, however, Luis Herrera
executed on December 1, 1931, A DEED OF
GENERAL POWER OF ATTORNEY, Exhibit 'B', which
authorized and empowered the DEFENDANT LUY KIM
GUAN ( AGENT SELLER ) , AMONG OTHERS TO
ADMINISTER AND SELL THE PROPERTIES OF SAID
LUIS HERRERA.
"Lot 1740 was originally covered by Original Certificate of
Title 8601 registered in the name of Luis Herrera, married
to Go Bang. This lot was sold by the defendant Luy
Kim Guan in his capacity as attorney-in-fact of the
deceased Luis Herrera to LUY CHAY on September

11, 1939, as shown in Exhibit '2', the corresponding deed


of sale. Transfer Certificate of Title No. 3162, Exhibit '3',
was issued to Luy Chay by virtue of said deed of sale. On
August 28, 1941, to secure a loan of P2,000.00, a deed of
mortgage to the Zamboanga Mutual Building and Loan
Association was executed by Luy Chay, Exhibit '4'. On
January 31, 1947, the said Luy Chay executed a deed of
sale, Exhibit 'E', in favor of Lino Bangayan. By virtue of
this sale, Transfer Certificate of Title T-2567 was issued to
Lino Bangayan on June 24, 1949, Exhibit '1'.
"Lots 4465 and 4467 were originally registered in the
name of Luis Herrera, married to Go Bang, under Original
Certificate of Title No. 0-14360, Exhibit '5'. On December
1, 1931, Luis Herrera sold one- half (1/2) undivided share
and to Luis Herrera and Go Bang, the other half (1/2), as
shown Exhibit '12' and Exhibit '12-A', the latter an
annotation made by the Register of Deeds of the City of
Zamboanga, in which it is stated as follows:
'Cancelado el presente Certificado en virtud de una
escritura de traspaso y en su lugar se ha expedido el
Certificado de Titulo No. 494-(T-13045) del Tomo 2 el
Libro de Certificados de Transferencias.'
(Fdo.) R. D. MACROHON
Registrador de Titulos
Ciudad de Zamboanga"
"On July 23, 1937, Luis Herrera thru his attorney-in-fact
Luy Kim Guan, one of the defendants, SOLD TO
NICOMEDES SALAZAR his one-half 1/2 participation in
these two (2) lots, as shown in Exhibit 'C', the
corresponding deed of sale for P3,000.00. Transfer

Certificate of Title No. T-494-(T-13045) was issued to


Nicomedes Salazar and to the defendant Luy Kim Guan,
Exhibit '7'. On August 4, 1936, the defendant Luy Kim
Guan and =Nicomedes Salazar executed a DEED OF
MORTGAGE in favor of the Bank of the Philippine Island to
secure a loan of P3,500.00, Exhibit '6'. On August 17,
1937,
- the defendant Luy Kim Guan and Nicomedes Salazar
sold Lot 4465 to Carlos Eijan SANTOS for the sum of
P100.00 as shown in Exhibits '9', corresponding deed of
sale, and Transfer Certificate of Title No. T-2653 was
issued on September 7, 1939 to Carlos Eijasantos Exhibit
'10'. Nicomedes Salazar sold his half 1/2 interest on Lot
4467 to the defendant Lino Bangayan for P3,000.00 on
February 22, 1949, Exhibit 'B', and the corresponding
Transfer Certificate of Title T-2654 was issued to Lino
Bangayan and to Luy Kim Guan, both are co-owners in
equal shares, Exhibits '8'. opinion of the City Attorney,
Exhibit 'p', and an affidavit of Atty. Jose T. Atilano, Exhibit
'O', state that Lino Bangayan is a Filipino citizen.
"As admitted by both parties (plaintiffs and defendants)
Luis Herrera is now deceased, but as to the specific and
precise date of his death the evidence of both parties
failed to show."

It is the contention of plaintiff-appellant that all the transactions


mentioned in the preceding quoted portion of the decision were
fraudulent and were executed after the death of Luis Herrera and,
consequently, when the power of attorney was no longer
operative.

It is also claimed that the defendants Lino Bangayan and Luy


Kim Guan who now claim to be the owners of Lots Nos. 1740 and
4467 are Chinese by nationality and, therefore, are
disqualified to acquire real properties.
- Plaintiff-appellant, in addition, questions the supposed deed of
sale allegedly executed by Luis Herrera on December 1, 1931 in
favor of defendant Luy Kim Guan, conveying one-half interest on
the two lots, Nos. 4465 and 4467, asserting that what was
actually executed on that date, jointly with the general power of
attorney, was a lease contract over the same properties for
a period of 20 years for which Luy Kim Guan paid the sum
of P2,000.00.

ISSUE : WON The death of the principal does not render the act of
an agent unenforceable

HELD :
We find all the contentions of plaintiff-appellant untenable.
Starting with her claim that the second deed executed on
December 1, 1931 by Luis Herrera was a lease contract instead of
a deed of sale as asserted by defendant Luy Kim Guan, we find
that the only evidence in support of her contention is her own
testimony and that of her husband to the effect that the
deceased Luis Herrera showed the said document to them, and
they remembered the same to be a lease contract on the three
properties for a period of 20 years in consideration of P2,000.00.
Their testimony was sought to be corroborated by the declaration
of the clerk of Atty. Enrique A. Fernandez, who allegedly notarized
the document. Outside of this oral testimony, given more than 23
years after the supposed instrument was read by them, no other

evidence was adduced. On the other hand, defendant Luy Kim


Guan produced in evidence a certification

signed by the

Register of Deeds of Dipolog, Zamboanga (Exh. 11) to the effect


that a deed of sale, dated December 1, 1931, was executed by
Luis Herrera in favor of Luy Kim Guan and entered in the primary
Book No. 4 as duly registered on September 30,1936 under
Original Certificate of Title No. 14360. It is to be noted that the
deed of sale was registered shortly after the issuance in the name
of Luis Herrera of Original Certificate of Title No. 14360 pursuant
to Decree No. 59093, covering the two lots, Nos. 4465 and 4467
(Exh. 5), dated April 7, 1936. In virtue of said deed of sale of
December 1, 1931, Original Certificate of Title No. 14360 was
cancelled and Transfer Certificate of Title No. 13045 (Exh. 12) in
the names of the conjugal partnership of the spouses Luis Herrera
and Go Bang, one-half share, and Luy Kim Guan, single, one-half
share, was issued on September 30, 1936. Later, or on July 23,
1937, Luy Kim Guan, in his capacity as attorney-in-fact of Luis
Herrera, sold the half interest of the latter in the two parcels of
land, in favor of Nicomedes Salazar, whereupon TCT No. 13045
was cancelled and TCT No. RT-657 (494-T-13045) (Exh. 7) was
issued in the names of Luy Kim Guan and Nicomedes Salazar in
individual equal shares. On August 4, 1937, both Luy Kim Guan
and Nicomedes Salazar mortgaged the two parcels in favor of the
Bank of the Philippine Islands for the sum of P3,500.00 (Exh. 6).
On August 17, 1937, Nicomedes Salazar and Luy Kim Guan sold
their respective shares in Lot No. 4465 to Carlos Eijansantos (Exh.
9), subject to the mortgage, resulting in the issuance of TCT No.
2653 (Exh. 10) covering the entire lot No. 4465 in the name of
said Carlos Eijansantos. On February 23, 1949, Nicomedes
Salazar sold his half share in Lot No. 4467 to Lino Bangayan, as a
consequence of which, TCT No. 2654 (Exh. B) was issued covering

said Lot No. 4467 in the names of Luy Kim Guan and Lino
Bangayan in undivided equal shares.

With respect to Lot No. 1740, the same was sold by Luy Kim
Guan, in his capacity as attorney-in-fact of Luis Herrera, on
September 11, 1939 to Lui Chay (See Exh. 2) who, in August,
1941, mortgaged the same (Exh. 4) to the Zamboanga Mutual
Loan and Building Association (See TCT No. 3162 [Exh. 3] issued
in the name of Lui Chay). Later on, Lui Chay sold the entire lot to
defendant Lino Bangayan by virtue of the deed of sale dated
January 31, 1947 (Exh. E), and as a consequence thereof, TCT No.
2567 was issued in the name of said vendee. (See Exh. 1). As a
result of these various transactions, duly recorded in the
corresponding office of the Register of Deeds, and covered by
appropriate transfer certificates of title, the properties are now
registered in the following manner: Lot No. 1740, in the name of
Lino Bangayan; Lot No. 4465, in the name of Carlos Eijansantos;
and Lot No. 4467, in the names of Lino Bangayan and Luy Kim
Guan in undivided equal shares.
In the face of these documentary evidence presented by the
defendants, the trial court correctly upheld the contention of the
defendants as against that of plaintiff-appellant who claims that
the second deed executed by Luis Herrera in 1931 was A LEASE
CONTRACT. It is pertinent to note what the lower court stated in
this regard, that is, if the second deed executed by Luis Herrera
was a lease contract covering the 3 lots in question for a period
of twenty (20) years, there would have been no purpose for him
to constitute Luy Kim Guan as his attorney-in-fact to administer
and take charge of the same properties already covered by the
lease contract.

Coming now to the contention that these transactions are null


and void and of no effect because they were executed by the
attorney-in- fact after the death of his principal, suffice it to say
that as found by the lower court, the date of death of Luis Herrera
has not been satisfactorily proven. The only evidence presented
by the plaintiff- appellant in this respect is a supposed letter
received from a certain "Candi", dated at Amoy in November,
1936, purporting to give information that Luis Herrera (without
mentioning his name) had died in August of that year. This piece
of evidence was properly rejected by the lower court for lack of
identification. On the other hand, we have the testimony of the
witness Lu Chung Lian to the effect that when he was in Amoy in
the year 1940, Luis Herrera visited him and had a conversation
with him, showing that the latter was still alive at the time. Since
the documents had been executed by the attorney-in- fact one in
1937 and other in 1939, it is evident, if we are to believe this
testimony, that the documents were executed during the lifetime
of the principal. Be that as it may, even granting arguendo that
Luis Herrera did die in 1936, plaintiffs presented NO PROOF and
there is no indication in the record, that the agent Luy Kim
Guan was aware of the death of his principal at the time
he sold the property. The death of the principal does not
render the act of an agent unenforceable, where the latter had no
knowledge of such extinguishment of the agency.

Appellants also raise the question of the legality of the titles


acquired by Lui Chay and Lino Bangayan, on the ground that they
are disqualified to acquire real properties in the Philippines. This
point is similarly without merit because there is no evidence to
support the claim. In fact, in the deed of sale as well as in TCT No.
3162 issued to Lui Chay, the latter was referred to as a citizen of
the Philippines. Nevertheless, the lower court acknowledged the
probability that Lui Chay could have been actually a Chinese

citizen.

At any rate, the property was subsequently purchased

by Lino Bangayan, as a result of which TCT No. 3162 in the name


of Lui Chay was cancelled and another certificate (TCT No. T2567) was issued in favor of said vendee.
As to Bangayan's qualification, the lower court held that said
defendant had sufficiently established his Philippine citizenship
through Exhibit P, concurred in by the Secretary of Justice. We
find no reason to disturb such ruling.
With respect to Luy Kim Guan, while it is true that he is a Chinese
citizen, nevertheless, inasmuch as he acquired his one-half share
in Lot No. 4467 in 1931, long before the Constitution was
adopted, his ownership can not be attacked on account of his
citizenship.
Appellants, in this appeal, contest the judgment of the court
a quo awarding defendants Lino Bangayan and Luy Kim Guan
attorney's fees in the sum of P2,000.00 each, and expenses of
litigation in the amounts of P1,000.00 and P500.00, respectively.
We agree with the appellant in this regard.
This Court has laid down the rule that in the absence of
stipulation, a winning party may be awarded attorney's fees only
in case plaintiff's action or defendant's stand is so untenable as
to amount to gross and evident bad faith.

The same thing,

however, can not be said of the case at bar. As a matter of fact,


the trial court itself declared that the complaint was filed in good
faith. Attorney's fees, therefore, can not be awarded to
defendants simply because the judgment was favorable to them
and adverse to plaintiff, for it may amount to imposing a
premium on the right to redress grievances in court. And so with
expenses of litigation. A winning party may be entitled to
expenses of litigation only where he, by reason of plaintiff's

clearly unjustifiable claims or defendant's unreasonable refusal to


his demands, was compelled to incur said expenditures.
Evidently, the facts of this case do not warrant the granting of
such litigation expenses to defendants. In the absence of proof,
that the action was intended for reasons other than honest, we
may agree with the trial court that the same must have been
instituted by plaintiffs in their belief that they have a valid cause
against the defendants.
WHEREFORE, and with the above modification, the decision
appealed from is hereby affirmed in all other respects, without
prejudice to appellants' right to demand from the agent (Luy Kim
Guan) an accounting of the proceeds of the agency, if such right
is still available. No costs. So ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador,
Concepcion, Reyes, J.B.L., Paredes and Dizon, JJ., concur.
(Herrera v. Luy Kim Guan, G.R. No. L-17043, [January 31, 1961],
110 PHIL 1020-1028)
|||

5.)VICENTE

GODINEZ, ET AL., plaintiffs-

appellants, vs. FONG PAK LUEN, ET

AL., defendants, TRINIDAD S.


NAVATA, defendant-appellee.
Dominador Sobrevinas for plaintiffs-appellants.
Muss S. Inquerto for defendant-appellee.
SYLLABUS
1. CONSTITUTIONAL LAW; PATRIMONY OF THE NATIONS;
PROHIBITION AGAINST ACQUISITION BY ALIENS OF PRIVATE,
AGRICULTURAL OR RESIDENTIAL LANDS; CASE AT BAR. There
can be no dispute that the sale in 1941 by Jose Godinez of his
residential lot acquired from the Bureau of Lands as part of the
Jolo townsite to Fong Pak Luen, a Chinese citizen, was violative of
Section 5, Article XIII of the 1935 Constitution which was fully
discussed in Krivenko v. Register of Deeds of Manila (79 Phil.
461). Said case also detailed the evolution of the provision in the
public land laws, Act No. 2874 andCommonwealth Act No. 141.
2. ID.; ID.; ID.; A DECLARATION OF AN IMPERATIVE
CONSTITUTIONAL POLICY. THE KRIVENKO RULING that "under
theConstitution aliens may not acquire private or agricultural
lands, including residential lands," is a declaration of an
imperative constitutional policy.
3. ID.; ID.; ID.; PRESCRIPTION; EFFECT ON THE PROHIBITED
CONTRACT; CASE AT BAR. PRESCRIPTION MAY NEVER BE
INVOKED TO DEFEND THAT WHICH
THE CONSTITUTION PROHIBITS. Insofar as the vendee is
concerned, prescription is unavailing but neither can the vendor
or his heirs rely on an argument base on imprescriptibility
because the land sold in 1941 is now in the hands of a Filipino
citizen against whom the constitutional prescription was never

intended to apply. From the fact that prescription may not be


used to defend a contract which the Constitution prohibits, it
does not necessarily follow that the appellants may be allowed to
recover the property sold to an alien, in line with the ruling of this
Court in Vasquezv. Li Seng Giap and Li Seng Giap & Sons (96 Phil.
447) and reiterated in Herrera v. Luy Kim Guan (1 SCRA 406) and
Sarsosa vda. de Barsobia v. Cuenco (113 SCRA 547). Neither can
appellants find solace from Philippine Banking Corporation v. Lui
She (21 SCRA 52) which relaxed the pari delicto doctrine to allow
the heirs or successors-in-interest, in appropriate cases to
recover that which their predecessors sold to aliens.

DECISION

GUTIERREZ, JR., J :
p

The plaintiffs filed this case to recover a parcel of land sold by


their father, now deceased, to Fong Pak Luen, an alien, on the
ground that the sale was null and void ab initio since it violates
applicable provisions of the Constitution and the Civil Code.

cdrep

The order of the Court of First Instance of Sulu dismissing the


complaint was appealed to the Court of Appeals but the latter
court certified the appeal to us since only pure questions of law
were raised by the appellants.
The facts of the case were summarized by the Court of Appeals
as follows:
"On September 30, 1966, the plaintiffs filed a complaint
in the Court of First Instance of Sulu alleging among
others that they are the heirs of Jose Godinez who was
married to Martina Alvarez Godinez sometime in 1910;

that during the marriage of their parents the said parents


acquired a parcel of land lot No. 94 of Jolo townsite with
an area of 3,665 square meters as evidenced by Original
Certificate of Title No. 179 (D - 155) in the name of
Jose Godinez; that their mother died sometime in 1938
leaving the plaintiffs as their sole surviving heirs; that on
November 27, 1941, without the knowledge of the
plaintiffs, the said Jose Godinez, for valuable
consideration sold the aforesaid parcel of land to the
defendant Fong Pak Luen, a Chinese citizen, which
transaction is contrary to law and in violation of the Civil
Code because the latter being an alien who is inhibited by
law to purchase real property; that Transfer Certificate
Title No. 884 was then issued by the Register of Deeds to
the said defendant, which is null and void ab initio since
the transaction constituted a non-existent contract; that
on January 11, 1963,
- said defendant Fong Pak Luen executed a power of
attorney in favor of his co-defendant Kwan Pun Ming, also
an alien, who conveyed and sold the above described
parcel of land to co-defendant TRINIDAD S. NAVATA,
who is aware of and with full knowledge
that Fong PakLuen is a Chinese citizen as well as
Kwan Pun Ming, who under the law are prohibited
and disqualified to acquire real property in this
jurisdiction; that defendant Fong Pak Luen has not
acquired any title or interest in said parcel of land as the
purported contract of sale executed by
Jose Godinez alone was contrary to law and considered
non-existent, so much so that the alleged attorney-infact, defendant Kwan Pun Ming had not conveyed any

title or interest over said property and defendant Navata


had not acquired anything from said grantor and as a
consequence Transfer Certificate of Title No. 1322, which
was issued by the Register of Deeds in favor of the latter
is null and void ab initio;that since one-half of the said
property is conjugal property inherited by the plaintiffs
from their mother, JoseGodinez could not have legally
conveyed the entire property; that notwithstanding
repeated demands on said defendant to surrender to
plaintiffs the said property she refused and still refuses to
do so to the great damage and prejudice of the plaintiffs;
and that they were constrained to engage the services of
counsel in the sum of P2,000.00.
The plaintiffs thus pray that they be adjudged as the
owners of the parcel of land in question and that Transfer
Certificate of Title RT-90 (T-884) issued in the name of
defendant Fong Pak Luen be declared null and
void ab initio;and that the power of attorney issued
in the name of Kwan Pun Ming, as well as Transfer
Certificate of Title No. 1322 issued in the name of
defendant Navata be likewise declared null and
void, with costs against defendants.
"On August 18, 1966, the defendant Register of Deeds
filed an answer claiming that he was not yet the register
of deeds then; that it was only the ministerial duty of his
office to issue the title in favor of the defendant Navata
once he was determined the registerability of the
documents presented to his office.
"On October 20, 1966, the defendant Navata filed her
answer with the affirmative defenses and counterclaim
alleging among others that the complaint does not state

a cause of action since it appears from the allegation that


the property is registered in the name of Jose Godinez so
that as has sole property he may dispose of the same;
that the cause of action has been barred by the statute of
limitations as the alleged document of sale executed by
JoseGodinez on November 27, 1941, conveyed the
property to defendant Fong Pak Luen as a result of which
a title was issued to said defendant; that under Article
1144 (1) of the Civil Code, an action based upon a written
contract must be brought within 10 years from the time
the right of action accrues; that the right of action
accrued on November 27, 1941 but the complaint was
filed only on September 30, 1966, beyond the 10-year
period provided for by law; that the torrens title in the
name of defendant Navata is indefeasible who acquired
the property from defendant Fong PakLuen who had been
in possession of the property since 1941 and thereafter
defendant Navata had possessed the same for the
last 25 years including the possession
of Fong Pak Luen; that the complaint is intended to
harass the defendant as a civic leader and respectable
member of the community as a result of which she
suffered moral damages of P100,000.00, P2,500.00 for
attorney's fees and P500.00 expenses of litigation, hence,
said defendant prays that the complaint be dismissed and
that her counterclaim be granted, with costs against the
plaintiffs. On November 24, 1967, the plaintiffs filed an
answer to the affirmative defenses and counter-claim. As
the defendantsFong Pak Luen and Kwan Pun Ming are
residing outside the Philippines, the trial court upon
motion issued an order of April 17, 1967, for the service

of summons on said defendants by publication. No


answer has been filed by said defendants.
"On December 2, 1967, the court issued an order as
follows:
"'Both parties having agreed to the
suggestion of the Court that they submit their
supplemental pleadings to support both motion and
opposition and after submittal of the same the said
motion to dismiss which is an affirmative defense
alleged in the complaint is deemed submitted.
Failure of both parties or either party to submit their
supplemental pleadings on or about December 9,
the Court will resolve the case.'
"On November 29, 1968, the trial court issued an order
dismissing the complaint without pronouncement as to
costs. (Record on Appeal, pp. 31-37). A motion for
reconsideration of this order was filed by the plaintiffs on
December 12, 1968, which was denied by the trial court
in an order of July 11, 1969, (Rec. on Appeal, pp. 38, 43,
45, 47). The plaintiffs now interpose this appeal with the
following assignments of errors:
I. The trial court erred in dismissing plaintiffsappellants' complaint on the ground of prescription
of action, applying Art. 1144 (1) New Civil Code on
the basis of defendant Trinidad S. Navata's
affirmative defense of prescription in her answer
treated as a motion to dismiss.
II. The trial court erred in denying plaintiffsappellants' motion for reconsideration of the order
of dismissal.

III. The trial court erred in not ordering this


case to be tried on the merits."

The appellants contend that the lower court erred in dismissing


the complaint on the ground that their CAUSE OF ACTION HAS
PRESCRIBED. While the issue raised appears to be only the
applicability of the law governing prescription, the real question
before us is
ISSUE : whether or not the heirs of a person who sold a parcel of
land to an alien in violation of a constitutional prohibition may
recover the property if it had, in the meantime, been conveyed to
a Filipino citizen qualified to own and possess it.

The question is not a novel one. Judicial precedents indicate fairly


clearly how the question should be resolved.
There can be no dispute that the sale in 1941 by Jose Godinez of
his residential lot acquired from the Bureau of Lands as part of
the Jolo townsite to Fong Pak Luen, a Chinese citizen residing in
Hongkong, was violative of Section 5, Article XIII of the 1935
Constitution which provided:
Sec. 5. Save in cases of hereditary succession, no private
agricultural land will be transferred or assigned except to
individuals, corporations, or associations qualified to
acquire or hold lands of the public domain in the
Philippines.

The meaning of the above provision was fully discussed


in Krivenko v. Register of Deeds of Manila (79 Phil. 461) which
also detailed the evolution of the provision in the public land
laws, Act No. 2874 and Commonwealth Act No. 141.
The Krivenkoruling that "under the Constitution aliens may not

acquire private or agricultural lands, including residential lands"


is a declaration of an imperative constitutional policy.
Consequently, prescription may never be invoked to defend that
which the Constitution prohibits. However, we see no necessity
from the facts of this case to pass upon the nature of the contract
of sale executed by Jose Godinez and Fong Pak Luen - whether
void ab initio, illegal per se, or merely prohibited. *It is enough to
stress that insofar as the vendee is concerned, prescription is
unavailing. BUT NEITHER CAN THE VENDOR OR HIS HEIRS
RELY ON AN ARGUMENT BASED ON IMPRESCRIPTIBILITY
BECAUSE THE LAND SOLD IN 1941 IS NOW IN THE HANDS
OF A FILIPINO CITIZEN AGAINST WHOM THE
CONSTITUTIONAL PRESCRIPTION WAS NEVER INTENDED
TO APPLY. The lower court erred in treating the case as one
involving simply the application of the statute of limitations.

LLpr

From the fact that prescription may not be used to defend a


contract which the Constitution prohibits, IT DOES NOT
NECESSARILY FOLLOW THAT THE APPELLANTS MAY BE ALLOWED
TO RECOVER THE PROPERTY SOLD TO AN ALIEN.
- As earlier mentioned, FongPak Luen, the disqualified alien
vendee later sold the same property to Trinidad S. Navata, a
Filipino citizen qualified to acquire real property.
In Vasquez v. Li Seng Giap and Li Seng Giap & Sons (96 Phil. 447),
where the alien vendee later sold the property to a Filipino
corporation, this Court, in affirming a judgment dismissing the
complaint to rescind the sale of real property to the defendant Li
Seng Giap on January 22, 1940, on the ground that the vendee
was an alien and under the Constitutionincapable to own and
hold title to lands, held:

"In Caoile vs. Yu Chiao, 49 Off. Gaz., 4321;


Talento vs. Makiki, 49 Off. Gaz., 4331; Bautista vs. Uy 49
Off. Gaz., 4336; Rellosa vs. Gaw Chee, 49 Off. Gaz., 4345
and Mercado vs. Go Bio, 49 Off. Gaz., 5360, the majority
of this Court has ruled that in sales of real estate to aliens
incapable of holding title thereto by virtue of the
provisions of theConstitution (Section 5, Article XIII;
Krivenko vs. Register of Deeds, 44 Off. Gaz., 471) both
the vendor and the vendee are deemed to have
committed the constitutional violation and being thus in
pari delicto the courts will not afford protection to either
party. (Article 1305, old Civil Code; Article 1411, new Civil
Code) From this ruling three Justices dissented. (Mr.
Justice Pablo, Mr. Justice Alex. Reyes and the
writer. See Caoile vs. Yu Chiao, Talento vs. Makiki,
Bautista vs. Uy, Rellosa vs. Gaw Chee and Mercado vs. Go
Bio, supra.
"The action is not of rescission because it is not
postulated upon any of the grounds provided for in Article
1291 of the old Civil Code and because the action of
rescission involves lesion or damage and seeks to repair
it. It is an action for annulment under Chapter VI, Title II,
Book II, on nullity of contracts, based on a defect in the
contract which invalidates it independently of such lesion
or damages. (Manresa, Commentarios al Codigo Civil
Espaol, Vol. VIII, p. 698, 4th ed.) It is very likely that the
majority of this Court proceeded upon that theory when it
applied the in pari delicto rule referred to above.
"In the United States the rule is that in a sale of real
estate to an alien disqualified to hold title thereto the
vendor divests himself of the title to such real estate and

has no recourse against the vendee despite the latter's


disability on account of alienage to hold title to such real
estate and the vendee may hold it against the whole
world except as against the State. It is only the State that
is entitled by proceedings in the nature of office found to
have a forfeiture or escheat declared against the vendee
who is incapable of holding title to the real estate sold
and conveyed to him, (Abrams vs. State, 88 Pac. 327;
Craig vs. Leslie et al., 4 Law, Ed. 460; 3 Wheat, 563, 589590; Cross vs. Del Valle, 1 Wall, [U.S.] 513; 17 Law. Ed.,
515; Governeur vs. Robertson, 11 Wheat, 332, 6 Law. Ed.,
488.)
"However, if the State does not commence such
proceedings and in the meantime the alien becomes
naturalized citizen, the State is deemed to have waived
its right to escheat the real property and the title of the
alien thereto becomes lawful and valid as of the date of
its conveyance or transfer to him. (Osterman vs. Baldwin,
6 Wall, 116, 18 Law. ed. 730; Manuel vs. Wulff, 152 U.S.
505, 38 Law. ed. 532; Pembroke vs. Houston, 79, SW 470;
Fioerella vs. Jones, 259 SW 782. The rule in the United
States that in a sale of real estate to an alien disqualified
to hold title thereto, the vendor divests himself of the title
to such real estate and is not permitted to sue for the
annulment of his contract, is also the rule under the Civil
Code. . . . Article 1302 of the old Civil Code provides: . . .
Persons sui juris cannot, however, avail themselves of the
incapacity of those with whom they contracted; . . .'
xxx xxx xxx
". . . (I)f the ban on aliens from acquiring not only
agricultural but also urban lands, as construed by this

Court in the Krivenko case, is to R-preserve the nation's


land for future generations of Filipinos, that aim or
purpose would not be thwarted but achieved by making
lawful the acquisition of real estate by aliens who became
Filipino citizens by naturalization. The title to the parcel of
land of the vendee, a naturalized Filipino citizen, being
valid that of the domestic corporation to which the parcel
of land has been transferred, must also be valid, 96.67
per cent of its capital stock being owned by Filipinos."

Herrera v. Luy Kim Guan (1 SCRA 406) reiterated the above ruling
by declaring that where land is sold to a Chinese citizen, who
later sold it to a Filipino, the sale to the latter cannot be
impugned.
The appellants cannot find solace from Philippine Banking
Corporation v. Lui She (21 SCRA 52) which relaxed the pari delicto
doctrine to allow the heirs or successors-in-interest, in
appropriate cases, to recover that which their predecessors sold
to aliens.

LexLib

Only recently, in Sarsosa vda. de Barsobia v. Cuenco (113 SCRA


547) we had occasion to pass upon a factual situation
substantially similar to the one in the instant case. We ruled:
"But the factual set-up has changed. The litigated
property is now in the hands of a naturalized Filipino. It is
no longer owned by a disqualified vendee. Respondent,
as a naturalized citizen, was constitutionally qualified to
own the subject property. There would be no more public
policy to be served in allowing petitioner Epifania to
recover the land as it is already in the hands of a qualified
person. Applying by analogy the ruling of this Court in
Vasquez vs. Giap & Sons: (96 Phil. 447 [1955]).

" '. . . if the ban on aliens from acquiring not only


agricultural but also urban lands, as construed by this
Court in the Krivenko case, is to preserve the nation's
lands for future generations of Filipinos, that aim or
purpose would not be thwarted but achieved by making
lawful the acquisition of real estate by aliens who became
Filipino citizens by naturalization.'
"While, strictly speaking, Ong King Po, private
respondent's vendor, had no rights of ownership to
transmit, it is likewise inescapable that petitioner Epifania
had slept on her rights for 26 years from 1936 to 1962.
By her long inaction or inexcusable neglect, she should
be held barred from asserting her claim to the litigated
property (Sotto vs. Teves, 86 SCRA 157 [1978]).
" 'Laches has been defined as the failure or neglect, for
an unreasonable and unexplained length of time, to do
that which by exercising due diligence could or should
have been done earlier; it is negligence or omission to
assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has
abandoned it or declined to assert it. (Tijam, et al. vs.
Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA
29, 35).' (Cited in Sottovs. Teves, 86 SCRA 154 [1978]).
"Respondent, therefore, must be declared to be the
rightful owner of the property."

In the light of the above considerations, we find the second and


third assignments of errors without merit. Respondent Navata,
the titled owner of the property is declared the rightful owner.

WHEREFORE, the instant appeal is hereby denied. The orders


dismissing the complaint and denying the motion for
reconsideration are affirmed.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana,
Vasquez and Relova, JJ., concur.
Footnotes
(Godinez v. Fong Pak Luen, G.R. No. L-36731, [January 27,
1983], 205 PHIL 176-184)
|||

7.)

JACOBUS BERNHARD HULST, petitioner, vs. PR

BUILDERS, INC., respondent.

RESOLUTION

AUSTRIA-MARTINEZ, J :
p

This resolves petitioner's Motion for Partial Reconsideration.


On September 3, 2007, the Court rendered a Decision
present case, the dispositive portion of which reads:

ISCaTE

in the

WHEREFORE, the instant petition is GRANTED. The


Decision dated October 30, 2002 of the Court of Appeals
in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The
Order dated August 28, 2000 of HLURB Arbiter Ma.
Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB
Case No. IV6-071196-0618 is declared NULL and VOID.
HLURB Arbiter Aquino and Director Ceniza are directed to
issue the corresponding certificates of sale in favor of the
winning

bidder,

Holly

Corporation. Petitioner

is

Properties

ordered

to

Realty
return

to

respondent the amount of P2,125,540.00, without


interest, in excess of the proceeds of the auction
sale delivered to petitioner. After the finality of herein
judgment, the amount of P2,125,540.00 shall earn 6%
interest until fully paid.
SO ORDERED.

Petitioner

filed

Reconsideration

(Emphasis supplied)

the
insofar

present
as

he

was

Motion
ordered

for
to

Partial
return

to

respondent the amount of P2,125,540.00 in excess of the


proceeds of the auction sale delivered to petitioner. Petitioner
contends that the Contract to Sell between petitioner and
respondent involved a condominium unit and did not violate the
Constitutional proscription against ownership of land by aliens.
He argues that the contract to sell will not transfer to the buyer
ownership of the land on which the unit is situated; thus, the
buyer will not get a transfer certificate of title but merely a
Condominium Certificate of Title as evidence of ownership; a
perusal of the contract will show that what the buyer acquires is
the seller's title and rights to and interests in the unit and the
common areas.

Despite receipt of this Court's Resolution dated February 6, 2008,


respondent failed to file a comment on the subject motion.
The Motion for Partial Reconsideration is impressed with merit.
The Contract to Sell between petitioner and respondent provides
as follows:
Section 3. Title and Ownership of Unit.
a. Upon full payment by the BUYER of the purchase price
stipulated in Section 2 hereof, . . ., the SELLER shall
deliver

to

the

BUYER

the

Deed

of

Absolute

Sale conveying its rights, interests and title to


the

UNIT

and

appurtenant

to

to

the

such

corresponding Condominium

common
UNIT,

areas

and

the

Certificate

of

Title in the SELLER's name; . . .


b. The Seller shall register with the proper Registry of
Deeds, the Master Deed with the Declaration of
Restrictions
immediately

and

other

comply

documents
with

all

and

shall

requirements

of Republic Act No. 4726 (The Condominium


Act) and Presidential Decree No. 957 (Regulating
the Sale of Subdivision Lots and Condominiums,
Providing Penalties for Violations Thereof). It is
hereby

understood

that all

title,

rights

and

interest so conveyed shall be subject to the


provisions of the Condominium Act, the Master
Deed with Declaration of Restrictions, the Articles of
Incorporation and By-Laws and the Rules and
Regulations

of

the

Condominium

Corporation,

zoning regulations and such other restrictions on


the use of the property as annotated on the title or

may be imposed by any government agency or


instrumentality
thereon.

having

(Emphasis supplied)

jurisdiction

aEcHCD

Under Republic Act (R.A.) No. 4726, otherwise known as the


Condominium Act, foreign nationals can own Philippine real
estate through the purchase of condominium units or townhouses
constituted under the Condominium principle with Condominium
Certificates of Title. Section 5 of R.A. No. 4726 states:
SEC. 5. Any transfer or conveyance of a unit or an
apartment, office or store or other space therein, shall
include the transfer or conveyance of the undivided
interest in the common areas or, in a proper case, the
membership

or

shareholdings

in

the

condominium

corporation; Provided, however, That where the common


areas in the condominium project are held by the owners
of separate units as co-owners thereof, no condominium
unit therein shall be conveyed or transferred to persons
other than Filipino citizens or corporations at least 60% of
the capital stock of which belong to Filipino citizens,
except in cases of hereditary succession. Where the
common areas in a condominium project are held
by a corporation, no transfer or conveyance of a
unit shall be valid if the concomitant transfer of
the appurtenant membership or stockholding in
the corporation will cause the alien interest in such
corporation

to

exceed

the

limits

imposed

by

existing laws. (Emphasis supplied)

The law provides that no condominium unit can be sold without at


the same time selling the corresponding amount of rights, shares
or other interests in the condominium management body, the
Condominium Corporation; and no one can buy shares in a

Condominium Corporation without at the same time buying a


condominium unit. It expressly allows foreigners to acquire
condominium units and shares in condominium corporations up
to not more than 40% of the total and outstanding capital stock
of a Filipino-owned or controlled corporation. Under this set up,
the ownership of the land is legally separated from the unit itself.
The land is owned by a Condominium Corporation and the unit
owner is simply a member in this Condominium Corporation.

As

long as 60% of the members of this Condominium Corporation


are Filipino, the remaining members can be foreigners.
Considering that the rights and liabilities of the parties under the
Contract to Sell is covered by the Condominium Actwherein
petitioner

as

unit

owner

was

simply

member

of

the

Condominium Corporation and the land remained owned by


respondent, then the constitutional proscription against aliens
owning real property does not apply to the present case. There
being no circumvention of the constitutional prohibition, the
Court's pronouncements on the invalidity of the Contract of Sale
should be set aside.

HESCcA

WHEREFORE, the Motion for Partial Reconsideration is GRANTED.


Accordingly, the Decision dated September 3, 2007 of the Court
is MODIFIED by deleting the order to petitioner to return to
respondent the amount of P2,125,540.00 in excess of the
proceeds of the auction sale delivered to petitioner.
SO ORDERED.
Ynares-Santiago, Chico-Nazario, Nachura and Reyes, JJ., concur.
(Hulst v. PR Builders, Inc., G.R. No. 156364, [September 25,
2008], 588 PHIL 23-27)
|||

FACTS :

DECISION

AUSTRIA-MARTINEZ, J :
p

Before the Court is a Petition for Review on Certiorari under Rule


45 of the Revised Rules of Court assailing the Decision

dated

October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No.


60981.

TAIDHa

The facts:
Jacobus Bernhard Hulst (petitioner) and his spouse Ida
Johanna Hulst-Van Ijzeren (Ida), DUTCH NATIONALS, entered into a
Contract to Sell with PR Builders, Inc. (respondent), for the
purchase of a 210-sq. m. residential unit in respondent's
townhouse project in Barangay Niyugan, Laurel, Batangas.
When RESPONDENT failed to comply with its verbal promise to
complete the project = the spouses Hulst filed before the Housing
and Land Use Regulatory Board (HLURB) a complaint for
rescission of contract with interest, damages and attorney's fees,
docketed as HLRB Case No. IV6-071196-0618.
- On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino
(HLURB Arbiter) rendered a Decision

in favor of

spouses Hulst, the dispositive portion of which reads:


WHEREFORE, premises considered, judgment is hereby
rendered in favor of the complainant, rescinding the
Contract to Sell and ordering respondent to:

EacHCD

1) Reimburse complainant the sum of P3,187,500.00,


representing the purchase price paid by the complainants
to P.R. Builders, plus interest thereon at the rate of twelve
percent (12%) per annum from the time complaint was
filed;
2) Pay complainant the sum of P297,000.00 as actual
damages;
3) Pay complainant the sum of P100,000.00 by way of
moral damages;
4) Pay complainant the sum of P150,000.00 as exemplary
damages;
5) P50,000.00 as attorney's fees and for other litigation
expenses; and
6) Cost of suit.
SO ORDERED.

Meanwhile, spouses Hulst divorced.


= IDA ASSIGNED HER RIGHTS OVER THE PURCHASED PROPERTY
TO PETITIONER.
THE CASE.

FROM THEN ON, PETITIONER ALONE PURSUED

DHcTaE

On August 21, 1997, the HLURB Arbiter issued a Writ of Execution


addressed to the Ex-Officio Sheriff of the Regional Trial Court of
Tanauan, Batangas directing the latter to execute its judgment.

On April 13, 1998, the Ex-Officio Sheriff proceeded to implement


the Writ of Execution. However, upon complaint of respondent
with the CA on a Petition for Certiorari and Prohibition, the levy
made by the Sheriff was set aside, requiring the Sheriff to levy
first on respondent's personal properties.

Sheriff Jaime B.

Ozaeta (Sheriff) tried to implement the writ as directed but the


writ was returned unsatisfied.

TAcDHS

On January 26, 1999, upon petitioner's motion, the HLURB Arbiter


issued an Alias Writ of Execution.

DTCSHA

On March 23, 1999, the Sheriff levied on respondent's 15 parcels


of land covered by 13 Transfer Certificates of Title
(TCT)

in Barangay Niyugan, Laurel, Batangas.

10

In a Notice of Sale dated March 27, 2000, the Sheriff set the
public auction of the levied properties on April 28, 2000 at 10:00
a.m.

11

Two days before the scheduled public auction or on April 26,


2000, respondent filed an Urgent Motion to Quash Writ of Levy
with the HLURB on the ground that the Sheriff made an overlevy
since the aggregate appraised value of the levied properties at
P6,500.00 per sq. m. is P83,616,000.00, based on the Appraisal
Report

12

of Henry Hunter Bayne Co., Inc. dated December 11,

1996, which is over and above the judgment award.

13

TcaAID

At 10:15 a.m. of the scheduled auction date of April 28, 2000,


respondent's counsel objected to the conduct of the public
auction on the ground that respondent's Urgent Motion to
Quash Writ of Levy was pending resolution. Absent any
restraining order from the HLURB, the Sheriff proceeded to sell
the 15 parcels of land. Holly Properties Realty Corporation was
the winning bidder for all 15 parcels of land for the total amount
of P5,450,653.33. The sum of P5,313,040.00 was turned over to
the petitioner in satisfaction of the judgment award after
deducting the legal fees.

14

At 4:15 p.m. of the same day, while the Sheriff was at the HLURB
office to remit the legal fees relative to the auction sale and to
submit the Certificates of Sale

15

for the signature of HLURB

Director Belen G. Ceniza (HLURB Director), he received the Order


dated April 28, 2000 issued by the HLURB Arbiter to suspend the
proceedings on the matter.

16

Four months later, or on August 28, 2000, the HLURB Arbiter and
HLURB Director issued an Order setting aside the sheriff's levy
on respondent's real properties,

17

reasoning as follows:

While we are not making a ruling that the fair market


value of the levied properties is PhP6,500.00 per square
meter (or an aggregate value of PhP83,616,000.00) as
indicated in the Hunter Baynes Appraisal Report, we
definitely cannot agree with the position of the
Complainants and the Sheriff that the aggregate value of
the 12,864.00-square meter levied properties is only
around PhP6,000,000.00. The disparity between the two
valuations are [sic] so egregious that the Sheriff should
have looked into the matter first before proceeding with
the execution sale of the said properties, especially when
the auction sale proceedings was seasonably objected by
Respondent's counsel, Atty. Noel Mingoa. However,
instead of resolving first the objection timely posed by
Atty. Mingoa, Sheriff Ozaete totally disregarded the
objection raised and, posthaste, issued the corresponding
Certificate of Sale even prior to the payment of the legal
fees (pars. 7 & 8, Sheriff's Return).
While we agree with the Complainants that what is
material in an execution sale proceeding is the amount
for which the properties were bidded and sold during the
public auction and that, mere inadequacy of the price is
not a sufficient ground to annul the sale, the court is
justified to intervene where the inadequacy of the price
shocks the conscience (Barrozo vs. Macaraeg, 83 Phil.

378). The difference between PhP83,616,000.00 and


Php6,000,000.00 is PhP77,616,000.00 and it definitely
invites our attention to look into the proceedings had
ESPECIALLY SO WHEN THERE WAS ONLY ONE
BIDDER, the HOLLY PROPERTIES REALTY CORPORATION
represented by Ma. Chandra Cacho (par. 7, Sheriff's
Return) and the auction sale proceedings was timely
objected by Respondent's counsel (par. 6, Sheriff's
Return) due to the pendency of the Urgent Motion to
Quash the Writ of Levy which was filed prior to the
execution sale.
Issue: Besides, what is at issue is not the value of
the subject properties as determined during the
auction sale, but the determination of the value of
the properties levied upon by the Sheriff taking
into consideration Section 9(b) of the 1997 Rules of
Civil Procedure . . .
xxx xxx xxx
**It is very clear from the foregoing that, even during
levy, the Sheriff has to consider the fair market value of
the properties levied upon to determine whether they are
sufficient to satisfy the judgment, and any levy in excess
of the judgment award is void (Buan v. Court of Appeals,
235 SCRA 424)
xxx xxx xxx

18

(Emphasis Supplied).

THCSEA

The dispositive portion of the Order reads:


WHEREFORE, the levy on the subject properties made by
the Ex-Officio Sheriff of the RTC of Tanauan, Batangas, is
hereby SET ASIDE and the said Sheriff is hereby directed
to levy instead Respondent's real properties that are

reasonably sufficient to enforce its final and executory


judgment, this time, taking into consideration not only
the value of the properties as indicated in their respective
tax declarations, but also all the other determinants at
arriving at a fair market value, namely: the cost of
acquisition, the current value of like properties, its actual
or potential uses, and in the particular case of lands, their
size, shape or location, and the tax declarations thereon.
SO ORDERED.

19

A motion for reconsideration being a prohibited pleading under


Section 1 (h), Rule IV of the 1996 HLURB Rules and
Procedure, petitioner filed a Petition for Certiorari and Prohibition
with the CA on September 27, 2000.
On October 30, 2002, the CA rendered herein assailed
Decision

20

dismissing the petition. The CA held thatpetitioner's

insistence that Barrozo v. Macaraeg

21

does not apply since said

case stated that "when there is a right to redeem inadequacy of


price should not be material" holds no water as what is obtaining
in this case is not "mere inadequacy," but an inadequacy that
shocks the senses; that Buan v. Court of Appeals

22

properly

applies since the questioned levy covered 15 parcels of land


posited to have an aggregate value of P83,616,000.00 which
shockingly exceeded the judgment debt of only around
P6,000,000.00.

cEaSHC

Without filing a motion for reconsideration,

23

petitioner took the

present recourse on the sole ground that:


THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
AFFIRMING THE ARBITER'S ORDER SETTING ASIDE THE
LEVY MADE BY THE SHERIFF ON THE SUBJECT
PROPERTIES.

24

TCIEcH

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:
Issue: 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:
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).

IEaATD

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 citizens

25

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 effect.
create, modify or extinguish a juridical relation.

28

29

It does not

SITCcE

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."
This rule, however, is subject to exceptions

32

31)

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);

(b) the

33

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)


1419, Civil Code).

39

38

and labor laws (Arts. 1418-

aTHCSE

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
existed.

41

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

DTcHaA

(G) 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.
(E) 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 petitioneris 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.


The Court takes into consideration the fact that the HLURB
Decision dated April 22, 1997 has long been final and executory.
Nothing is more settled in the law than 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 was made by the court that rendered it or by the
highest court of the land.

45

The only recognized exceptions to

the general rule are the correction of clerical errors, the socalled nunc pro tunc entries which cause no prejudice to any
party, void judgments, and whenever circumstances transpire
after the finality of the decision rendering its execution unjust and
inequitable.

46

None of the exceptions is present in this case. The

HLURB decision cannot be considered a void judgment, as it was

rendered by a tribunal with jurisdiction over the subject matter of


the complaint.

47

Ineluctably, the HLURB Decision resulted in the unjust enrichment


of petitioner at the expense of respondent.Petitioner received
more than what he is entitled to recover under the
circumstances.
Article 22 of the Civil Code which embodies the maxim, nemo ex
alterius incommode debet lecupletari (no man ought to be made
rich out of another's injury), states:
Art. 22. Every person who through an act of performance
by another, or any other means, acquires or comes into
possession of something at the expense of the latter
without just or legal ground, shall return the same to him.

The above-quoted article is part of the chapter of the Civil Code


on Human Relations, the provisions of which were formulated as
basic principles to be observed for the rightful relationship
between human beings and for the stability of the social order;
designed to indicate certain norms that spring from the fountain
of good conscience; guides for human conduct that should run as
golden threads through society to the end that law may approach
its supreme ideal which is the sway and dominance of
justice.

48

There is unjust enrichment when a person unjustly

retains a benefit at the loss of another, or when a person retains


money or property of another against the fundamental principles
of justice, equity and good conscience.

49

A sense of justice and fairness demands that petitioner should


not be allowed to benefit from his act of entering into a contract
to sell that violates the constitutional proscription.
This is not a case of equity overruling or supplanting a positive
provision of law or judicial rule. Rather, equity is exercised in this

case "as the complement of legal jurisdiction [that] seeks to


reach and to complete justice where courts of law, through the
inflexibility of their rules and want of power to adapt their
judgments to the special circumstances of cases, are
incompetent to do so."

50

The purpose of the exercise of equity jurisdiction in this case is to


prevent unjust enrichment and to ensure restitution. Equity
jurisdiction aims to do complete justice in cases where a court of
law is unable to adapt its judgments to the special circumstances
of a case because of the inflexibility of its statutory or legal
jurisdiction.51
The sheriff delivered to petitioner the amount of P5,313,040.00
representing the net proceeds (bidded amount is P5,450,653.33)
of the auction sale after deducting the legal fees in the amount of
P137,613.33.

52

Petitioner is only entitled to P3,187,500.00, the

amount of the purchase price of the real property paid


by petitioner to respondent under the Contract to Sell. Thus, the
Court in the exercise of its equity jurisdiction may validly
orderpetitioner to return the excess amount of P2,125,540.00.
The Court shall now proceed to resolve the single issue raised in
the present petition: whether the CA seriously erred in affirming
the HLURB Order setting aside the levy made by the Sheriff on
the subject properties.
Petitioner avers that the HLURB Arbiter and Director had no
factual basis for pegging the fair market value of the levied
properties at P6,500.00 per sq. m. or P83,616,000.00; that
reliance on the appraisal report was misplaced since the
appraisal was based on the value of land in neighboring
developed subdivisions and on the assumption that the
residential unit appraised had already been built; that the Sheriff

need not determine the fair market value of the subject


properties before levying on the same since what is material is
the amount for which the properties were bidded and sold during
the public auction; that the pendency of any motion is not a valid
ground for the Sheriff to suspend the execution proceedings and,
by itself, does not have the effect of restraining the Sheriff from
proceeding with the execution.

Respondent, on the other hand, contends that while it is true that


the HLURB Arbiter and Director did not categorically state the
exact value of the levied properties, said properties cannot just
amount to P6,000,000.00; that the HLURB Arbiter and Director
correctly held that the value indicated in the tax declaration is
not the sole determinant of the value of the property.
The petition is impressed with merit.
If the judgment is for money, the sheriff or other authorized
officer must execute the same pursuant to the provisions of
Section 9, Rule 39 of the Revised Rules of Court, viz:
Sec. 9. Execution of judgments for money, how enforced.
(a) Immediate payment on demand. The officer shall
enforce an execution of a judgment for money by
demanding from the judgment obligor the immediate
payment of the full amount stated in the writ of execution
and all lawful fees. . .
(b) Satisfaction by levy. If the judgment obligor cannot
pay all or part of the obligation in cash, certified bank
check or other mode of payment acceptable to the
judgment obligee, the officer shall levy upon the
properties of the judgment obligor of every kind
and nature whatsoever which may be disposed of

for value and not otherwise exempt from


execution, giving the latter the option to immediately
choose which property or part thereof may be levied
upon, sufficient to satisfy the judgment. If the judgment
obligor does not exercise the option, the officer shall first
levy on the personal properties, if any, and then on the
real properties if the personal properties are insufficient
to answer for the judgment.
The sheriff shall sell only a sufficient portion of the
personal or real property of the judgment obligor
which has been levied upon.
When there is more property of the judgment
obligor than is sufficient to satisfy the judgment
and lawful fees, he must sell only so much of the
personal or real property as is sufficient to satisfy
the judgment and lawful fees.
Real property, stocks, shares, debts, credits, and other
personal property, or any interest in either real or
personal property, may be levied upon in like manner
and with like effect as under a writ of
attachment (Emphasis supplied).

53

Thus, under Rule 39, in executing a money judgment against the


property of the judgment debtor, the sheriff shall levy on all
property belonging to the judgment debtor as is amply sufficient
to satisfy the judgment and costs, and sell the same paying to
the judgment creditor so much of the proceeds as will satisfy the
amount of the judgment debt and costs. Any excess in the
proceeds shall be delivered to the judgment debtor unless
otherwise directed by the judgment or order of the court.

54

Clearly, there are two stages in the execution of money


judgments. First, the levy and then the execution sale.
Levy has been defined as the act or acts by which an officer sets
apart or appropriates a part or the whole of a judgment debtor's
property for the purpose of satisfying the command of the writ of
execution.

55

The object of a levy is to take property into the

custody of the law, and thereby render it liable to the lien of the
execution, and put it out of the power of the judgment debtor to
divert it to any other use or purpose.

56

On the other hand, an execution sale is a sale by a sheriff or


other ministerial officer under the authority of a writ of execution
of the levied property of the debtor.

57

***In the present case, the HLURB Arbiter and Director gravely
abused their discretion in setting aside the levy conducted by the
Sheriff for the reason that the auction sale conducted by the
sheriff rendered moot and academic the motion to quash the
levy.
The HLURB Arbiter lost jurisdiction to act on the motion to quash
the levy by virtue of the consummation of the auction sale.
Absent any order from the HLURB suspending the auction sale,
the sheriff rightfully proceeded with the auction sale. The winning
bidder had already paid the winning bid. The legal fees had
already been remitted to the HLURB. The judgment award had
already been turned over to the judgment creditor. What was left
to be done was only the issuance of the corresponding
certificates of sale to the winning bidder. In fact, only the
signature of the HLURB Director for that purpose was
needed

58

a purely ministerial act.

(A purely ministerial act or duty is one which an officer or tribunal


performs in a given state of facts, in a prescribed manner, in

obedience to the mandate of a legal authority, without regard for


or the exercise of his own judgment upon the propriety or
impropriety of the act done. If the law imposes a duty upon a
public officer and gives him the right to decide how or when the
duty shall be performed, such duty is discretionary and not
ministerial. The duty is ministerial only when the discharge of the
same requires neither the exercise of official discretion nor
judgment.

59

In the present case, all the requirements of auction

sale under the Rules have been fully complied with to warrant the
issuance of the corresponding certificates of sale.)
And even if the Court should go into the merits of the assailed
Order, the petition is meritorious on the following grounds:
Firstly, the reliance of the HLURB Arbiter and Director, as well as
the CA, on Barrozo v. Macaraeg
Appeals

61

60

and Buan v. Court of

is misplaced.

The HLURB and the CA misconstrued the Court's pronouncements


in Barrozo. Barrozo involved a judgment debtor who wanted to
repurchase properties sold at execution beyond the one-year
redemption period. The statement of the Court in Barrozo, that
"only where such inadequacy shocks the conscience the courts
will intervene," is at best a mere obiter dictum. This declaration
should be taken in the context of the other declarations of the
Court in Barrozo, to wit:
Another point raised by appellant is that the price paid at
the auction sale was so inadequate as to shock the
conscience of the court. Supposing that this issue is open
even after the one-year period has expired and after the
properties have passed into the hands of third persons
who may have paid a price higher than the auction sale
money, the first thing to consider is that the stipulation

contains no statement of the reasonable value of the


properties; and although defendant's answer avers that
the assessed value was P3,960 it also avers that their real
market value was P2,000 only. Anyway, mere
inadequacy of price which was the complaint's
allegation is not sufficient ground to annul the
sale. It is only where such inadequacy shocks the
conscience that the courts will intervene. . . .
Another consideration is that the assessed value being
P3,960 and the purchase price being in effect P1,864
(P464 sale price plus P1,400 mortgage lien which had to
be discharged) the conscience is not shocked upon
examining the prices paid in the sales in National Bank v.
Gonzales, 45 Phil., 693 and Guerrero v. Guerrero, 57 Phil.,
445, sales which were left undisturbed by this Court.
***
*****FURTHERMORE, WHERE THERE IS THE RIGHT TO
REDEEM AS IN THIS CASE INADEQUACY OF PRICE
SHOULD NOT BE MATERIAL BECAUSE THE
JUDGMENT DEBTOR MAY RE-ACQUIRE THE
PROPERTY OR ELSE SELL HIS RIGHT TO REDEEM
AND THUS RECOVER ANY LOSS HE CLAIMS TO HAVE
SUFFERED BY REASON OF THE PRICE OBTAINED AT
THE EXECUTION SALE.
xxx xxx xxx (Emphasis supplied).

62

In other words, gross inadequacy of price does not nullify an


execution sale. In an ordinary sale, for reason of equity, a
transaction may be invalidated on the ground of inadequacy of
price, or when such inadequacy shocks one's conscience as to
justify the courts to interfere; such does not follow when the law

gives the owner the right to redeem as when a sale is made at


public auction,

63

upon the theory that the lesser the price, the

easier it is for the owner to effect redemption.

64

***WHEN THERE IS A RIGHT TO REDEEM, inadequacy of price


should not be material because the judgment debtor may reacquire the property or else sell his right to redeem and thus
recover any loss he claims to have suffered by reason of the price
obtained at the execution sale.

65

Thus, respondent stood to gain

rather than be harmed by the low sale value of the auctioned


properties because it possesses the right of redemption. More
importantly, the subject matter in Barrozo is the auction sale, not
the levy made by the Sheriff.
The Court does not sanction the piecemeal interpretation of a
decision. To get the true intent and meaning of a decision, no
specific portion thereof should be isolated and resorted to, but
the decision must be considered in its entirety.

66

As regards Buan, it is cast under an entirely different factual


milieu. It involved the levy on two parcels of land owned by the
judgment debtor; and the sale at public auction of one was
sufficient to fully satisfy the judgment, such that the levy and
attempted execution of the second parcel of land was declared
void for being in excess of and beyond the original judgment
award granted in favor of the judgment creditor.
In the present case, the Sheriff complied with the mandate of
Section 9, Rule 39 of the Revised Rules of Court, to "sell only a
sufficient portion" of the levied properties "as is sufficient to
satisfy the judgment and the lawful fees." Each of the 15 levied
properties was successively bidded upon and sold, one after the
other until the judgment debt and the lawful fees were fully
satisfied. Holly Properties Realty Corporation successively bidded

upon and bought each of the levied properties for the total
amount of P5,450,653.33 in full satisfaction of the judgment
award and legal fees.

67

Secondly, the Rules of Court do not require that the value of the
property levied be exactly the same as the judgment debt; it can
be less or more than the amount of debt. This is the contingency
addressed by Section 9, Rule 39 of the Rules of Court. In the levy
of property, the Sheriff does not determine the exact valuation of
the levied property. Under Section 9, Rule 39, in conjunction with
Section 7, Rule 57 of the Rules of Court, the sheriff is required to
do only two specific things to effect a levy upon a realty: (a) file
with the register of deeds a copy of the order of execution,
together with the description of the levied property and notice of
execution; and (b) leave with the occupant of the property copy
of the same order, description and notice.

68

Records do not show

that respondent alleged non-compliance by the Sheriff of said


requisites.

Thirdly, in determining what amount of property is sufficient out


of which to secure satisfaction of the execution, the Sheriff is left
to his own judgment. He may exercise a reasonable discretion,
and must exercise the care which a reasonably prudent person
would exercise under like conditions and circumstances,
endeavoring on the one hand to obtain sufficient property to
satisfy the purposes of the writ, and on the other hand not to
make an unreasonable and unnecessary levy.

69

Because it is

impossible to know the precise quantity of land or other property


necessary to satisfy an execution, the Sheriff should be allowed a
reasonable margin between the value of the property levied upon
and the amount of the execution; the fact that the Sheriff levies
upon a little more than is necessary to satisfy the execution does

not render his actions improper.

70Section

9, Rule 39, provides

adequate safeguards against excessive levying. The Sheriff is


mandated to sell so much only of such real property as is
sufficient to satisfy the judgment and lawful fees.
In the absence of a restraining order, no error, much less abuse of
discretion, can be imputed to the Sheriff in proceeding with the
auction sale despite the pending motion to quash the levy filed
by the respondents with the HLURB. It is elementary that sheriffs,
as officers charged with the delicate task of the enforcement
and/or implementation of judgments, must, in the absence of a
restraining order, act with considerable dispatch so as not to
unduly delay the administration of justice; otherwise, the
decisions, orders, or other processes of the courts of justice and
the like would be futile.

71

It is not within the jurisdiction of the

Sheriff to consider, much less resolve, respondent's objection to


the continuation of the conduct of the auction sale. The Sheriff
has no authority, on his own, to suspend the auction sale. His
duty being ministerial, he has no discretion to postpone the
conduct of the auction sale.
Finally, one who attacks a levy on the ground of excessiveness
carries the burden of sustaining that contention.72 In the
determination of whether a levy of execution is excessive, it is
proper to take into consideration encumbrances upon the
property, as well as the fact that a forced sale usually results in a
sacrifice; that is, the price demanded for the property upon a
private sale is not the standard for determining the excessiveness
of the levy.

73

Here, the HLURB Arbiter and Director had no sufficient factual


basis to determine the value of the levied property. Respondent
only submitted an Appraisal Report, based merely on surmises.
The Report was based on the projected value of the townhouse

project after it shall have been fully developed, that is, on the
assumption that the residential units appraised had already been
built. The Appraiser in fact made this qualification in its Appraisal
Report: "[t]he property subject of this appraisal has not been
constructed. The basis of the appraiser is on the existing model
units."

74

Since it is undisputed that the townhouse project did

not push through, the projected value did not become a reality.
Thus, the appraisal value cannot be equated with the fair market
value. The Appraisal Report is not the best proof to accurately
show the value of the levied properties as it is clearly self-serving.
Therefore, the Order dated August 28, 2000 of HLURB Arbiter
Aquino and Director Ceniza in HLRB Case No. IV6-071196-0618
which set aside the sheriff's levy on respondent's real properties,
was clearly issued with grave abuse of discretion. The CA erred in
affirming said Order.
WHEREFORE, the instant petition is GRANTED. The Decision
dated October 30, 2002 of the Court of Appeals in CA-G.R. SP No.
60981 is REVERSED and SET ASIDE. The Order dated August
28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director
Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is
declared NULL andVOID. HLURB Arbiter Aquino and Director
Ceniza are directed to issue the corresponding certificates of sale
in favor of the winning bidder, Holly Properties Realty
Corporation. Petitioner is ordered to return to respondent the
amount of P2,125,540.00, without interest, in excess of the
proceeds of the auction sale delivered topetitioner. After the
finality of herein judgment, the amount of P2,125,540.00 shall
earn 6% interest until fully paid.
SO ORDERED.
Ynares-Santiago, Chico-Nazario, Nachura and Reyes. JJ., concur.

(Hulst v. PR Builders, Inc., G.R. No. 156364, [September 3,


2007], 558 PHIL 683-715)
|||

II. TRANSFER OF OWNERSHIP AND DELIVERY OF THE OBJECT


CONCEPT OF DELIVERY OR TRADITION:

1.)

AURORA

Spouses

ALCANTARA-DAUS, petitioner, vs.

HERMOSO

and

SOCORRO

DE

LEON,respondents.
Simplicio M. Sevilleja for petitioner.
Villamar A. Tolete for respondents.
SYNOPSIS
Respondent Hermoso de Leon INHERITED FROM HIS FATHER
Marcelino de Leon the subject parcel of land by virtue of a Deed
of Extra-judicial Partition. Sometime in the early 1960s,
- respondents engaged the services of a certain Atty. Florencio
Juan to take care of the documents of the properties of his
parents. Atty. Juan let them sign voluminous documents.
= After the death of Atty. Juan, some documents surfaced and

most revealed that their properties had been conveyed by sale or


quitclaim to respondent Hermoso's brothers and sisters, and to
Atty. Juan and his sisters, when in truth and in fact, no such
conveyances were ever intended by them. ( forgery )
Respondent's signature in the Deed of Extra-judicial Partition with

Quitclaim made in favor of Rodolfo de Leon was forged and later


discovered that the land in question was sold by Rodolfo to
petitioner Aurora Alcantara.
The (RTC) trial court ruled in favor of petitioner, holding that
respondent's claim was barred by laches, because more
than 18 years had passed since the land was sold. In
reversing the RTC, the (CA) Court of Appeals held that lathes did
not bar respondents from pursuing their claim. Hence, the
present petition.

HIEASa

The Supreme Court affirmed the decision of the Court of Appeals.


According to the Court, a contract of sale is consensual. It is
perfected by mere consent, upon a meeting of the minds on the
offer and the acceptance thereof based on subject matter, price
and terms of payment. Even after the contract of sale has been
perfected between the parties, its consummation by delivery is
yet another matter. It is through tradition or delivery that the
buyer acquires the real right of ownership over the thing sold. It
is undisputed that at the time of the sale, Rodolfo de Leon was
not the owner of the land he delivered to petitioner. Thus, the
consummation of the contract and the consequent transfer of
ownership would depend on whether he subsequently acquired
ownership of the land in accordance with Article 1434 of the Civil
Code. The Court was not also persuaded by petitioner's
claim that her possession of the land is in good faith and
consequently acquired by virtue of prescription. It is well-settled
that no title to registered land in derogation of that of the
registered owner shall be acquired by prescription or adverse
possession. - Neither can prescription be allowed against the
hereditary successors of the registered owner, because they
merely step into the shoes of the decedent and are merely the
continuation of the personality of their predecessor in interest.

Consequently, since a certificate of registration covers it, the


disputed land cannot be acquired by prescription regardless of
petitioner's good faith.

DcITaC

SYLLABUS
1. CIVIL LAW; CONTRACTS; SALES; REAL RIGHT OF OWNERSHIP IS
TRANSFERRED ONLY BY TRADITION OR DELIVERY OF THE THING
SOLD TO THE BUYER. A contract of sale is consensual. It is
perfected by mere consent, upon a meeting of the minds on the
offer and the acceptance thereof based on subject matter, price
and terms of payment. AT

THIS STAGE, THE SELLER'S


OWNERSHIP OF THE THING SOLD IS NOT AN ELEMENT IN THE
PERFECTION OF THE CONTRACT OF SALE. = The contract,
however, creates an obligation on the part of the seller to
transfer ownership and to deliver the subject matter of the
contract.
- It is during the delivery that the law requires the seller to have
the right to transfer ownership of the thing sold. In general, a
perfected contract of sale cannot be challenged on the ground of
the seller's non-ownership of the thing sold at the time of the
perfection of the contract. Further, even after the contract of sale
has been perfected between the parties, its consummation by
delivery is yet another matter. It is through tradition or delivery
that the buyer acquires the real right of ownership over the thing
sold.
2. REMEDIAL LAW; EVIDENCE; PRESENTATION OF EVIDENCE;
PROOF

OF

NOTARIAL

DOCUMENTS;

WITHOUT

THE

CORROBORATIVE TESTIMONY OF ATTESTING WITNESSES, THE


LONE

ACCOUNT

OF

THE

NOTARY

REGARDING

THE

DUE

EXECUTION OF THE DEED IS INSUFFICIENT TO SUSTAIN THE

AUTHENTICITY OF THE SUBJECT DOCUMENT. As a general rule,


the due execution and authenticity of a document must be
reasonably established before it may be admitted in evidence.
Notarial documents, however, may be presented in evidence
without further proof of their authenticity, since the certificate of
acknowledgement is prima facieevidence of the execution of the
instrument or document involved. To contradict facts in a notarial
document and the presumption of regularity in its favor, the
evidence must be clear, convincing and more than merely
preponderant. The CA ruled that the signatures of Hermoso de
Leon on the Extrajudicial Partition and Quitclaim was forged.
However, this factual finding is in conflict with that of the RTC.
While normally this Court does not review factual issues, this rule
does not apply when there is a conflict between the holdings of
the CA and those of the trial court, as in the present case. After
poring over the records, we find no reason to reverse the factual
finding of the appellate court. A comparison of the signatures of
Hermoso de Leon with his purported signature on the Deed of
Extrajudicial Partition with Quitclaim will readily reveal that the
latter is a forgery. As aptly held by the CA, such variance cannot
be attributed to the age or the mechanical acts of the person
signing. Without the corroborative testimony of the attesting
witnesses, the lone account of the notary regarding the due
execution of the Deed is insufficient to sustain the authenticity of
this document. He can hardly be expected to dispute the
authenticity of the very Deed he notarized. For this reason, his
testimony was as it should be minutely scrutinized by the
appellate court, and was found wanting.

CSIcTa

3. CIVIL LAW; LAND REGISTRATION; A REGISTERED LAND IS


NOT SUBJECT TO PRESCRIPTION. It is well-settled that no
title to registered land in derogation of that of the registered
owner shall be acquired by prescription or adverse possession.

Neither can prescription be allowed against the hereditary


successors of the registered owner, because they merely step
into the shoes of the decedent and are merely the continuation of
the personality of their predecessor in interest. Consequently,
since a certificate of registration covers it, the disputed land
CANNOT BE ACQUIRED BY PRESCRIPTION REGARDLESS OF
PETITIONER'S GOOD FAITH.

SCETHA

4. ID.; PRESCRIPTION OF ACTIONS; FILING OF COMPLAINT IS STILL


WITHIN THE 30-YEAR PRESCRIPTIVE PERIOD. Article 1141 of the
New Civil Code provides that real actions over immovable
properties prescribe after thirty years. THIS PERIOD FOR FILING
AN ACTION IS INTERRUPTED WHEN A COMPLAINT IS FILED
IN COURT.
Rodolfo de Leon alleged that the land had been allocated to
him by his brother Hermoso de Leon in March 1963, but that the
Deed of Extrajudicial Partition assigning the contested land to the
latter was executed only on September 16, 1963. In any case, the
Complaint to recover the land from petitioner was filed on
February 24, 1993, which was within the 30-year prescriptive
period.

DTcASE

5. ID.; LACHES; ASSERTION OF LACHES TO THWART (PREVENT )


THE CLAIM OF RESPONDENTS IS FORECLOSED BECAUSE THE
DEED UPON WHICH PETITIONER BASES HER CLAIM IS A FORGERY.
On the claim of laches, we find no reason to reverse the ruling
of the CA. Laches is based upon equity and the public policy of
discouraging stale claims. Since laches is an equitable doctrine,
its application is controlled by equitable considerations. It cannot
be used to defeat justice or to perpetuate fraud and
injustice. Thus, the assertion of laches to thwart the claim of
respondents is foreclosed, because the Deed upon which
petitioner bases her claim is a forgery.

AEIcSa

DECISION

PANGANIBAN, J :
p

While a contract of sale is perfected by mere consent, ownership


of the thing sold is acquired only upon its delivery to the buyer.
Upon the perfection of the sale, the seller assumes the obligation
to transfer ownership and to deliver the thing sold, but the real
right of ownership is transferred only "by tradition" or delivery
thereof to the buyer.

AHacIS

The Case
Before us is a Petition for Review

under Rule 45 of the Rules of

Court, seeking to set aside the February 9, 2001 Decision and the
August 31, 2001 Resolution of the Court of Appeals

(CA) in CA-

GR CV No. 47587. The dispositive portion of the assailed Decision


reads as follows:
"WHEREFORE, premises considered, the decision of the
trial court is hereby REVERSED, and judgment rendered:
1. Declaring null and void and of no effect, the [D]eed of
[A]bsolute [S]ale dated December 6, 1975, the
[D]eed of [E]xtra-judicial [P]artition and [Q]uitclaim
dated July 1, 1985, and T.C.T. No. T-31262;
2. Declaring T.C.T. No. 42238 as valid and binding;
3. Eliminating the award of P5,000.00 each to be paid to
defendants-appellees."

The

assailed

Resolution

denied

Reconsideration.
The Facts

petitioner's

Motion

for

The antecedents of the case were summarized by the Regional


Trial Court (RTC) and adopted by the CA as follows:
"This is a [C]omplaint for annulment of documents and
title,

ownership,

possession,

injunction,

preliminary

injunction, restraining order and damages.


"[Respondents] alleged in their [C]omplaint that they are
the owners of a parcel of land hereunder described as
follows, to wit:
'A parcel of land (Lot No. 4786 of the Cadastral
Survey of San Manuel) situated in the Municipality
of San Manuel, Bounded on the NW., by Lot No.
4785; and on the SE., by Lot Nos. 11094 & 11096;
containing an area of Four Thousand Two Hundred
Twelve (4,212) sq. m., more or less. Covered by
Original Certificate of Title No. 22134 of the Land
Records of Pangasinan.'

which [Respondent] Hermoso de Leon inherited from


his father Marcelino de Leon by virtue of a [D]eed of
[E]xtra-judicial [P]artition. Sometime in the early 1960s,
- [respondents] engaged the services of the late Atty.
Florencio Juan to take care of the documents of the
properties of his parents. Atty. Juan let them sign
voluminous documents. After the death of Atty. Juan,
some documents surfaced and most revealed that their
properties had been conveyed by sale or quitclaim to
[Respondent] Hermoso's brothers and sisters, to Atty.
Juan and his sisters, when in truth and in fact, no such
conveyances were ever intended by them.(FORGERY) His
signature in the [D]eed of [E]xtra-judicial [P]artition with

[Q]uitclaim made in favor of . . . Rodolfo de Leon was


forged. They discovered that the land in question was
sold by . . . Rodolfo de Leon to [Petitioner] Aurora
Alcantara. They demanded annulment of the document
and reconveyance but defendants refused . . . .
xxx xxx xxx
"[Petitioner] Aurora Alcantara-Daus [averred] that she
bought the land in question in good faith and for value
on December 6, 1975. [She] has been in continuous,
public, peaceful, open possession over the same and has
been appropriating the produce thereof without objection
from anyone."

RTC DECISION IN FAVOR OF THE PETITIONER BARRED BY


LACHES- because more than 18 years had passed since the land
was sold. It On August 23, 1994, the RTC (Branch 48) of Urdaneta,
Pangasinan

rendered its Decision

in favor of herein petitioner.

It ruled that respondents' claim was barred by laches, because


more than 18 years had passed since the land was sold. It further
ruled that since it was a notarial document, the Deed of
Extrajudicial

Partition

in

favor

of

Rodolfo

de

Leon

was

presumptively authentic.
Ruling of the Court of Appeals
(CA) In reversing the RTC, the CA held that laches did not bar
respondents from pursuing their claim. Notwithstanding the
delay, laches is a doctrine in equity and may not be invoked to
resist the enforcement of a legal right.
The appellate court also

( THERES NO VALID TRANSFER OF

RIGHTS) held that since Rodolfo de Leon was not the owner of the
land at the time of the sale, he could not transfer any land rights
to petitioner.+ FORGERY It further declared that the signature of

Hermoso de Leon on the Deed of Extrajudicial Partition and


Quitclaim upon which petitioner bases her claim was a
forgery. It added that under the above circumstances, petitioner
could not be said to be a buyer in good faith.
Hence, this Petition.

The Issues
Petitioner raises the following issues for our consideration:
ISSUE : Whether or not the Deed of Absolute Sale by
Rodolfo de Leon (deceased) over the land in question in
favor of petitioner was perfected and binding upon the
parties therein?
"2. Whether or not the evidentiary weight of the Deed of
Extrajudicial

Partition

with

Quitclaim,

executed

by

[R]espondent Hermoso de Leon, Perlita de Leon and


Carlota de Leon in favor of Rodolfo de Leon was overcome
by

more

than

[a]

preponderance

of

evidence

of

respondents?
"3. Whether or not the possession of petitioner including
her predecessor-in-interest Rodolfo de Leon over the land
in question was in good faith?
"4. And whether or not the instant case initiated and filed
by respondents on February 24, 1993 before the trial
court has prescribed and respondents are guilty of
laches?"

The Court's Ruling


The Petition has no merit.
First Issue:
Validity of the Deed of Absolute Sale

=Petitioner argues that, having been perfected, the Contract of


Sale executed on December 6, 1975 was thus binding upon the
parties thereto.
A contract of sale is consensual. It is perfected by mere
consent,

10

upon a meeting of the minds

11

on the offer and the

acceptance thereof based on subject matter, price and terms of


payment.

12

At this stage, the seller's ownership of the

thing sold is not an element in the perfection of the


contract of sale.

= The contract, however, CREATES AN

TSEAaD

OBLIGATION ON THE PART OF THE SELLER TO TRANSFER


OWNERSHIP AND TO DELIVER THE SUBJECT MATTER OF THE
CONTRACT.

13

- BUT ONLY DURING It is during the delivery that the law requires
the seller to have the right to transfer ownership of the thing
sold.

14

In general, a perfected contract of sale cannot be

challenged on the ground of the seller's non-ownership of the


thing sold at the time of the perfection of the contract.

15

Further, even after the contract of sale has been perfected


between the parties, its consummation by delivery is yet another
matter. It is through tradition or delivery that the buyer acquires
the real right of ownership over the thing sold.

16

Undisputed is the fact that at the time of the sale, RODOLFO DE


LEON WAS NOT THE OWNER OF THE LAND HE DELIVERED
TO PETITIONER. Thus, the consummation of the contract and
the consequent transfer of ownership would depend on whether
he subsequently acquired ownership of the land in accordance
with Article 1434 of the Civil Code.

17Therefore,

we need to

resolve the issue of the authenticity and the due execution of the
Extrajudicial Partition and Quitclaim in his favor.
Second Issue:

Authenticity of the Extrajudicial Partition


Petitioner contends that the Extrajudicial Partition and Quitclaim
is

authentic,

because

it

was

notarized

and

executed

in

accordance with law. She claims that there is no clear and


convincing evidence to set aside the presumption of regularity in
the issuance of such public document. We disagree.
As a general rule, the due execution and authenticity of a
document must be reasonably established before it may be
admitted in evidence.

18

Notarial documents, however, may be

presented in evidence without further proof of their authenticity,


since the certificate of acknowledgement is prima facie evidence
of the execution of the instrument or document involved.

19

To

contradict facts in a notarial document and the presumption of


regularity in its favor, the evidence must be clear, convincing and
more than merely preponderant.

20

The CA ruled that the signatures of Hermoso de Leon on the


Extrajudicial Partition and Quitclaim was forged. However, this
factual finding is in conflict with that of the RTC. While normally
this Court does not review factual issues,

21

this rule does not

apply when there is a conflict between the holdings of the CA and


those of the trial court,

22

as in the present case.

After poring over the records, we find no reason to reverse the


factual finding of the appellate court. A comparison of the
signatures of Hermoso de Leon

23

with his purported signature on

the Deed of Extrajudicial Partition with Quitclaim

24

will readily

reveal that the latter is a forgery. As aptly held by the CA, such
variance cannot be attributed to the age or the mechanical acts
of the person signing.

25

Without the corroborative testimony of the attesting witnesses,


the lone account of the notary regarding the due execution of the

Deed is insufficient to sustain the authenticity of this document.


He can hardly be expected to dispute the authenticity of the very
Deed he notarized.

26

For this reason, his testimony was as it

should be minutely scrutinized by the appellate court, and was


found wanting.
Third Issue:
Possession in Good Faith
Petitioner claims that her possession of the land is in good faith
and that, consequently, she has acquired ownership thereof by
virtue of prescription. We are not persuaded.
It is well-settled that NO TITLE TO REGISTERED land in
derogation of that of the registered owner shall be acquired by
prescription

or

adverse

possession.

27

Neither

can

prescription be allowed against the hereditary successors of the


registered owner, because they merely step into the shoes of the
decedent and are merely the continuation of the personality of
their predecessor in interest.
of registration

29

28

Consequently, since a certificate

covers it, the disputed land cannot be

acquired by prescription regardless of petitioner's good


faith.
Fourth Issue:
Prescription of Action and Laches
Petitioner also argues that the right to recover ownership has
prescribed, and that respondents are guilty of laches. Again, we
disagree.
Article 1141 of the New Civil Code provides that real actions over
immovable properties prescribe after thirty years. This period for
filing an action is interrupted when a complaint is filed in
court.

30

Rodolfo de Leon alleged that the land had been

allocated to him by his brother Hermoso de Leon in March


1963,

31

but that the Deed of Extrajudicial Partition assigning the

contested land to the latter was executed only on September 16,


1963.

32

In any case, the Complaint to recover the land from

petitioner was filed on February 24, 1993,

33

which was within the

30-year prescriptive period.


BUT **On the claim of laches, we find no reason to reverse the
ruling of the CA. Laches is based upon equity and the public
policy of discouraging stale claims.
equitable

doctrine,

its

equitable considerations.

34

application
35

Since laches is an
is

controlled

by

It cannot be used to defeat

justice or to perpetuate fraud and injustice.

36

Thus, the

assertion of laches to thwart the claim of respondents is


foreclosed, because the Deed upon which petitioner bases her
claim is a forgery.
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, Sandoval-Gutierrez, Corona, and Carpio Morales, JJ., concur.

(Alcantara-Daus v. Spouses De Leon, G.R. No. 149750, [June 16,


2003], 452 PHIL 92-103)
|||

2,)SAMPAGUITA

PICTURES, INC., plaintiff-

appellant, vs. JALWINDOR MANUFACTURERS,


INC.,defendant-appellee.

DECISION

DE CASTRO, J :
p

This case was certified to this Court by the Court of


Appeals pursuant to the provisions of Section 17,
paragraph (6) in relation to Section 31 of the Judiciary Act
of 1948.

cdrep

Plaintiff-appellant Sampaguita Pictures, Inc.


(hereinafter referred to as Sampaguita) is the owner of the
Sampaguita Pictures Building located at the corner of
General Araneta and General Roxas Streets, Cubao,
Quezon City. The roofdeck of the building and all existing
improvements thereon were leased by Sampaguita to
CAPITOL "300" INC. (CAPITOL FOR SHORT), and it was

agreed,(AGREEMENT) among other things, that the


premises shall be used by said club for social purposes
exclusively for its members and guests; that all permanent
improvements made by the lessee on the leased premises
shall belong to the lessor WITHOUT ANY OBLIGATION
ON THE PART OF THE LESSOR TO REIMBURSE THE
LESSEE FOR THE SUM SPENT FOR SAID
IMPROVEMENTS; that the improvements made by lessee
have been considered as part of the consideration of the
monthly rental and said improvements belong to the
lessor; that any remodelling, alterations and/or addition to
the premises shall be at the expense of the lessee and
such improvements belong to the lessor, without any
obligation to reimburse the lessee of any sum spent for
said improvements. (pp. 29-32, Record on Appeal)
Capitol "300" PURCHASED ON CREDIT from
defendant-appellee Jalwindor Manufacturers, Inc.
(hereinafter referred to as Jalwindor) glass and wooden
jalousies which were delivered and installed in the leased
premises by Jalwindor, replacing the existing windows. On
June 1, 1964, Jalwindor filed with the Court of First
Instance of Rizal, Quezon City, an action for collection of a
sum of money with a petition for preliminary attachment
against Capitol for its failure to pay its purchases. The
parties submitted to the trial court a Compromise
Agreement wherein Capitol acknowledged its
indebtedness to Jalwindor in the amount of P9,531.09,
exclusive of attorney's fees and interest, payable in
monthly installments of at least P300.00 a month
beginning December 15, 1964; and pending liquidation of
the said obligation, all the materials purchased by Capitol

will be considered as security for such undertaking. (p. 13,


Record on Appeal)
In the meantime, Capitol "300" was not able to pay
rentals to Sampaguita from March 1, 1964 to April 30,
1965, water, electric and telephone services. Sampaguita
filed a complaint for EJECTMENT AND FOR COLLECTION
OF A SUM OF MONEY against Capitol and on June 8,
1965, the City Court of Quezon City rendered judgment
ordering Capitol to vacate the premises and to pay
Sampaguita.

LibLex

= Capitol likewise failed to comply with the

terms of the Compromise Agreement, and on, the Sheriff


of Quezon City made levy on the glass and wooden
jalousies in question
. Sampaguita filed a third-party claim alleging that it
is the owner of said materials and not Capitol.
Jalwindor, however, filed an indemnity bond in favor
of the Sheriff and the items were sold at public auction on
August 30, 1965 with Jalwindor as the highest bidder for
P6,000.00.
Sampaguita filed with the Court of First Instance of
Rizal, Branch IV of Quezon City, an action to nullify the
Sheriff's Sale and for the issuance of a writ of preliminary
injunction against Jalwindor from detaching the glass and
wooden jalousies. Jalwindor was ordered to maintain
the status quo pending final determination of the case. No
actual hearing was held and the parties submitted the
following stipulation of facts for the consideration of the
court.
"1. That plaintiff and defendant are both
domestic corporations duly organized and existing by
and under the laws of the Philippines;

"2. That plaintiff leased to the CAPITOL "300",


Inc. the roofdeck of the Sampaguita building and all
the existing improvements thereon for a monthly
rental of P650.00; that the parties to the lease
contract agreed that all permanent improvements
made by the lessee on the leased premises shall
belong to the lessor without any obligation on the
part of the lessor to reimburse the lessee for the sum
spent for said improvements; that it was agreed
upon by the parties that the improvements made by
the lessee have been considered as part of the
consideration of the monthly rental;
"3. That CAPITOL "300", Inc. made alterations
on the leased premises; that it removed the then
existing windows and replaced them with the
following items bought on credit from the JALWINDOR
MANUFACTURERS, INC., valued at P9,531.09, to wit:
'J-21 (lever-type) Solex Bluepane
Glass Jalousies
11 Sets 15'-1 3/4" x 47-7/8" (5 units)
4 Sets 13'-5 3/4" x 47-7/8" (5 units)
3 Sets 10'-9 3/4" x 47-7/7" (4 units)
2 Sets 18'-1 3/4" x 65-3/8" (6 units)
1 Set 9'-1 3/4" x 65-3/8" (3 units)
1 Set 3'-0"x 65-3/8" (1 unit)
115 Pcs. Roto Operators for J-21
MODEL J-21 (Roto-type) Glass
and Wood Jalousies
8 Sets 32-1/2" x 60" Solex Bluepane
19 Sets 31-l/4" x 48" Solex Bluepane
18 Sets 34"x 48" Wood'

"4. That after the CAPITOL "300 ", Inc. failed to


pay the price of the items mentioned in the
preceding paragraph, JALWINDOR MANUFACTURERS,
Inc. filed a case for collection of a sum of money
against CAPITOL "300", Inc. with the Court of First
Instance of Rizal (Branch IV, Quezon City), Civil Case
No. Q-8040; that by virtue of a Compromise
Agreement, CAPITOL "300", Inc. acknowledged
indebtedness in favor of JALWINDOR In the amount of
P9,531.09, with a stipulation in the said Compromise
Agreement, that the items forming part of the
improvements will form as security for such an
undertaking;
"5. That due to non-compliance by CAPITOL
"300", Inc., JALWINDOR executed judgment; that the
Sheriff of Quezon City made levy on the items abovestated in paragraph 3 hereof and sold them at a
public auction to JALWINDOR MANUFACTURERS, INC.
as the highest bidder, on August 30, 1965, for the
total amount of P6,000.00;
"6. That after CAPITOL "300", Inc. failed to pay
the rentals in arrears from March 1, 1964 to April 30,
1965, water, electric and telephone services
amounting to P10,772.90, the plaintiff SAMPAGUITA
PICTURES, INC. filed with the City Court of Quezon
City, Civil Case No. 11-13161 for ejectment and
collection of a sum of money against the CAPITOL
"300", Inc.; that the
- City Court rendered judgment in favor of the
Sampaguita Pictures, Inc., on June 8, 1965, ordering
the CAPITOL "300", Inc. to vacate the premises

located at the Sampaguita Building and to pay the


Sampaguita Pictures, Inc.;
"7. That after the Sheriff of Quezon City made
levy on the items above-stated in paragraph 3 hereof
situated on the roofdeck of the Sampaguita Building,
plaintiff filed a Third Party Claim stated in its affidavit
on the ground of its right and title to the possession
of the items and that CAPITOL "300", Inc. has no
right or title whatsoever to the possession over said
items; that defendant filed a bond to indemnify the
Sheriff against the claim, and the Sheriff sold the
items to the defendant; that the JALWINDOR
MANUFACTURERS, Inc., being the highest bidder and
the execution creditor, considered itself paid to the
amount of P6,000.00;
"8. That the parties herein agree that the
matter of attorney's fees be left to the sound
discretion of the Court, which shall not be less than
P500.00." (Record on Appeal, pp. 11-14)."

On October 20, 1967, based on said Stipulation of


Facts, the lower court dismissed the complaint and
ordered Sampaguita to pay Jalwindor the amount of
P500.00 as attorney's fees. Sampaguita filed a motion for
reconsideration which was likewise denied, hence, the
instant appeal.
Petitioner-appellant raised the following assignment
of errors;
I
"The lower court erred in holding that Capitol
"300" Inc. could not legally transfer or assign the

glass and wooden jalousies in question to the


plaintiff-appellant.
II
"The lower court erred in not holding that
plaintiff-appellant was the rightful owner of the glass
and wooden jalousies when they were sold by the
Sheriff at the public auction.
III
"The lower court erred in not declaring as null
and void the levy on execution and the Sheriff's sale
at public auction of the glass and wooden jalousies.
IV
"The lower court erred in holding that
defendant-appellee became the rightful owner of the
glass and wooden jalousies."
ISSUE : WON PET the rightful owner of the
glass and wooden jalousies UPON
INSTALLMENT TO THE PROPERTY .

When the glass and wooden jalousies in


question were DELIVERED AND INSTALLED IN THE
LEASED PREMISES, Capitol became the owner
thereof. Ownership is not transferred by perfection of the
contract but by delivery, either actual or constructive.
This is true even if the purchase has been made on
credit, as in the case at bar.
R- Payment of the purchase price is not essential to
the transfer of ownership as long as the property sold has
been delivered. Ownership is acquired from the moment
the thing sold was delivered to vendee, as when it is

placed in his control and possession. (Arts. 1477, 1496 and


1497, Civil Code of the Phil.)
Capitol entered into a lease contract with
Sampaguita in and the latter became the owner of the
items in question by virtue of the agreement in said
contract "that all permanent (SAMPAGUITA BECAME
OWNER BY VIRTUE OF THE AGREEMENT ) improvements
made by lessee shall belong to the lessor and that said
improvements have been considered as part of the
monthly rentals." When levy or said items was made
on July 31, 1965, CAPITOL, THE JUDGMENT DEBTOR, WAS
NO LONGER THE OWNER THEREOF.

prLL

The action taken by Sampaguita to protect its


interest is sanctioned by Section 17, Rule 39 of the Rules
of Court, which reads:
"Section 17. Proceedings where property
claimed by third person.
'. . . The officer is not liable for damages
for the taking or keeping of the property to any
third-party claimant unless a claim is made by
the latter and unless an action for damages is
brought by him against the officer within one
hundred twenty (120) days from the date of the
filing of the bond. But nothing herein contained
shall prevent claimant or any third person from
vindicating his claim to the property by any
action.'"

It is, likewise, recognized in the case of Bayer Phil., Inc. vs.


Agana, et al., 63 SCRA 358, wherein the Court declared,

"that the rights of third party claimants over certain


properties levied upon by the Sheriff to satisfy the
judgment, may not be taken up in the case where such
claims are presented but in a separate and independent
action instituted by claimants . . . and should a third-party
appear to claim the property levied upon by the Sheriff
and the claim is denied, the remedy contemplated by the
rules is the filing by said party of a reivindicatory action
against the execution creditor or the purchaser of the
property after the sale is completed or that a complaint for
damages to be charged against the bond filed by the
creditor in favor of the sheriff . . . Thus, when a property
levied upon by the sheriff pursuant to a writ of execution is
claimed by a third person in a sworn statement of
ownership thereof, as prescribed by the rules, an entirely
different matter calling for a new adjudication arises."
= The items in question were illegally levied upon
since they do not belong to the judgment debtor. The
power of the Court in execution of judgment extends only
to properties unquestionably belonging to the judgment
debtor. THE FACT THAT CAPITOL FAILED TO PAY JALWINDOR
THE PURCHASE PRICE OF THE ITEMS LEVIED UPON DID
NOT PREVENT THE TRANSFER OF OWNERSHIP TO CAPITOL.
The complaint of Sampaguita to nullify the Sheriff's sale is
well-founded, and should prosper. Execution sales affect
the rights of judgment debtor only, and the PURCHASER
IN THE AUCTION SALE ACQUIRES ONLY THE RIGHT
AS THE DEBTOR HAS AT THE TIME OF SALE. = Since
the items already belong to Sampaguita and not to
Capitol, the judgment debtor, the levy and auction
sale are, accordingly, null and void. It is well-settled in
this jurisdiction that the sheriff is not authorized to attach

property not belonging to the judgment debtor. (Arabay,


Inc. vs. Salvador, et al., 3 PHILAJUR, 413 [1978], Herald
Publishing vs. Ramos, 88 Phil. 94, 100)
WHEREFORE, the decision appealed from is hereby
reversed, and plaintiff-appellant Sampaguita is declared
the lawful owner of the disputed glass and wooden
jalousies. Defendant-appellee Jalwindor is permanently
enjoined from detaching said items from the roofdeck of
the Sampaguita Pictures Building, and is also ordered to
pay plaintiff-appellant the sum of P1,000.00 for and as
attorney's fees, and costs.

Cdpr

SO ORDERED.
Teehankee, Acting C.J. (Chairman), Makasiar, Fernandez,
Guerrero

3.) (PNB ) PHILIPPINE NATIONAL BANK, plaintiffappellee, vs. SEVERO EUGENIO LO ET


AL., defendants.SEVERO EUGENIO LO, NG
KHEY LING and YEP SENG, appellants.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.
SYLLABUS
1. ASSOCIATIONS; GENERAL PARTNERSHIPS; LIABILITY.
The anomalous adoption of a firm name by the defendant
partners cannot be set up by them as a defense so as to evade
a liability contracted by them, inasmuch as such anomaly does
not affect the liability of the general partners to third persons
under article 127 of the Code of Commerce. (See Hung-ManYoc vs. Kieng- Chiong-Seng, 6 Phil., 498.)
2. ID.; ID.; ID. The object of article 126 of the Code of
Commerce in requiring a GENERAL PARTNERSHIP to
transact business under the name of all its members, of
several of them, or of one only, is to protect the public from
imposition and fraud. The provision of said article 126 is for the
R- protection of the creditors rather than of the partners
themselves. The doctrine formerly enunciated by this court is
that the law must be construed as rendering contracts made in
violation of it, unlawful and unenforceable only as between the
partners and at the instance of the infringer, but not in the
sense of depriving innocent parties of their rights, who may
have dealt with the guilty parties in ignorance of the latter's
having violated the law; and that contracts entered into by
mercantile associations defectively organized are valid when
voluntarily executed by the parties and the only question is

whether or not they complied with the agreement. (Jo Chung


Cang vs. Pacific Commercial Co., 46 Phil., 142.)
3. ID.; ID.; ID. Appellants' contention that such parts of
their property as are not included in the partnership assets
cannot be levied upon for the payment of the partnership
obligations, except after the partnership property has been
exhausted is UNTENABLE, for the partnership property
described in the mortgage no longer existed at the time of the
filing of the herein complaint, nor has its existence been
proved, nor was it offered to the plaintiff for sale. Hence article
237 of the Code of Commerce invoked by the appellants can in
no way be applicable to this case.
4. ID.; ID.; ID. All the members of a general partnership,
be they managing partners of the same or not, SHALL BE
PERSONALLY AND SOLIDARILY LIABLE WITH ALL THEIR
PROPERTY FOR THE RESULTS OF THE TRANSACTIONS MADE IN
THE NAME AND FOR THE ACCOUNT OF THE PARTNERSHIP,
under the signature of the latter and by a person authorized to
use it. (Sec. 127, Code of Commerce.)

DECISION

VILLAMOR, J.

On September 29, 1916, the appellants Severo Eugenio


Lo and Ng Khey Ling, together with J. A. Say Lian Ping, Ko Tiao
Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial
partnership under the name of "Tai Sing & Co.," with a
capital of P40,000 contributed by said partners. In the articles
of copartnership, Exhibit A, it appears that the partnership was
to last for five years from and after the date of its organization,

and that its purpose was to do business in the City of Iloilo,


Province of Iloilo, or in any other part of the Philippine Islands
the partners might desire, under the name of "Tai Sing & Co.,"
for the purchase and sale of merchandise, goods, and native,
as well as Chinese and Japanese, products, and to carry on
such business and speculations as they might consider
profitable.
One of the partners, J. A. Say Lian Ping was appointed
general manager of the partnership, with the powers specified
in said articles of copartnership.
On June 4, 1917,
- general manager A. Say Lian Ping executed a power of
attorney in favor of A. Y. Kelam, authorizing him to act in
his stead as manager and administrator of "Tai Sing &
Co."
On July 26, 19~8, A. Y. Kelam, acting under such power of
attorney, applied for, and obtained a loan of P8,000 in
current account from the plaintiff bank As security for said
loan, he mortgaged certain personal property of Tai Sing
& Co.
This credit was renewed several times and on March 25,
1919, A. Y. Kelam, AS ATTORNEY-IN-FACT OF TAI SING &
CO., executed a chattel mortgage in favor of plaintiff bank as
security for a loan of P20,000 with interest .This mortgage was
again renewed on April 16, 1920, and A. Y. Kelam, as attorneyin-fact of Tai Sing & Co., executed another chattel mortgage for
the said sum of P20,000 in favor of the plaintiffbank. (Exhibit
E.) Ac- cording to this mortgage contract, the P20,000 loan
was to earn 9 per cent interest per annum.

-, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng


Khey Ling, the latter represented by M. Pineda Tayenko,
executed a power of attorney in favor of SY TIT by virtue
of which Sy Tit, representing Tai Sing & Co. obtained a credit of
P20,000 from plaintiff bank on January 7, 1921, executing a
chattel mortgage on certain personal property belonging to Tai
Sing & Co. ( ATTY REP- KEALM APPOINTED THROUGH POWER
OF ATTY TO BE REP BY SY TIT ).
Defendants had been using this commercial credit in a
current account with the plaintiff bank, from the year 1918 to
May 22, 1921, and the debit balance of this account, with
interest to December 31, 1924, is as follows:
TAI SING & CO.
To your outstanding account (C. O. D.) with us on June
30, 1922 P16,518.74
Interest on same from June 30, 1922 to December 31,1924,
at 9 per cent per annum 3,720.86
_________
Total 20,239.60
========

This total is the sum claimed in the complaint, together with


interest on the P16,518.74 debt, at 9 per cent per annum from
January 1, 1925 until fully paid, with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that
Tai Sing & Co., was not a general partnership, and that the
commercial credit in current account which Tai Sing & Co.
obtained from the plaintiff bank had not been authorized by
the board of directors of the company, nor was the person

who subscribed said contract authorized to make the same,


under the articles of copartnership. The other defendants, Yap
Sing and Ng Khey Ling, answered the complaint denying each
and every one of the allegations contained therein.
After the hearing, the court found:
(1) That defendants Severo Eugenio Lo, Ng Khey Ling and
Yap Seng & Co., Sieng Peng are indebted to
plaintiff Philippine National Bank in the sum of P22,595.26 to
July 29, 1926. with a daily interest of P4.14 on the balance on
account of the partnership Tai Sing & Co. for the sum of
P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to
pay the Philippine National Bank the sum of P22,727.74 up to
August 31, 1926, and from that date, P4.14 daily interest on
the principal; and
(3) The defendants are furthermore ordered to pay the
costs of the action.
Defendants appealed, making the following assignments
of error:
"I. The trial court erred in finding that article 126 of
the Code of Commerce at present in force is not
mandatory.
"II. The trial court erred in finding that the
partnership agreement of Tai Sing & Co. (Exhibit A), is in
accordance with the requirements of article 125 of the
Code of Commerce for the organization of a regular
partnership.
"III. The trial court erred in not admitting J. A. Sai
Lian Ping's death in China in November, 1917, as a
proven fact.

"IV. The trial court erred in finding that the death of


J. A. Sai Lian Ping cannot extinguish the defendants'
obligation to the plaintiff bank, because the last debt
incurred by the commercial partnership Tai Sing & Co.
was that evidenced by Exhibit F, signed by Sy Tit as
attorney-in-fact of the members of Tai Sing & Co., by
virtue of Exhibit G.
"V. The trial court erred in not finding that
plaintiff bank was not able to collect its credit from the
goods of Tai Sing & Co. given as security therefor through
its own fault and negligence; and that the action brought
by plaintiff is a manifest violation of article 237 of the
present Code of Commerce.
"VI. The trial court erred in finding that the current
account of Tai Sing & Co. with plaintiff bankshows a debit
balance of P16,518.74, which in addition to interest at 9
per cent per annum from July 29, 1926, amounts to
P16,595.26, with a daily interest of P4.14 on the sum of
P16,518.74.
"VII. The trial court erred in ordering the
defendants-appellants to pay jointly and severally to
thePhilippine National Bank the sum of P22,727.74 up to
August 31, 1926, and interest on P16,518.74 from that
date until fully paid, with the costs of the action.
"VIII. The trial court erred in denying the motion for
a new trial filed by defendants-appellants.''
ISSUE : WON THE PARTNERS IN A PARTNERSHIP IS
SOLIDARILY LIABLE TO THE DEBTS INCURRED UNDER THE
PARTNERSHIP .

Appellants admit, and it appears from the context of


Exhibit A, that the defendant association formed by the
defendants is a general partnership, as defined in article 126
of the Code of Commerce. This partnership was registered in
the mercantile register of the Province of Iloilo. The only
anomaly noted in its organization is that instead of adopting
for their firm name the names of all of the partners, of several
of them, or only one of them, to be followed in the last two
cases, by the words "and company," the partners agreed upon
"Tai Sing & Co." the firm name.
In the case of Hung-Man-Yoc, under the name of KwongWo-Sing vs. Kieng-Chiong-Seng (6 Phil., 498), cited by
appellants, this court held that, as the company formed by
defendants had existed in fact, though not in law due to the
fact that it was not recorded in the register, and having
operated and contracted debts in favor of the plaintiff, the
same must be paid by someone. This applies more strongly to
the obligations contracted by the defendants, for they formed
a partnership which was registered in the mercantile register,
and carried on business contracting debts with the
plaintiff bank. The anomalous adoption of the firm name above
noted does not affect the liability of the general partners to
third parties under article 127 of the Code of Commerce. And
the Supreme Court so held in the case of Jo Chung Cang vs.
Pacific Commercial Co. (45 Phil., 142), in which it said that the
object of article 126 of the Code of Commerce in requiring a
general partnership to transact business under the name of all
its members, of several of them, or of one only, is to protect
the public from imposition and fraud; and that the pro- vision
of said article 126 is for the protection of the creditors rather
than of the partners themselves. And consequently the
doctrine was enunciated that the law must be construed as

rendering contracts made in violation of it unlawful and


unenforceable only as between the partners and at the
instance of the violating party, but not in the sense of
depriving innocent parties of their rights who may have dealt
with the offenders in ignorance of the latter having violated
the law; and that contracts entered into by commercial
associations defectively organized are valid when voluntarily
executed by the parties, and the only question is whether or
not they complied with the agreement. THEREFORE, THE
DEFENDANTS CANNOT INVOKE IN THEIR DEFENSE THE
ANOMALY IN THE FIRM NAME WHICH THEY THEMSELVES
ADOPTED.

As to the alleged death of the manager of the company,


Say Lian Ping, before the attorney-in-fact Ou Yong Kelam
executed Exhibits C, D and E, the trial court did not find this
fact proven at the hearing. But even supposing that the court
had erred, such an error would not justify the reversal of the
judgment, for two reasons at least: (1) Because Ou Yong Kelam
was a partner who contracted in the name of the partnership,
without any objection of the other partners; and (2) because it
appears in the record that the appellant-partners Severo
Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as
manager, and he obtained from the plaintiff bank the credit in
current account, the debit balance of which is sought to be
recovered in this action.
Appellants allege that such of their property as is not
included in the partnership assets cannot-be seized for the
payment of the debts contracted by the partnership until after
the partnership property has been exhausted. BUT INCAB The court found that the partnership property described in the

mortgage NO LONGER EXISTED AT THE TIME OF THE


FILING of the herein complaint nor has its existence been
proven, nor was it offered to the plaintiff for sale. We find no
just reason to reverse this conclusion of the trial court, and this
being so, it follows that article 237 of the Code of Commerce,
invoked by the appellants, can in no way have any application
here.
Appellants also assign error to the action of the trial court
in ordering them to pay plaintiff, jointly and severally, the
sums claimed with 9 per cent interest on P16,518.74, owing
from them.
The judgment against the appellants is in accordance
with article 127 of the Code of Commerce which provides that
ALL THE MEMBERS OF A GENERAL PARTNERSHIP, BE THEY
MANAGING PARTNERS THEREOF OR NOT, SHALL BE
PERSONALLY AND SOLIDARILY LIABLE WITH ALL THEIR
PROPERTY, FOR THE RESULTS OF THE TRANSACTIONS MADE IN
THE NAME AND FOR THE ACCOUNT OF THE PARTNERSHIP,
under the signature of the latter, and by a person authorized
to use it.
As to the amount of the interest suffice it to remember
that the credit in current account sued on in this case has been
renewed by the parties in such a way that while it appears in
the mortgage Exhibit D executed on March 25, 1919 by the
attorney-in-fact Ou Yong Kelam, that the P20,000 credit would
earn 8 per cent interest annually, yet from that executed on
April 16, 1920, Exhibit E, it appears that the P20,000 would
earn 9 per cent interest per annum. The credit was renewed in
January, 1921, and in the deed of pledge, Exhibit F, executed
by "Tai Sing & Co." represented by the attorney-in-fact Sy Tit, it
appears that this security is for the payment of the sums

received by the partnership, not to exceed P20,000 with


interest and collection fees. There can be no doubt that the
parties agreed upon the rate of interest fixed in the document
Exhibit E, namely, 9 per cent per annum.
PHIL 802-809)

4.) NORKIS DISTRIBUTORS,


INC., petitioner, vs. THE COURT OF APPEALS &
ALBERTO NEPALES,respondents.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent.

DECISION

GRIO-AQUINO, J :
p

Subject of this petition for review is the decision of the Court of


Appeals (Seventeenth Division) in CA-G.R. No. 09149, affirming
with modification the judgment of the Regional Trial Court, Sixth
(6th) Judicial Region, Branch LVI. Himamaylan, Negros Occidental,
in Civil Case No. 1272, which was private respondent Alberto
Nepales' action for specific performance of a contract of sale with
damages against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the
distributor of Yamaha motorcycles in Negros Occidental with
office in Bacolod City with Avelino Labajo as its Branch Manager.
On September 20, 1979, private respondent Alberto Nepales
bought from the Norkis-Bacolod branch a brand new Yamaha
Wonderbike motorcycle Model YL2DX with Engine No. L2329401K, Frame No. NL2-0329401, Color Maroon, then displayed
in the Norkis showroom. The price of P7,500.00 was payable by
means of a Letter of Guaranty from the Development Bank of
the Philippines (dpb)(DBP), Kabankalan Branch, which Norkis'
Branch Manager Labajo agreed to accept.
- Hence, credit was extended to Nepales for the price of the
motorcycle payable by DBP upon release of his motorcycle loan.
As security for the loan, Nepales would execute a chattel
mortgage on the motorcycle in favor of DBP
-. Branch Manager Labajo issued Norkis Sales Invoice No.
0120 showing that the contract of sale of the motorcycle
had been perfected. Nepales signed the sales invoice to signify
his conformity with the terms of the sale. IN THE MEANTIME,
HOWEVER, THE MOTORCYCLE REMAINED IN NORKIS'
POSSESSION.

On November 6, 1979, the motorcycle was registered in the Land


Transportation Commission in the name of Alberto Nepales. A
registration certificate (Exh. 2) in his name was issued by the
Land Transportation Commission on November 6, 1979 (Exh. 2-b).
The registration fees were paid by him, evidenced by an official
receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain
Julian Nepales who was allegedly the agent of Alberto Nepales
BUT THE LATTER DENIES IT (p. 15, t.s.n., August 2, 1984). The
record shows that Alberto and Julian Nepales presented the unit
to DBP's Appraiser-Investigator Ernesto Arriesta at the DBP offices
in Kabankalan, Negros Occidental Branch (p. 12, Rollo).
- The motorcycle met an accident at Binalbagan, Negros
Occidental. An investigation conducted by the DBP revealed that
the unit was being driven by a certain Zacarias Payba at the time
of the accident (p. 33, Rollo). The unit was a total wreck (p. 36,
t.s.n., August 2, 1984; p. 13, Rollo), was returned, and stored
inside Norkis' warehouse.

prLL

On March 20, 1980,


- DBP released the proceeds of private respondent's motorcycle
loan to Norkis in the total sum of P7,500. As the price of the
motorcycle later increased to P7,828 in March, 1980, Nepales
paid the difference of P328 and demanded the delivery of the
motorcycle.
-When Norkis could not deliver, he filed an action for specific
performance with damages against Norkis in the Regional Trial
Court of Himamaylan,
Negros Occidental, Sixth (6th) Judicial Region, Branch LVI, where
it was docketed as Civil Case No. 1272. He alleged that Norkis

failed to deliver the motorcycle which he purchased, thereby


causing him damages.
Norkis answered that the motorcycle had already been delivered
to private respondent before the accident, hence, the risk of
loss or damage had to be borne by him as owner of the unit.
After trial on the merits, the lower court rendered a decision
dated August 27, 1985 ruling in favor of private respondent (p.
28, Rollo) thus:
"WHEREFORE, judgment is rendered in favor of the
plaintiff and against the defendants. The defendants are
ordered to pay solidarily to the plaintiff the present value
of the motorcycle which was totally destroyed, plus
interest equivalent- ( CA AFFIRMED THE APPEALED
JUDGEMENT )
to what the Kabankalan Sub-Branch of the Development
Bank of the Philippines will have to charge the plaintiff on
his account, plus P50.00 per day from February 3, 1980
until full payment of the said present value of the
motorcycle, plus P1,000.00 as exemplary damages, and
costs of the litigation. In lieu of paying the present value
of the motorcycle, the defendants can deliver to the
plaintiff a brand-new motorcycle of the same brand, kind,
and quality as the one which was totally destroyed in
their possession last February 3, 1980." (pp. 28-29, Rollo.)

On appeal, the Court of Appeals affirmed the appealed judgment


on August 21, 1989, but deleted the award of damages "in the
amount of Fifty (P50.00) Pesos a day from February 3, 1980 until
payment of the present value of the damaged vehicle" (p. 35,
Rollo). The Court of Appeals denied Norkis' motion for
reconsideration. Hence, this Petition for Review.

The principal issue in this case is who should bear the loss of the
motorcycle. The answer to this question would depend on
ISSUE: whether there had already been a transfer of ownership of
the motorcycle to private respondent at the time it was
destroyed.
Norkis' theory is that:
". . . After the contract of sale has been perfected (Art.
1475) and even before delivery, that is, even before the
ownership is transferred to the vendee, the risk of loss is
shifted from the vendor to the vendee. Under Art. 1262,
the obligation of the vendor to deliver
a determinate thing becomes extinguished if the thing is
lost by fortuitous event (Art. 1174),PROVIDED : that is,
without the fault or fraud of the vendor and before he has
incurred delay (Art. 1165, par. 3). If the thing sold
is generic, the loss or destruction does not extinguish the
obligation (Art. 1263). A thing is determinate when it is
particularly designated or physically segregated from all
others of the same class (Art. 1460). Thus, the vendor
becomes released from his obligation to deliver the
determinate thing sold while the vendee's obligation to
pay that price subsists. If the vendee had paid the price
in advance the vendor may retain the same. The legal
effect, therefore, is that the vendee assumes the risk of
loss by fortuitous event (Art. 1262) after the perfection of
the contract to the time of delivery." (Civil Code of the
Philippines, Ambrosio Padilla, Vol. 5, 1987 Ed., p. 87.)

NORKIS CONCEDES THAT THERE WAS NO "ACTUAL" DELIVERY OF


THE VEHICLE. However, it insists that there was constructive
delivery of the unit upon: (1) the issuance of the Sales Invoice No.

0120 (Exh. 1) in the name of the private respondent and the


affixing of his signature thereon; (2) the registration of the vehicle
on November 6, 1979 with the Land Transportation Commission
in private respondent's name (Exh. 2); and (3) the issuance of
official receipt (Exh. 3) for payment of registration fees (p. 33,
Rollo).
That argument is not well taken. As pointed out by the private
respondent, the ISSUANCE OF A SALES INVOICE DOES NOT
PROVE TRANSFER OF OWNERSHIP OF THE THING SOLD TO
THE BUYER.
- An invoice is nothing more than a detailed statement of the
nature, quantity and cost of the thing sold and has been
considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378).

cdphil

In all forms of delivery, it is necessary that the act of delivery


whether constructive or actual, be coupled with the intention of
delivering the thing. THE ACT, WITHOUT THE INTENTION, IS
INSUFFICIENT (De Leon, Comments and Cases on Sales, 1978 Ed.,
citing Manresa, p. 94).
( INCAB) When the motorcycle was registered by Norkis in the
name of private respondent, Norkis did not intend yet to transfer
the title or ownership to Nepales, but only to facilitate the
execution of a chattel mortgage in favor of the DBP for the
release of the buyer's motorcycle loan. The Letter of Guarantee
(Exh. 5) issued by the DBP, reveals that the execution in its favor
of a chattel mortgage over the purchased vehicle is a prerequisite for the approval of the buyer's loan. ( THE LETTER OF
GUARANTEE- IS ONLY PRE- REQUISITE FOR APPROVAL OF LOAN ) If
Norkis would not accede to that arrangement, DBP would not
approve private respondent's loan application and, consequently,
there would be no sale.

In other words, the critical factor in the different modes of


effecting delivery, which gives legal effect to the act, is the
ACTUAL INTENTION OF THE VENDOR TO DELIVER, AND ITS
ACCEPTANCE BY THE VENDEE. WITHOUT THAT INTENTION, THERE
IS NO TRADITION (Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this
Court held:
"The Code imposes upon the vendor the obligation
to deliver the thing sold. (G) The thing is considered to be
delivered when it is 'placed in the hands and possession
of the vendee.' (Civil Code, Art. 1462). It is true that the
same article declares that the execution of a public
instrument is equivalent to the delivery of the thing which
is the object of the contract, but, in order that this
symbolic delivery may produce the effect of tradition, it is
necessary that the vendor shall have had
such control over the thing sold that, at the moment of
the sale, its material delivery could have been made. IT
IS NOT ENOUGH TO CONFER UPON THE PURCHASER
THE OWNERSHIP AND THE RIGHT OF
POSSESSION. THE THING SOLD MUST BE PLACED IN
HIS CONTROL. When there is no impediment whatever
to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic
delivery through the execution of a public instrument is
sufficient. Butif, notwithstanding the execution of the
instrument, the purchaser cannot have the enjoyment
and material tenancy of the thing and make use of it
himself or through another in his name, because such
tenancy and enjoyment are opposed by the interposition

of another will, then fiction yields to reality the


delivery has not been effected." (Emphasis supplied.)

The Court of Appeals correctly ruled that the purpose of the


execution of the sales invoice dated September 20, 1979 (Exh. B)
and the registration of the vehicle in the name of plaintiffappellee (private respondent) with the Land Registration
Commission (Exhibit C) was not to transfer to Nepales the
ownership and dominion over the motorcycle, but only to comply
with the requirements of the Development Bank of the Philippines
for processing private respondent's motorcycle loan. On March
20, 1980, before private respondent's loan was released and
before he even paid Norkis, the motorcycle had already figured in
an accident while driven by one Zacarias Payba. Payba was not
shown by Norkis to be a representative or relative of private
respondent. The latter's supposed relative, who allegedly took
possession of the vehicle from Norkis did not explain how Payba
got hold of the vehicle on February 3, 1980. Norkis' claim that
Julian Nepales was acting as Alberto's agent when he allegedly
took delivery of the motorcycle (p. 20, Appellants' Brief), is
controverted by the latter. Alberto denied having authorized
Julian Nepales to get the motorcycle from Norkis Distributors or to
enter into any transaction with Norkis relative to said motorcycle.
(p. 5, t.s.n., February 6, 1985). This circumstances more than
amply rebut the disputable presumption of delivery upon which
Norkis anchors its defense to Nepales' action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "IN THE
ABSENCE OF AN EXPRESS ASSUMPTION OF RISK BY THE
BUYER, THE THINGS SOLD REMAIN AT SELLER'S RISK
UNTIL THE OWNERSHIP THEREOF IS TRANSFERRED TO THE
BUYER," is applicable to this case, for there was NEITHER AN

ACTUAL NOR CONSTRUCTIVE DELIVERY OF THE


THING SOLD, hence, the risk of loss should be borne by the
seller, Norkis, which was still the owner and possessor of the
motorcycle when it was wrecked. This is in accordance with the
well-known doctrine of res perit domino.

cdphil

WHEREFORE, finding no reversible error in the decision of the


Court of Appeals in CA-G.R. No. 09149, we deny the petition for
review and hereby affirm the appealed decision, with costs
against the petitioner.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

(Norkis Distributors, Inc. v. Court of Appeals, G.R. No. 91029,


[February 7, 1991], 271 PHIL 726-732)
|||

5.)
PHILIPPINE SUBURBAN DEVELOPMENT CORPOR
ATION, petitioner, vs. THE AUDITOR GENERAL,
PEDRO M. GIMENEZ, respondent.
Magno L. Dajao for petitioner.
First Assistant Solicitor General Esmeraldo Umali and Solicitor
Sumilang V. Bernardo for respondent.
SYNOPSIS
The Auditor General disallowed petitioner's request for refund of
real estate tax on the Sapang Palay estate for the year 1961
which petitioner paid under protest. The estate was purchased by
the PHHC, as authorized by the President, from petitioner for the

purpose of relocating squatters. The deed of sale was signed in


1960; but prior to the signing of the deed, the PHHC acquired
possession of the property with the consent of petitioner.
On review, the Supreme Court held that since the delivery of
possession coupled with the execution of the Deed of Absolute
Sale had consummated the sale and transferred the title to the
purchaser, the payment of the real estate tax after such transfer
is the responsibility of the purchaser. THE COURT RULED,
HOWEVER, THAT IN THE CASE AT BAR, THE PURCHASER
PHHC IS A GOVERNMENT ENTITY AND THEREFORE NOT
SUBJECT TO REAL PROPERTY TAX.
Appealed decision reversed.

cdasia

SYLLABUS
1. GOVERNMENT

CONTRACTS; AUDITOR GENERAL;

CONTRACTS

ENTERED INTO IN IMPLEMENTATION OF PRESIDENTIAL DIRECTIVE


DOES NOT NEED PRIOR APPROVAL BY AUDITOR GENERAL. A
contract entered into by the national government with the
approval of the President of the Philippines for the purchase of
real estate to be used as a resettlement area for squatters and
flood

victims

does

not

need

the

prior

approval

by

theAuditor General envisioned by Administrative Order


No. 290, dated February 3,1959. Such approval refers to
contracts in general, ordinarily entered into by government
offices and government-owned or controlled corporations, and
not to a contract for a special purpose, to meet a special situation
and entered into in implementation of a presidential directive to
solve an emergency.
2. SALES;

REAL

PROPERTY;

TRANSFER

OF

OWNERSHIP;

EXECUTION OF PUBLIC INSTRUMENT EQUIVALENT TO DELIVERY

OF THING SOLD AND TITLE PASSES TO BUYER BY SUCH DELIVERY.


Under the civil law, delivery (tradition) as a mode of
transmission of ownership may be actual (real tradition)
or constructive (constructive tradition).
When the sale of real property is made in a public
instrument, - the execution thereof is equivalent to the
delivery of the thing object of the contract, if from the deed
the contrary does not appear or cannot clearly be inferred. And,
in the case at bar, where the vendor had actually placed the
vendee in possession and control over the thing sold even before
the date of the sale, the non-payment of the purchase price of
the goods did not preclude the transmission of the title upon
execution of the deed of sale, since payment of the purchase
price is not a condition precedent to the transfer of title to the
buyer.
3. ID.; ID.; ID.; ID.; REGISTRATION NOT NECESSARY TO EFFECT
TRANSFER OF OWNERSHIP. As between the parties to a
contract sale, registration is NOT NECESSARY to make the
sale valid and effective, for ACTUAL NOTICE IS EQUIVALENT TO
REGISTRATION. Indeed, Section 50 of the Land Registration
Act provides that, even without the act of registration, a deed
purporting to convey or effect registered land shall operate as a
contract between the parties. The registration is intended to
protect the buyer against claims of third person arising from
subsequent alienations by the vendor.
4. ID.; REAL ESTATE TAX; PAYMENT OF TAX RESPONSIBILITY OF
PURCHASER AFTER TRANSFER OF TITLE. Payment of real estate
taxes

is

the

responsibility

of

the

purchaser

consummation of the sale and transfer of title.

after

the

5. ID.; ID.; PEOPLE'S HOMESITE AND HOUSING CORPORATION


EXEMPT

FROM

REAL

PROPERTY

TAX.

The

PHHC

is

government entity not subject to real property tax pursuant to


the provisions of Section 7 of Rep. Act No. 1322 which exempts all
the projects of the People's Homesite and Housing Corporation,
financed under said act, from national and local taxes and fees of
any kind.

DECISION

ANTONIO, J :
p

Appeal by certiorari from the decision dated December 11, 1961,


of then Auditor General Pedro M. Gimenez, disallowing the
request of petitioner for the refund of real estate tax in the
amount of P30,460.90 paid to the Provincial Treasurer of Bulacan.
The facts of the case are as follows:
On June 8, 1960, at a meeting with the Cabinet, the President of
the Philippines, acting on the reports of the Committee created to
survey suitable lots for relocating squatters in Manila and
suburbs, and of the Social Welfare Administrator together with
the recommendation of the Manager of the Government Service
Insurance System, approved in principle the acquisition by the
People's Homesite and Housing Corporation of the unoccupied
portion of the Sapang Palay Estate in Sta. Maria, Bulacan for
relocating the squatters who desire to settle north of Manila, and
of another area either in Las Pias or Paraaque, Rizal, or Bacoor,
Cavite for those who desire to settle south of Manila. The project
was to be financed through the flotation of bonds under the
charter of the PHHC in the amount of P4.5 million, the same to be

absorbed by the Government Service Insurance System. The


President, through the Executive Secretary, informed the PHHC of
such approval by letter bearing the same date (Annex "B").
On June 10, 1960, the Board of Directors of the PHHC passed
Resolution No. 700 (Annex "C") authorizing the purchase of the
unoccupied portion of the Sapang Palay Estate at P0.45 per
square meter "subject to the following conditions precedent:
1. That the confirmation by the OEC and the President of
the purchase price of P0.45 per sq. m. shall first be
secured, pursuant to OEC Memorandum Circular No. 114,
dated May 6, 1957.
2. That the portion of the estate to be acquired shall first
be defined and delineated.
3. That the President of the Philippines shall first provide
the PHHC with the necessary funds to effect the purchase
and development of this property from the proposed P4.5
million bond issue to be absorbed by the GSIS.
4. That the contract of sale shall first be approved by
the Auditor General pursuant to Executive Order dated
February 3, 1959.
5. The vendor shall agree to the dismissal with prejudice
of Civil Case No. Q-3332 C.F.I. Quezon City, entitled
"Phil. Suburban Dev. Corp. v. Ortiz, et al."

On July 13, 1960, the President authorized the floating of bonds (


HOW LANDS ARE TO BE PAID ) under Republic Act Nos. 1000 and
1322 in the amount of P7,500,000.00 to be absorbed by the GSIS,
in order to finance the acquisition by the PHHC of the entire
Sapang Palay Estate at a price not to exceed P0.45 per sq. meter.

On December 29, 1960, after an exchange of communications,


petitioner Philippine Suburban DevelopmentCorporation, as
OWNER OF THE UNOCCUPIED PORTION OF THE SAPANG PALAY
ESTATE (specifically two parcels covered by TCT Nos. T-23807 and
T-23808), and the People's Homesite and Housing Corporation,
entered into a contract embodied in a public instrument
entitled "Deed of Absolute Sale" (Annex "F") whereby the
former conveyed unto the latter the two parcels of land
abovementioned, under the following terms and conditions,
among others:
"1. That for and in consideration of the sum of THREE
MILLION THREE HUNDRED EIGHTY-SIX THOUSAND TWO
HUNDRED

TWENTY

THREE

(P3,386,223.00)

PESOS, Philippine currency, to be paid by the VENDEE to


the herein VENDOR in the manner outlined hereinbelow,
the VENDOR by these presents does hereby sell, transfer
and convey by way of absolute sale unto the VENDEE, its
successors,

administrators

or

assigns,

the

abovedescribed two (2) parcels of land, together with all


the improvements existing thereon;
2. That the payment of the consideration mentioned in
paragraph 1 above shall be made as follows:
"(a) The vendee is presently negotiating or
securing from the GOVERNMENT SERVICE
INSURANCE SYSTEM, by virtue of a directive of
the President of the Philippines, a loan for the
Purchase of the abovedescribed two (2) Parcels
of land in anticipation of the purchase by the
said GOVERNMENT SERVICE INSURANCE SYSTEM
of the bonds to be floated by the National
Government to enable the VENDEE to make this

purchase, and from whatever amount may be


granted as loan by the GOVERNMENT SERVICE
INSURANCE SYSTEM to the VENDEE, ONE
MILLION SEVEN HUNDRED TEN THOUSAND
(P1,710,000.00) PESOS shall be retained by the
said VENDEE for the purpose of paying and
clearing the existing lien annotated at the back
of the aforesaid Transfer Certificates of Title Nos.
T-23807 and T-23808, said payment to be made
directly to the MORTGAGEES and the difference
shall be paid to the VENDOR, provided that this
first payment shall not be less than ONE MILLION
SEVEN HUNDRED TEN THOUSAND
(P1,710,000.00) PESOS and the VENDOR is
hereby constituted as Attorney-in-fact and
authorized to receive from, and the
GOVERNMENT SERVICE INSURANCE SYSTEM is
directed to pay the balance of the loan direct to
the herein VENDOR chargeable against
VENDEE's loan from the GOVERNMENT SERVICE
INSURANCE SYSTEM; provided, however, That
should this amount be more than sufficient to
cover the said mortgage lien, the VENDEE shall
pay the difference to the VENDOR; and provided,
further, That the VENDOR shall take charge of
the preparation and registration of the
document(s) necessary in clearing the above
referred to mortgage lien, with the
understanding that the expenses for
preparation, notarization, registration, including
documentary stamps, and other expenses for
the cancellation of said mortgage lien shall be

for the account of the VENDOR and shall be


advanced by the VENDEE to the VENDOR;
(b) That out of the sum of P1,710,000.00
to be retained by the VENDEE mentioned in the
immediately preceding paragraph 2(a) for the
purpose of discharging the said mortgage lien,
the VENDEE shall deduct and further retain or
keep as a trust fund the amount of FORTY
THOUSAND (P40,000)
PESOS, Philippine Currency, to answer for the
remaining Notice of Lis Pendens annotated at
the back of Transfer Certificate of Title Nos. T23807 and T-23808 until such lien shall have
been discharged or cancelled, the VENDEE
binding itself to deliver forthwith the said
amount of P40,000.00 unto the successful party
involved in said Notice of Lis Pendens;

(c) The remaining balance of the total


consideration in the amount of ONE MILLION SIX
HUNDRED SEVENTY-SIX THOUSAND TWO
HUNDRED TWENTY-THREE PESOS
(P1,676,223.00),Philippine Currency, or
whatever amount is not paid by virtue of the
first payment mentioned in paragraph (a) above,
shall be paid by the VENDEE unto the VENDOR
immediately upon the VENDEE's obtaining
sufficient funds from proceeds of bonds floated
by the VENDEE or the Government for the
purchase of the properties subject of this
transaction; provided, however, That full and

complete payment of the balance mentioned in


this particular paragraph 2(c) shall be made or
paid by the VENDEE within a period of sixty (60)
days from date of delivery of title by the
VENDOR in the name of the VENDEE; and
provided, further, That this sixty (60) days
period may be extended for another period of
sixty (60) days upon written request by the
VENDEE at least five (5) days prior to the
expiration of the said sixty (60) days period.
Should there be instituted any legal action,
however, for the collection of any amounts due
from the VENDEE in favor of the VENDOR, the
VENDEE binds itself to pay unto the VENDOR a
sum equivalent to twenty-five (25%) per centum
of the total balance due from the VENDEE in
favor of the VENDOR as and by way of attorney's
fees, and the costs of suit;
3. That the VENDOR hereby warrants to defend the title
and ownership of the VENDEE to the two (2) parcels of
land abovedescribed from any claim or claims of third
parties whomsoever;
(4) That all expenses for the preparation and notarization
of this document shall be for the account of the VENDOR;
provided, however, That registration and issuance of
certificates of title in the name of the VENDEE shall be for
the account of the VENDEE." (Annex "F")

The above document was not registered in the Office of the


Register of Deeds until March 14, 1961, due to the fact, petitioner
claims, that the PHHC could not at once advance the money
needed

for

registration

expenses.

In

the

meantime,

the Auditor General, to whom a copy of the contract had been


submitted for approval in conformity with Executive Order No.
290, EXPRESSED OBJECTIONS THERETO AND REQUESTED A
REEXAMINATION OF THE CONTRACT, in view of the fact that
from 1948 to December 20, 1960, the entire hacienda was
assessed at P131,590.00, and reassessed beginning December
21, 1960 in the greatly increased amount of P4,898,110.00. Said
objections were embodied in a letter to the President, , but this
notwithstanding, the President, through the Executive Secretary,
approved the Deed of Absolute Sale
It appears that as early as the first week of June, 1960, prior to
the signing of the deed by the parties, the PHHC acquired
possession of the property, with the consent of petitioner, to
enable

the

said

PHHC

to

proceed

immediately

with

the

construction of roads in the new settlement and to resettle the


squatters and flood victims in Manila who were rendered
homeless by the floods or ejected from the lots which they were
then occupying
*****Provincial Treasurer of Bulacan requested the PHHC to
withhold the amount of P30,099.79 from the purchase price to be
paid by it to the Philippine Suburban Development Corporation.
Said amount represented THE REALTY TAX DUE ON THE
PROPERTY involved for the calendar year 1961 (Annex "G").
= ***Petitioner, through the PHHC, PAID UNDER PROTEST THE
ABOVEMENTIONED AMOUNT TO THE PROVINCIAL TREASURER OF
BULACAN AND thereafter, or on June 13, 1961, by letter,
requested then Secretary of Finance Dominador Aytona to
order a refund of the amount so paid.BEC- Petitioner claimed
that it ceased to be the owner of the land in question upon the
execution of the Deed of Absolute Sale ( THUS IS NOT OBLIGATED
TO PAY REAL ESTATE TAX) on December 29, 1960. Upon

recommendation of the Provincial Treasurer of Bulacan, said


request was denied by the Secretary of Finance in a letterdecision dated August 22, 1961. Pertinent portions of this
decision are quoted hereunder:
". . . the records show that the deed of sale executed on
December 29, 1960 . . . was approved by the President
upon favorable recommendation of the Cabinet and the
Committee created for the purpose of surveying suitable
lots which may be acquired for relocating squatters in
Manila on February 1, 1961 only and that said instrument
of sale was registered with the Register of Deeds on
March 14, 1961.
That Corporation, as vendor, maintains that in view of the
execution of the deed of sale on December 29, 1960 it
ceased to be the owner of the property involved and that
consequently it was under no obligation to pay the real
property tax thereon effective January 1, 1961. In support
of its stand, that Corporation cites Article 1498 of the
New Civil Code of the Philippines which provides that
'when the sale is made through a PUBLIC INSTRUMENT,
THE execution thereof shall be equivalent to the delivery
of the thing which is the object of the contract, if from the
deed the contrary does not appear or cannot clearly be
inferred' and Article 1496 of the same Code which states
that 'the ownership of the thing sold is acquired by the
vendee from the moment it is delivered to him in any of
the ways specified in Articles 1497 to 1501, or in any
other

manner

signifying

an

agreement

that

the

possession is transferred from the vendor to the vendee.'


On the other hand, the Provincial Treasurer contends that,
as

under the

Land

Registration

Act (Act

No.

496)

thePhilippine Suburban Development Corporation is still


the owner of the property until the deed of sale covering
the same has been actually registered, the vendor is still
liable to the payment of real property tax for the calendar
year 1961."

****It

is

now

CLAIMED

IN

THIS

APPEAL

THAT

THE AUDITOR GENERAL ERRED IN DISALLOWING THE REFUND OF


THE REAL ESTATE TAX in the amount of P30,460.90 1.) because
aside from the presumptive delivery of the property by
the EXECUTION OF THE DEED OF SALE on December 29,
1960, 2.) the possession of the property was actually
delivered to the vendee prior to the sale ( TO START THE
CONSTRUCTION )

and, therefore, by the transmission of

ownership to the vendee, petitioner has ceased to be the owner


of the property involved, and, consequently, under no obligation
to pay the real property tax for the year 1961.
Respondent, however, argues that the presumptive delivery of
the property under Article 1498 of the Civil Code does1.) NOT
APPLY BECAUSE OF THE REQUIREMENT IN THE CONTRACT
THAT

THE

SALE

SHALL

FIRST

BE

APPROVED

BY

THE AUDITOR GENERAL, pursuant to the Executive Order dated


February 3, 1959 and later by the President, and that the
petitioner should register the deed and secure a new title in the
name of the vendee before the government can be compelled to
pay the balance of P1,676,223.00 of the purchase price. 2.)
Respondent further contends that since the property involved is a
land registered under the Land Registration Act (Act No. 496),
until the deed of sale has been actually registered, the vendor
remains as the owner of the said property, and, therefore, liable
for the payment of real property tax.

ISSUE: WON THE PHCC IS CONSIDERED THE OWNER OF THE


PROPERTY DESPITE THE LACK OF REQUIREMENT OF LAW THAT
I
It cannot be denied that the President of the Philippines, on June
8, 1960, at his Cabinet meeting, approved and authorized the
purchase by the national government, through the PHHC, of the
unoccupied portion of the property of petitioner; that on June 10,
1960, the PHHC, acting pursuant to the aforecited approval of the
President,

passed

its

Resolution

No.

700

approving

and

authorizing the purchase of the unoccupied portion of said


property; and that after the PHHC took possession of the
aforement2oned property on the first week of June, 1960 to use it
as a resettlement area for squatters and flood victims from
Manila and suburbs, the President of the Philippines at his
Cabinet meeting on June 13, 1960, approved and authorized the
purchase by the PHHC of the entire property consisting of
752.4940 hectares, instead of only the unoccupied portion
thereof as was previously authorized.
Considering the approval and authorization by the President of
the Philippines of the specific transaction in question, and the fact
that the contract here involved which is for a special purpose
to meet a special situation was entered into precisely to
implement the Presidential directive, the prior approval
by theAuditor General envisioned by Administrative Order
No. 290, dated February 3, 1959, would therefore, not be
necessary.
As We held in Federation of the United NAMARCO Distributors v.
National

Marketing

Corporation,

the

approval

by

the Auditor General contemplated by Administrative Order No.


290 dated February 3, 1959, refers to contracts in general,
ordinarily entered into by government offices and government-

owned or controlled corporations, and not to a contract for a


special purpose, to meet a special situation and entered into in
implementation

of

Presidential

directive

to

solve

and

emergency. In other words, where the contract already bears the


approval of the President, the action of the Auditor General would
no longer be necessary because under the said Administrative
Order, the President has, at any rate, the final say.
II
Under the civil law, delivery (tradition) as a mode of transmission
of ownership maybe actual (real tradition) or constructive
(constructive tradition).

When the sale of real property is made

in a public instrument, the execution thereof is equivalent to the


delivery of the thing object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred.

In other words, there is SYMBOLIC DELIVERY of the property


subject of the sale by the execution of the public instrument,
unless from the express terms of the instrument, or by clear
inference therefrom, this was not the intention of the parties.
Such would be the case, for instance, when a certain date is fixed
for the purchaser to take possession of the property subject of
the conveyance, or where, in case of sale by installments, it is
stipulated that until the last installment is made, the title to the
property should remain with the vendor, or when the vendor
reserves the right to use and enjoy the property until the
gathering of the pending crops,

or where the vendor has no

control over the thing sold at the moment of the sale, and,
therefore, its material delivery could not have been made. 5

= In the case at bar, there is no question that the vendor had


actually placed the vendee in possession and control over the
thing sold, even before the date of the sale.
- The condition that petitioner should first register the deed of
sale and secure a new title in the name of the vendee before the
latter shall pay the balance of the purchase price, did not
preclude the transmission of ownership. ( REQ OF REGISTRATION
DID NOT PRECLUDE THE TRANSFER OF OWNERSHIP ) . In the
absence of an express stipulation to the contrary, the payment of
the purchase price of the goods is not a condition precedent to
the transfer of title to the buyer, but title passes by the delivery
of the goods. 6
III
We fail to see the merit in respondent's insistence that, although
possession was transferred to the vendee and the deed of sale
was executed in a public instrument on December 29, 1960, the
vendor still remains as owner of the property until the deed of
sale is actually registered with the Office of the Register of Deeds,
because the land sold is registered under the Torrens System. In a
long line of cases already decided by this Court, the constant
doctrine has been that, as between the parties to a contract of
sale, registration is not necessary to make it valid and effective,
FOR

ACTUAL

REGISTRATION.

NOTICE

IS

EQUIVALENT

TO

Indeed, Section 50 of the Land Registration

Act provides that, even without the act of registration, a deed


purporting to convey or affect registered land shall operate as a
contract between the parties. The registration is intended to
protect the buyer against claims of third persons arising
from

subsequent

alienations

by

the

vendor,

and

is

certainly not necessary to give effect to the deed of sale,


as between the parties to the contract.

The case of Vargas v. Tancioco,

cited by respondent, refers to a

case involving conflicting rights over registered property and


those of innocent transferees who relied on the clean titles of the
properties in question. It is, therefore, not relevant to the case at
bar.
In the case at bar, no rights of third persons are involved, much
less is there any subsequent alienation of the same property. It is
undisputed that the property is in the possession of the
vendee, even as early as the first week of June, 1960, or six (6)
months prior to the execution of the Deed of Absolute
Sale on December 29, 1960. Since the delivery of possession,
coupled with the execution of the Deed of Absolute Sale, had
consummated the sale and transferred the title to the purchaser,
10
= WE, THEREFORE, HOLD THAT THE PAYMENT OF THE
REAL

ESTATE

TAX

AFTER

SUCH

TRANSFER

IS

THE

RESPONSIBILITY OF THE PURCHASER. HOWEVER, IN THE


CASE AT BAR, THE PURCHASER PHHC IS A GOVERNMENT
ENTITY NOT SUBJECT TO REAL PROPERTY TAX.

11

WHEREFORE, the appealed decision is hereby reversed, and the


real property tax paid under protest to the Provincial Treasurer of
Bulacan

by

petitioner Philippine Suburban Development Corporation, in the


amount of P30,460.90, is hereby ordered refunded. Without any
pronouncement as to costs.
Makalintal, C . J ., Fernando, Barredo and Aquino, JJ., concur.
(Philippine Suburban Develpment Corp. v. Auditor General, G.R.
No. L-19545, [April 18, 1975], 159 PHIL 998-1009)
|||

6. ) ( public instrument- delivery )

A. ADDISON, plaintiff-appellant, vs. MARCIANA


FELIX and BALBINO TIOCO, defendants-appellees.
Thos. D. Aitken, for appellant
Modesto Reyes and Eliseo Ymzon, for appellees.
SYLLABUS
1. VENDOR AND PURCHASER; DELIVERY; EXECUTION OF
PUBLIC INSTRUMENT. It is the duty of the vendor to deliver
the thing sold. Symbolic delivery by the execution of a public
Instrument is equivalent to ACTUAL DELIVERY ONLY WHEN
THE THING SOLD IS SUBJECT TO THE CONTROL OF THE
VENDOR.
2. ID.; ID.; RESCISSION. If the vendor fails to deliver
the thing sold the vendee may = ELECT TO RESCIND THE
CONTRACT.

D E C I SAQ

AION

FISHER, J :
p

By a public instrument dated June 11, 1914, the


plaintiff sold to the defendant Marciana Felix, WITH THE
CONSENT OF HER HUSBAND, the defendant Balbino Tioco, four
parcels of land, described in the instrument.

- ( PAYMENT IN INSTALLMENTS ) The defendant Felix paid, at


the time of the execution of the deed, the sum of P3,000 on
account of the purchase price, and bound herself to pay the
remainder in installments, the first of P2,000 on July 15, 1914,
the second of P5,000 thirty days after the issuance to her of a
certificate of title under the Land Registration Act, and further,
within ten years from the date of such title, P10 for each
cocoanut tree in bearing and P5 for each such tree not in
bearing, that might be growing on said four parcels of land on
the date of the issuance of title to her, with the condition that
the total price should not exceed P85,000. It was further
stipulated that the purchaser was to deliver to the vendor 25
per centum of the value of the products that she might obtain
from the four parcels "from the moment she takes
possession of them until the Torrens certificate of title
be issued in her favor.
- ( OPTION TO RESCIND THE CONTRACT )It was also
covenanted that "within one year from the date of the
certificate of title in favor of Marciana Felix, this latter may
rescind the present contract of purchase and sale, in which
case Marciana Felix shall be obliged to return to me, A. A.
Addison, the net value of all the products of the four parcels
sold, and I shall be obliged to return to her, Marciana Felix, all
the sums that she may have paid me, together with interest at
the rate of 10 per cent per annum."
In January, 1915, the vendor, A. A. Addison, filed suit in
the Court of First Instance of Manila to compel Marciana Felix
to make payment of the first installment of P2,000,
demandable, in accordance with the terms of the contract of
sale aforementioned, on July 15, 1914, and of the interest in
arrears, at the stipulated rate of 8 per cent per annum.

-The defendant, jointly with her husband, answered the


complaint and alleged by way of special defense that the
plaintiff had absolutely failed to deliver to the defendant
the lands that were the subject matter of the sale,
notwithstanding the demands made upon him for this purpose.
She therefore asked that she be absolved from the complaint,
and that, after a declaration of the rescission of the contract of
the purchase and sale of said lands, the plaintiff be ordered to
refund the P3,000 that had been paid to him on account,
together with the interest agreed upon, and to pay an
indemnity for the losses and damages which the defendant
alleged she had suffered through the plaintiff's nonfulfilment of
the contract.
The evidence adduced shows that AFTER THE
EXECUTION OF THE DEED OF SALE THE PLAINTIFF, at the
request of the purchaser, went to Lucena, accompanied by a
representative of the latter, for the purpose of designating and
delivering the lands sold. He was able to designate only two of
the four parcels, and more than two-thirds of these two were
found to be in the possession of one Juan Villafuerte, who
claimed to be the owner of the parts so occupied by him. The
plaintiff admitted that the purchaser would have to bring suit
to obtain possession of the land (sten. notes, record, p. 5). In
August, 1914, the surveyor Santamaria went to Lucena, at the
request of the plaintiff and accompanied by him, in order to
survey the land sold to the defendant; but he surveyed 'only
two parcels, which are those occupied mainly by the brothers
Leon and Julio Villafuerte. He did not survey the other parcels,
as they were not designated to him by the plaintiff. In order to
make this survey it was necessary to obtain from the Land
Court a writ of injunction against the occupants, and for the
purpose of the issuance of this writ the defendant, in June,

1914, filed an application with the Land Court for the


registration in her name of the four parcels of land described in
the deed of sale executed in her favor by the plaintiff. The
proceedings in the matter of this application were
subsequently dismissed, for failure to present the required
plans within the period of the time allowed for the purpose.
The trial court rendered judgment in behalf of the
defendant, holding the contract of sale to be rescinded and
ordering the return to the plaintiff of the P3,000 paid on
account of the price, together with interest thereon at the rate
of 10 per cent per annum. From this judgment the plaintiff
appealed.
( BASIS IN RESOLUTION OF THE TRIAL COURT )In
decreeing the rescission of the contract, the trial judge rested
his conclusion 1.) solely on the indisputable fact that up
to that time the lands sold had not been registered in
accordance with the Torrens system, 2.) ( OPTION TO
RESCIND IN THE CONTRACT) and on the terms of the second
paragraph of clause (h) of the contract, whereby it is stipulated
that ". . . within one year from the date of the certificate of title
in favor of Marciana Felix, this latter may rescind the present
contract of purchase and sale . . . ." ( THE CROSS COMPLAINT
RELIED UPON THE FAILURE TO DELIVER THE LAND AND NOT
SOLELY ON THE CONVENTIONAL RESCISSION)
The appellant objects, and rightly, that the cross
complaint is not founded on the hypothesis of the conventional
rescission relied upon by the court, but on the failure to deliver
the land sold. He argues that the right to rescind the contract
by virtue of the special agreement not only did not exist from
the moment of the execution of the contract up to one year
after the registration of the land, but does not accrue until the

land is registered. The wording of the clause, in fact,


substantiates the contention. The one year's deliberation
granted to the purchaser was to be counted "from the date of
the certificate of title . . .." PLAINTIFF CLAIMS THAT Therefore
the right to elect to rescind the contract was subject to a
condition, namely, the issuance of the title. The record shows
that up to the present time that condition has not been
fulfilled; consequently the defendant cannot be heard to
invoke a right which depends on the existence of that
condition. If in-the cross-complaint it had been alleged that the
fulfillment of the condition was impossible for reasons
imputable to the plaintiff, and if this allegation had been
proven, perhaps the condition would have been considered as
fulfilled (arts. 1117, 1118, and 1119, Civ. Code); but this issue
was not presented in the defendant's answer.
However, although we are not in agreement with the
reasoning found in the decision appealed from, we consider it
to be correct in its result. The record shows that the plaintiff
did not deliver the thing sold. With respect to two of the
parcels of land, he was not even able to show them to the
purchaser; and as regards the other two, more than two-thirds
of their area was in the hostile and adverse possession of a
third person.
The Code imposes upon the vendor the obligation
to deliver the thing sold. The thing is considered to be
delivered when it is placed "in the hands and possession of the
vendee." (Civ. Code, art. 1462.)

It is not enough to

confer upon the purchaser the ownership and the right of


possession. The thing sold must be placed in his control. When
there is no impediment whatever to prevent the thing sold
passing into the tenancy of the purchaser by the sole will of

the vendor, symbolic delivery through the execution of a public


instrument is sufficient. But if, notwithstanding the execution
of the instrument, the purchaser cannot have the enjoyment
and material tenancy of the thing and make use of it himself or
through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will,
then fiction yields to reality the delivery has not been
effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his
commentaries on article 1604 of the French Civil Code, "the
word 'delivery' expresses a complex idea . . . the abandonment
of the thing by the person who makes the delivery and the
taking control of it by the person to whom the delivery is
made."
The execution of a public instrument is sufficient for the
purposes of the abandonment made by the vendor, but it is
not always sufficient to permit of the apprehension of the thing
by the purchaser.
The supreme court of Spain, interpreting article 1462 of
the Civil Code, held in its decision of November 10, 1903, (Civ.
Rep., vol. 96, p. 560) that this article "merely declares that
when the sale is made through the means of a public
instrument, the execution of this latter is equivalent to the
delivery of the thing sold: which does not and cannot mean
that this fictitious tradition necessarily implies the real
tradition of the thing sold, for it is incontrovertible that, while
its ownership still pertains to the vendor (and with greater
reason if it does not), a third person may be in possession of
the same thing; wherefore, though, as a general rule, he who
purchases by means of a public instrument should be

deemed . . . to be the possessor in fact, yet this presumption


gives way before proof to the contrary."

***It is evident, then, in the case at bar, that the mere


execution of the instrument was not a fulfillment of the
vendor's obligation to deliver the thing sold, and that from
such nonfulfillment arises the purchaser's right to demand, as
she has demanded, the rescission of the sale and the return of
the price. Inasmuch as the rescission is made by virtue of the
provisions of law and not by contractual agreement, it is not
the conventional but the legal interest that is demandable
(Civ. Code, arts. 1506 and 1124.)
Of course if the sale had been made under the express
agreement of imposing upon the purchaser the obligation to
take the necessary steps to obtain the material possession of
the thing sold, and it were proven that she knew that the thing
was in the possession of a third person claiming to have
property rights therein, such agreement would be perfectly
valid. But there is nothing in the instrument which would
indicate, even implicitly, that such was the agreement. It is
true, as the appellant argues, that the obligation was
incumbent upon the defendant Marciana Felix to apply for and
obtain the registration of the land in the new registry of
property; but from this it cannot be concluded that she had to
await the final decision of the Court of Land Registration, in
order to be able to enjoy the property sold. On the contrary, it
was expressly stipulated in the contract that the purchaser
should deliver to the vendor one-fourth "of the products . . . of
the aforesaid four parcels from the moment when she takes
possession of them until the Torrens certificate of title be
issued in her favor." This obviously shows that it was not

foreseen that the purchaser might be deprived of her


possession during the course of the registration proceedings,
but that the transaction rested on the assumption that she was
to have, during said period, the material possession and
enjoyment of thefour parcels of land.
It is therefore held that the contract of purchase and sale
entered into by and between the plaintiff and the defendant on
June 11, 1914, is rescinded, and the plaintiff is ordered to
make restitution of the sum of P3,000 received by him on
account of the price of the sale, together with interest thereon
at the legal rate of 6 per cent per annum from the date of the
filing of the complaint until payment, with the costs of both
instances against the appellant. So ordered.
Torres, Johnson, Street, Malcolm and Avancea,
JJ., concur.
(Addison v. Felix, G.R. No. 12342, [August 3, 1918], 38 PHIL 404410)
|||

7.) TEN FORTY REALTY AND DEVELOPMENT


CORP., Represented by its President, VERONICA

G. LORENZANA, petitioner, vs. MARINA


CRUZ, respondent.
Oscar L. Karaan for petitioner.
Carmelino M. Roque for respondent.
SYNOPSIS
Galino allegedly sold the property in question to petitioner in
1996, then sold the same property to respondent in, 1998.
Petitioner argued that being the first buyer ( TEN FORTY CORP ) ,
it has a better right to own the realty.
In denying the petition, the Supreme Court applied Article 1544 of
the Civil Code. IN CASE OF DOUBLE SALE OF IMMOVABLE
PROPERTY, the law gives preferential right to the buyer
who in good faith first recorded it in the registry of
property. In the absence of the required inscription, the person
who in good faith was first in possession has the better right to
own the realty. Petitioner in this case admitted that its Deed of
Sale had not been recorded in the Registry of Deeds. Subject
property had also not been delivered to petitioner, hence, as
between the two buyers, respondent was first in actual
possession of the property.

aTEHIC

SYLLABUS
1. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; UNLAWFUL DETAINER;
OWNER'S PERMISSION OR TOLERANCE MUST HAVE BEEN
PRESENT AT THE BEGINNING OF INTRUDER'S OCCUPATION
OF THE PREMISES; CASE AT BAR. In its Complaint, petitioner
alleged that, having acquired the subject property from Barbara

Galino on it was the true and absolute owner thereof; that Galino
had sold the property to Respondent Cruz on that after the sale,
the latter immediately occupied the property, an action that was
merely tolerated by petitioner; and that, in a letter given to
respondent on April 12, 1999, petitioner had demanded that the
former vacate the property, but that she refused to do so.
Petitioner thereupon prayed for judgment ordering her to vacate
the property and to pay reasonable rentals for the use of the
premises, attorney's fees and the costs of the suit. The above
allegations appeared to show the elements of unlawful detainer.
They also conferred initiatory jurisdiction on the MTCC, because
the case was filed a month after the last demand to vacate
hence, within the one-year prescriptive period. . . To justify an
action for unlawful detainer, the permission or tolerance must
have been present at the beginning of the possession. However,
what was actually proven by petitioner was that possession by
respondent had been illegal from the beginning. While the
Complaint was crafted to be an unlawful detainer suit,
PETITIONER'S REAL CAUSE OF ACTION WAS FOR FORCIBLE ENTRY,
WHICH HAD ALREADY PRESCRIBED. Consequently, the MTCC had
no more jurisdiction over the action.

TcEaDS

2. CIVIL LAW; SPECIAL CONTRACTUAL; SALES, BUYER ACQUIRES


THE THING UPON ITS DELIVERY; PETITIONER DID NOT GAIN
CONTROL AND POSSESSION OF PROPERTY IN CASE AT BAR. In a
contract of sale, the buyer acquires the thing sold only upon its
delivery "in any of the ways specified in Articles 1497 to 1501, or
in any other manner signifying an agreement that the possession
is transferred from the vendor to the vendee." With respect to
incorporeal property, Article 1498 lays down the general rule: the
execution of a public instrument shall be equivalent to the
delivery of the thing that is the object of the contract if, from the
deed, the contrary does not appear or cannot be clearly inferred.

However, ownership is transferred not by contract but by


tradition or delivery. ( NOT INCLUDED CC ) Nowhere in the Civil
Code is it provided that the execution of a Deed of Sale is
a conclusive presumption of delivery of possession of a piece of
real estate.
This Court has held that the execution of a public instrument
gives rise only to a prima facie presumption of delivery. ( NOTE )
Such PRESUMPTION IS DESTROYED WHEN THE DELIVERY IS NOT
EFFECTED BECAUSE OF A LEGAL IMPEDIMENT. . . In the case at
bar it is undisputed that petitioner did not occupy the property
from the time it was allegedly sold to it on December 5, 1996 or
at any time thereafter.

SHECcT

***3. ID.; ID.; ID.; DOUBLE SALE OF IMMOVABLE PROPERTY;


ORDER OF PREFERENCE; CASE AT BAR. The ownership of
immovable property sold to two different buyers at different
times is governed by Article 1544 of the Civil Code. . . Galino
allegedly sold the property in question to petitioner on December
5, 1996 and, subsequently, to respondent on April 24, 1998.
Petitioner thus argues that being the first buyer, it has a better
right to own the realty. However, it has NOT BEEN ABLE TO
ESTABLISH THAT ITS DEED OF SALE WAS RECORDED IN
THE REGISTRY OF DEEDS of Olongapo City. Its claim of an
unattested and unverified notation on its Deed of Absolute Sale is
not equivalent to registration. It admits that, indeed, the sale has
not been recorded in the Registry of Deeds. In the absence of the
required inscription, the law gives preferential right to the buyer
who in good faith is first in possession. . . Earlier, we ruled that
the subject property had not been delivered to petitioner; hence,
it did not acquire possession either materially or symbolically. As
between the two buyers, therefore, respondent was first in actual
possession of the property.

DECISION

PANGANIBAN, J :
p

In an ejectment suit, the question of ownership may be


provisionally ruled upon for the sole purpose of determining who
is entitled to possession de facto. In the present case, both
parties base their alleged right to possess on their right to own.
Hence, the Court of Appeals did not err in passing upon the
question of ownership to be able to decide who was entitled to
physical possession of the disputed land.
The Case
Before us is a Petition for Review

under Rule 45 of the Rules of

Court, seeking to nullify the August 31, 2001 Decision


December 19, 2001 Resolution

and

of the Court of Appeals (CA) in

CA-G.R. SP No. 64861. The dispositive portion of the assailed


Decision is as follows:
"WHEREFORE, premises considered, the petition is hereby
DISMISSED and the Decision dated May 4, 2001 is hereby
AFFIRMED."

The assailed Resolution denied petitioner's Motion for


Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
"A complaint for ejectment was filed by [Petitioner Ten
Forty Realty and Development Corporation] against . . .
[Respondent Marina Cruz] before the Municipal Trial Court
in Cities (MTCC) of Olongapo City, docketed as Civil Case
4269, which alleged that: petitioner is the true and

absolute owner of a parcel of lot and residential house


situated in #71 18th Street, E.B.B. Olongapo City,
particularly described as:
'A parcel of residential house and lot situated in the
above-mentioned address containing an area of
324 square meters more or less bounded on the
Northeast by 041 (Lot 255, Ts-308); on the
Southeast by 044 (Lot 255, Ts-308); on the
Southwest by 043 (Lot 226-A & 18th street) and on
the Northwest by 045 (Lot 227, Ts-308) and
declared for taxation purposes in the name of
[petitioner] under T.D. No. 002-4595-R and 0024596.

ISDCaT

having acquired the same on December 5, 1996 from


Barbara Galino by virtue of a Deed of Absolute Sale; the
sale was acknowledged by said Barbara Galino through
a 'Katunayan'; payment of the capital gains tax for the
transfer of the property was evidenced by a Certification
Authorizing Registration issued by the Bureau of Internal
Revenue; petitioner came to know that Barbara Galino
sold the same property on April 24, 1998 to Cruz, who
immediately occupied the property and which occupation
was merely tolerated by petitioner ( BY MERE
TOLERATION ) ; on October 16, 1998, a complaint for
ejectment was filed with the Barangay East Bajac-Bajac,
Olongapo City but for failure to arrive at an amicable
settlement, a Certificate to File Action was issued; on April
12, 1999 a demand letter was sent to [respondent] to
vacate and pay reasonable amount for the use and
occupation of the same, but was ignored by the latter;
and due to the refusal of [respondent] to vacate the

premises, petitioner was constrained to secure the


services of a counsel for an agreed fee of P5,000.00 as
attorney's fee and P500.00 as appearance fee and
incurred an expense of P5,000.00 for litigation.
"In respondent's Answer with Counterclaim, it was alleged
that: petitioner is not qualified to own the residential lot
in dispute, being a public land; according to Barbara
Galino, she did not sell her house and lot to petitioner but
merely obtained a loan from Veronica Lorenzana; the
payment of the capital gains tax does not necessarily
show that the Deed of Absolute Sale was at that time
already in existence; the court has no jurisdiction over
the subject matter because the complaint was filed
beyond the one (1) year period after the alleged unlawful
deprivation of possession; ( PERIOD TO COUNTERCLAIM
LAPSED ).
-there is no allegation that petitioner had been in prior
possession of the premises and the same was lost thru
force, stealth or violence; evidence will show that it was
Barbara Galino who was in possession at the time of the
sale and vacated the property in favor of respondent;
never was there an occasion when petitioner occupied a
portion of the premises, before respondent occupied the
lot in April 1998, she caused the cancellation of the tax
declaration in the name of Barbara Galino and a new one
issued in respondent's name; petitioner obtained its tax
declaration over the same property on November 3,
1998, seven (7) months [after] the respondent [obtained
hers]; at the time the house and lot [were] bought by
respondent, the house was not habitable, the power and
water connections were disconnected; being a public

land, respondent filed a miscellaneous sales application


with the Community Environment and Natural Resources
Office in Olongapo City; and the action for ejectment
cannot succeed where it appears that respondent had
been in possession of the property prior to the
petitioner."

In a Decision

dated October 30, 2000, the Municipal Trial Court

in Cities (MTCC) ordered respondent to vacate the property and


surrender to petitioner possession thereof. It also directed her to
pay, as damages for its continued unlawful use, P500 a month
from April 24, 1999 until the property was vacated, P5,000 as
attorney's fees, and the costs of the suit.

On appeal, the Regional Trial Court

(RTC) of Olongapo City

(Branch 72) reversed the MTCC. The RTC ruled as follows: 1)


respondents entry into the property was not by mere tolerance of
petitioner, but by virtue of a Waiver and Transfer of Possessory
Rights and Deed of Sale in her favor; 2) the execution of the Deed
of Sale without actual transfer of the physical possession did not
have the effect of making petitioner the owner of the property,
because there was no delivery of the object of the sale as
provided for in Article 1428 of the Civil Code; and 3) being a
corporation, petitioner was disqualified from acquiring the
property, which was public land.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioner had failed to make
a case for UNLAWFUL DETAINER, because no contract
express or implied had been entered into by the parties with
regard to possession of the property. It ruled that the action
should have been for FORCIBLE ENTRY, in which prior physical

possession was indispensable a circumstance petitioner had


not shown either.
The appellate court also held that petitioner had challenged the
RTC's ruling on the question of ownership for the purpose of
compensating for the latter's failure to counter such ruling. The
RTC had held that, as a corporation, petitioner had no
right to acquire the property which was alienable public
land.
Hence, this Petition.

Issues
Petitioner submits the following issues for our consideration:
"1. The Honorable Court of Appeals had clearly erred in
not holding that [r]espondent's occupation or
possession of the property in question was merely
through the tolerance or permission of the herein
[p]etitioner;
"[2.] The Honorable Court of Appeals had likewise erred in
holding that the ejectment case should have been a
forcible entry case where prior physical possession
is indispensable; and
"[3.] The Honorable Court of Appeals had also erred when
it ruled that the herein
ISSUE : WON [r]espondent's possession or occupation of
the said property is in the nature of an exercise of
ownership which should put the herein [p]etitioner
on guard."

The Court's Ruling


The Petition has no merit.

First Issue:
Alleged Occupation by Tolerance
Petitioner faults the CA for not holding that the former merely
tolerated respondent's occupation of the subject property. By
raising this issue, petitioner is in effect asking this Court to
reassess factual findings. As a general rule, this kind of
reassessment cannot be done through a petition for review
on certiorari under Rule 45 of the Rules of Court, because this
Court is not a trier of facts; it reviews only questions of
law.

10

Petitioner has not given us ample reasons to depart from

the general rule.


On the basis of the facts found by the CA and the RTC, we find
that petitioner failed to substantiate its case for unlawful
detainer. Admittedly, no express contract existed between the
parties. Not shown either was the corporation's alleged tolerance
of respondent's possession.
While possession by tolerance may initially be lawful, it ceases to
be so upon the owner's demand that the possessor by tolerance
vacate the property.

11

To justify an action for unlawful detainer,

the permission or tolerance must have been present at the


beginning of the possession.

12

OTHERWISE, IF THE

POSSESSION WAS UNLAWFUL FROM THE START, AN


ACTION FOR UNLAWFUL DETAINER WOULD BE AN
IMPROPER REMEDY.
"A close assessment of the law and the concept of the
word 'tolerance' confirms our view heretofore expressed
that such tolerance must be present right from the start
of possession sought to be recovered, to categorize a
cause of as one of unlawful detainer not of forcible entry.
Indeed, to hold otherwise would espouse a dangerous

doctrine. And for two reasons. First. Forcible entry into the
land is an open challenge to the right of the possessor.
Violation of that right authorizes the speedy redress in
the inferior court provided for in the rules. If one year
from the forcible entry is allowed to lapse before suit is
filed, then the remedy ceases to be speedy; and the
possessor is deemed to have waived his right to seek
relief in the inferior court. Second, if a forcible entry
action in the inferior court is allowed after the lapse of a
number of years, then the result may well be that no
action for forcible entry can really prescribe. No matter
how long such defendant is in physical possession,
plaintiff will merely make a demand, bring suit in the
inferior court upon a plea of tolerance to prevent
prescription to set in and summarily throw him out of
the land. Such a conclusion is unreasonable. Especially if
we bear in mind the postulates that proceedings of
forcible entry and unlawful detainer are summary in
nature, and that the one year time bar to suit is but in
pursuance of the summary nature of the action."

14

In this case, the Complaint and the other pleadings do not recite
any, averment of fact that would substantiate the claim of
petitioner that it permitted or tolerated the occupation of the
property by Respondent Cruz. The Complaint contains only bare
allegations that 1) respondent immediately occupied the subject
property after its sale to her, an action merely tolerated by
petitioner;

15

and 2) her allegedly illegal occupation of the

premises was by mere tolerance.

16

These allegations contradict, rather than support, petitioner's


theory that its cause of action is for unlawful detainer. First, these
arguments advance the view that respondent's occupation of the

property was unlawful at its inception. Second, they counter the


essential requirement in unlawful detainer cases that petitioner's
supposed act of sufferance or tolerance must be present right
from the start of a possession that is later sought to be
recovered.

17

( the tolerance of the occupation should be proved , otherwise it

wll be considered ILLEGAL from the beginning = forcible entry ) INCAB THE
PRESCCRIPTIVE PERIOD OF ONE YEAR IN FILING FORCIBLE ENTRY

As the bare allegation of petitioner's tolerance of respondent's


occupation of the premises has not been proven, the possession
should be deemed illegal from the beginning. Thus, the CA
correctly ruled that the ejectment case should have been for
forcible entry an action that had already prescribed, however,
when the Complaint was filed on May 12, 1999. The prescriptive
period of one year for forcible entry cases is reckoned from the
date of respondent's actual entry into the land, which in this case
was on April 24, 1998.
Second Issue:
Nature of the Case
Much of the difficulty in the present controversy stems from the
legal characterization of the ejectment Complaint filed by
petitioner. Specifically, was it for unlawful detainer or for forcible
entry?
The answer is given in Section 1 of Rule 70 of the Rules of Court,
which we reproduce as follows:
"SECTION 1. Who may institute proceedings, and when.
Subject to the provisions of the next succeeding
section, a person deprived of the possession of any land
or building by force, intimidation, threat, strategy, or
stealth, or a vendor, vendee, or other person against
whom the possession of any land or building is unlawfully

withheld after expiration or termination of the right to


hold possession, by virtue of any contract, express or
implied, or the legal representatives or assigns of any
such lessor, vendor, vendee, or other person, may, at any
time within one (1) year after such unlawful deprivation
or withholding of possession, bring an action in the proper
Municipal Trial Court against the person or persons
unlawfully withholding or depriving of possession, or any
person or persons claiming under them, for the restitution
of such possession, together with damages and costs.''

While both causes of action deal only with the sole issue of
physical or de facto possession,

18

the two cases are really

separate and distinct, as explained below:


". . . . In forcible entry, one is deprived of physical
possession of land or building by means of force,
intimidation, threat, strategy, or stealth. In unlawful
detainer, one unlawfully withholds possession thereof
after the expiration or termination of his right to hold
possession under any contract, express or implied. In
forcible entry, the possession is illegal from the beginning
and the basic inquiry centers on who has the prior
possession de facto. In unlawful detainer, the possession
was originally lawful but became unlawful by the
expiration or termination of the right to possess, hence
the issue of rightful possession is decisive for, in such
action, the defendant is in actual possession and the
plaintiff's cause of action is the termination of the
defendant's right to continue in possession.
"What determines the cause of action is the nature of
defendant's entry into the land. If the entry is illegal, then
the action which may be filed against the intruder within

one year therefrom is forcible entry. If, on the other hand,


the entry is legal but the possession thereafter became
illegal, the case is one of unlawful detainer which must be
filed within one year from the date of the last demand."

19

It is axiomatic that what determines the nature of an action as


well as which court has jurisdiction over it are the allegations in
the complaint

20

and the character of the relief sought.

21

In its Complaint, petitioner alleged that, having acquired the


subject property from Barbara Galino on December 5 1996,
was the true and absolute owner

23

22

it

thereof; that Galino had sold

the property to Respondent Cruz on April 24, 1998;

24

that after

the sale, the latter immediately occupied the property, an action


that was merely tolerated by petitioner;
given to respondent on April 12, 1999,

25

and that, in a letter

26petitioner

had demanded

that the former vacate the property, but that she refused to do
so.

27

Petitioner thereupon prayed for judgment ordering her to

vacate the property and to pay reasonable rentals for the use of
the premises, attorney's fees and the costs of the suit.

28

The above allegations appeared to show the elements of unlawful


detainer. They also conferred initiatory jurisdiction on the MTCC,
because the case was filed a month after the last demand to
vacate hence, within the one-year prescriptive period.

( CASE WAS DISMISSED DUE TO LACK OF JURISDICTION OF THE


COURT ) .However, what was actually proven by petitioner was
that possession by respondent had been illegal from the
beginning. While the Complaint was crafted to be an unlawful
detainer suit, petitioner's real cause of action was for forcible
entry, which had already prescribed. Consequently, the MTCC had
no more jurisdiction over the action.

The appellate court, therefore, did not err when it ruled that
petitioner's Complaint for unlawful detainer was a mere
subterfuge or a disguised substitute action for forcible entry,
which had already prescribed. To repeat, to maintain a viable
action for forcible entry, plaintiff must have been in prior physical
possession of the property; this is an essential element of the
suit.

29

****Third Issue:
Alleged Acts of Ownership
Petitioner next questions the CA's pronouncement that
respondent's occupation of the property was an exercise of a
right flowing from a claim of ownership. It submits that the
appellate court should not have passed upon the issue of
ownership, because the only question for resolution in an
ejectment suit is that of possession de facto.
Clearly, each of the parties claimed the right to possess the
disputed property because of alleged ownership of it. Hence, no
error could have been imputed to the appellate court when it
passed upon the issue of ownership only for the purpose of
resolving the issue of possession de facto.

30

The CA's holding is

moreover in accord with jurisprudence and the law.


Execution of a Deed of Sale Not Sufficient as Delivery
In a contract of sale, the buyer acquires the thing sold
only upon its delivery "in any of the ways specified in Articles
1497 to 1501, or any other manner signifying an agreement that
the possession is transferred from the vendor to the

vendee."

31

With respect to incorporeal property, Article 1498 lays

down the general rule: the execution of a public instrument shall


be equivalent to the delivery of the thing that is the object of the
contract if, from the deed, the contrary does not appear or
cannot be clearly inferred.

ASETHC

However, ownership is transferred not by contract but by


tradition or delivery.

32

Nowhere in the Civil Code is it provided

that the execution of a Deed of Sale is a conclusive presumption


of delivery of possession of a piece of real estate.

33

***This Court has held that the execution of a public instrument


gives rises only to a prima facie presumption of delivery. Such
presumption is destroyed when the delivery is not effected
because of a legal impediment.

34Pasagui

v. Villablanca

35

had

earlier ruled that such constructive or symbolic delivery, being


merely PRESUMPTIVE, was deemed negated by the failure
of the vendee to take actual possession of the land sold.
It is undisputed that petitioner did not occupy the property from
the time it was allegedly sold to it on December 5, 1996 or at any
time thereafter. Nonetheless, it maintains that Galino's continued
stay in the premises from the time of the sale up to the time
respondent's occupation of the same on April 24, 1998, was
possessions held on its behalf and had the effect of delivery
under the law.

36

( IS CONTINUED POSSESSION CONSTITUTE AS DELIVERY- AS TO


EQUATE OWNERSHIP )Both the RTC and the CA disagreed.
According to the RTC, 1.) petitioner did not gain control and
possession of the property, because Galino had continued
to exercise ownership rights over the realty. That is, she
had remained in possession, continued to declare it as her

2.) property for tax purposes and sold it to respondent in


1998.
For its part, the CA found it highly unbelievable that petitioner
which claims to be the owner of the disputed property would
tolerate possession of the property by respondent from April 24,
1998 up to October 16, 1998. How could it have been so tolerant
despite its knowledge that the property had been sold to her, and
that it was by virtue of that sale that she had undertaken major
repairs and improvements on it?
Petitioner should have likewise been put on guard by
respondent's declaration of the property for tax purposes on April
23, 1998,

37

as annotated in the tax certificate filed seven

months later.

38

Verily, the tax declaration represented an adverse

claim over the unregistered property and was inimical to the right
of petitioner.
Indeed, the above circumstances derogated its claim of control
and possession of the property.
Order of Preference in Double Sale of Immovable
Property
The ownership of immovable property sold to two different buyers
at different times is governed by Article 1544 of the Civil Code,
which reads as follows:
"Article 1544. . . .
"Should it be immovable property, the ownership
shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
"Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in
possession; and, in the absence thereof, to the person

who presents the oldest title, provided there is good


faith."

Galino allegedly sold the property in question to petitioner on


December 5, 1996 and, subsequently, to respondent on April 24,
1998. Petitioner thus argues that being the first buyer, it has a
better right to own the realty. However, it has not been able to
establish that its Deed of Sale was recorded in the Registry of
Deeds of Olongapo City.

39

Its claim of an unattested and

unverified notation on its Deed of Absolute Sale

40

is not

equivalent to registration. It admits that, indeed, the sale has not


been recorded in the Registry of Deeds.

41

In the absence of the required inscription, the law gives


preferential right to the buyer who in good faith is first in
possession. In determining the question of who is first in
possession, certain basic parameters have been established by
jurisprudence.
First, the possession mentioned in Article 1544 includes not only
material but also symbolic possession.

42Second,

possessors in

good faith are those who are not aware of any flaw in their title or
mode of acquisition.

43Third,

buyers of real property that is in the

possession of persons other than the seller must be wary they


must investigate the rights of the possessors.

44

Fourth, good

faith is always presumed; upon those who allege bad faith on the
part of the possessors rests the burden of proof.

45

INCAB- Earlier, we ruled that the subject property had NOT BEEN
DELIVERED TO PETITIONER; hence, it did not acquire
possession either materially or symbolically. As between the
two buyers, therefore, respondent was first in actual
possession of the property.

Petitioner has not proven that respondent was aware that her
mode of acquiring the property was defective at the time
she acquired it from Galino. At the time, the property
which WAS PUBLIC LAND had not been registered in the
name of Galino; thus, respondent relied on the tax declarations
thereon. As shown, the former's name appeared on the tax
declarations for the property until its sale to the latter in 1998.
Galino was in fact occupying the realty when respondent took
over possession. Thus, there was no circumstance that could
have placed the latter upon inquiry or required her to further
investigate petitioner's right of ownership.
Disqualification from Ownership of Alienable Public
Land
Private corporations are disqualified from acquiring lands
of the public domain, as provided under Section 3 of Article XII
of the Constitution, which we quote:
"Sec. 3. Lands of the public domain are classified into
agricultural, forest or timber, mineral lands, and national
parks. Agricultural lands of the public domain may be
further classified by law according to the uses to which
they may be devoted. Alienable lands of the public
domain shall be limited to agricultural lands. Private
corporations or associations may not hold such alienable
lands of the public domain except by lease, for a period
not exceeding twenty-five years, and not to exceed one
thousand hectares in area. Citizens of the Philippines may
not lease not more than five hundred hectares, or acquire
not more than twelve hectares thereof by purchase,
homestead, or grant. . . ." (Italics supplied)

While corporations cannot acquire land of the public domain, they


can however acquire private land.

46

Hence, the next issue that

needs to be resolved is the determination of whether the


disputed property is private land or of the public domain.
According to the certification by the City Planning and
Development Office of Olongapo City, the contested property in
this case is alienable and disposable public land.

47

It was for this

reason that respondent filed a miscellaneous sales application to


acquire it.

48

On the other hand, petitioner has not presented proof that, at the
time it purchased the property from Galino, the property had
ceased to be of the public domain and was already private land.
The established rule is that alienable and disposable land of the
public domain held and occupied by a possessor personally or
through predecessors-in-interest, openly, continuously, and
exclusively for 30 years is ipso jure converted to private
property by the mere lapse of time.

49

In view of the foregoing, we affirm the appellate court's ruling


that respondent is entitled to possession de facto. This
determination, however, is only provisional in nature.

50

Well-

settled is the rule that an award of possession de facto over a


piece of property does not constitute res judicata as to
the issue of its ownership.

51

WHEREFORE, this Petition is DENIED and the assailed Decision


AFFIRMED. Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Corona and Carpio Morales, JJ., concu
(Ten Forty Realty and Development Corp. v. Cruz, G.R. No.
151212, [September 10, 2003], 457 PHIL 603-620)
|||

QUASI TRADITIO CASES:

8.) HEIRS OF ARTURO REYES, represented by


Evelyn R. San Buenaventura, petitioners, vs.
ELENA SOCCO-BELTRAN, respondent.

DECISION

CHICO-NAZARIO, J :
p

This is a Petition for Review on Certiorari under Rule 45 of the


Rules of Court, assailing the Decision

dated 31 January 2006

rendered by the Court of Appeals in CA-G.R. SP No. 87066, which


affirmed the Decision

dated 30 June 2003 of the Office of the

President, in O.P. Case No. 02-A-007, approving the application of


respondent Elena Socco-Beltran to purchase the subject property.
The subject property in this case is a parcel of land originally
identified as Lot No. 6-B, situated in Zamora Street, Dinalupihan,
Bataan, with a total area of 360 square meters. It was originally
part of a larger parcel of land, measuring 1,022 square meters,
allocated to the Spouses Marcelo Laquian and Constancia Socco
(Spouses Laquian), who paid for the same with Japanese money.
When Marcelo died, the property was left to his wife Constancia.
Upon Constancia's subsequent death, SHE LEFT THE ORIGINAL
PARCEL OF LAND, ALONG WITH HER OTHER PROPERTY,
WITH HER HEIRS her siblings, namely: Filomena Eliza Socco,
Isabel Socco de Hipolito, Miguel R. Socco, and Elena SoccoBeltran.

Pursuant to an unnotarized document entitled

"Extrajudicial Settlement of the Estate of the Deceased


Constancia R. Socco," executed by Constancia's heirs sometime
in 1965, the parcel of land was partitioned into three lots Lot

No. 6-A, Lot No. 6-B, and Lot No. 6-C.

The subject property, Lot

No. 6-B, was adjudicated to respondent, but no title had been


issued in her name.
On 25 June 1998, respondent Elena Socco-Beltran filed an
application for the purchase of Lot No. 6-B before the Department
of Agrarian Reform (DAR), alleging that it was adjudicated in her
favor in the extra-judicial settlement of Constancia Socco's
estate8.

cECTaD

(PETITIONERS UNER CONTRACT TO SELL- ALLEDGED OWNERS


OF THR PROP) Petitioners herein, the heirs of the late Arturo
Reyes, filed their protest to respondent's petition before the DAR
on the ground that the subject property was sold by respondent's
brother, Miguel R. Socco, in favor of their father, Arturo Reyes, as
evidenced by the Contract to Sell, dated 5 September 1954,
stipulating that:

That I am one of the co-heirs of the Estate of the


deceased Constancia Socco; and that I am to inherit as
such a portion of her lot consisting of Four Hundred
Square Meters (400) more or less located on the (sic)
Zamora St., Municipality of Dinalupihan, Province of
Bataan, bounded as follows:
xxx xxx xxx
That for or in consideration of the sum of FIVE PESOS
(P5.00) per square meter, hereby sell, convey and
transfer by way of this conditional sale the said 400
sq.m. more or less unto Atty. Arturo C. Reyes, his heirs,
administrator and assigns . . . . (Emphasis supplied.)

Petitioners averred that they took physical possession of the


subject property in 1954 and had been uninterrupted in their
possession of the said property since then.

Legal Officer Brigida Pinlac of the DAR Bataan Provincial Agrarian


Reform Office conducted an investigation, the results of which
were contained in her Report/Recommendation dated 15 April
1999. Other than recounting the afore-mentioned facts, Legal
Officer Pinlac also made the following findings in her
Report/Recommendation:

Further investigation was conducted by the undersigned


and based on the documentary evidence presented by
both parties, the following facts were gathered: that the
house of [the] Reyes family is adjacent to the landholding
in question and portion of the subject property consisting
of about 15 meters [were] occupied by the heirs of Arturo
Reyes were a kitchen and bathroom [were] constructed
therein; on the remaining portion a skeletal form made of
hollow block[s] is erected and according to the heirs of
late Arturo Reyes, this was constructed since the year
(sic) 70's at their expense; that construction of the said
skeletal building was not continued and left unfinished
which according to the affidavit of Patricia Hipolito the
Reyes family where (sic) prevented by Elena Socco in
their attempt of occupancy of the subject landholding;
(affidavit of Patricia Hipolito is hereto attached as Annex
"F"); that Elena Socco cannot physically and personally
occupy the subject property because of the skeletal
building made by the Reyes family who have been
requesting that they be paid for the cost of the
construction and the same be demolished at the expense
of Elena Socco; that according to Elena Socco, [she] is
willing to waive her right on the portion where [the]
kitchen and bathroom is (sic) constructed but not the
whole of Lot [No.] 6-B adjudicated to her; that the Reyes
family included the subject property to the sworn

statement of value of real properties filed before the


municipality of Dinalupihan, Bataan, copies of the
documents are hereto attached as Annexes "G" and "H";
that likewise Elena Socco has been continuously and
religiously paying the realty tax due on the said
property.

HCIaDT

In the end,= Legal Officer Pinlac recommended the approval of


respondent's petition for issuance of title over the subject
property, ruling that respondent was qualified to own the
subject property pursuant to Article 1091 of the New Civil
Code.

Provincial Agrarian Reform Officer (PARO) Raynor Taroy

concurred in the said recommendation in his Indorsement dated


22 April 1999.

In an Order dated 15 September 1999, DAR Regional Director


Nestor R. Acosta, however, dismissed respondent's petition for
issuance of title over the subject property on the ground that
respondent was not an actual tiller and had abandoned the said
property for 40 years; hence, she had already renounced her
right to recover the same.

10

The dispositive part of the Order

reads:
1. DISMISSING the claims of Elena Socco-Beltran, duly
represented by Myrna Socco for lack of merit;
2. ALLOCATING Lot No. 6-B under Psd-003-008565 with an
area of 360 square meters, more or less, situated
Zamora Street, Dinalupihan, Bataan, in favor of the
heirs of Arturo Reyes.
3. ORDERING the complainant to refrain from any act
tending to disturb the peaceful possession of herein
respondents.

4. DIRECTING the MARO of Dinalupihan, Bataan to


process the pertinent documents for the issuance of
CLOA in favor of the heirs of Arturo Reyes.

11

Respondent filed a Motion for Reconsideration of the foregoing


Order, which was denied by DAR Regional Director Acosta in
another Order dated 15 September 1999.

12

Respondent then appealed to the Office of the DAR Secretary. In


an Order, dated 9 November 2001, the DAR Secretary reversed
the Decision of ( DECISION OF DAR BAED WHO IS THE ACTUAL
OCCUPANT OF THE PROP- NEITHER REYES OR ACOSTA ).DAR
Regional Director Acosta after finding that neither petitioners'
predecessor-in-interest, Arturo Reyes, nor respondent was an
actual occupant of the subject property. However, since it was
respondent who applied to purchase the subject property, she
was better qualified to own said property as opposed to
petitioners, who did not at all apply to purchase the same.
Petitioners were further disqualified from purchasing the subject
property because they were not landless. Finally, during the
investigation of Legal Officer Pinlac, petitioners requested
that respondent PAY THEM THE COST OF THE
CONSTRUCTION of the skeletal house they built on the
subject property. =This was construed by the DAR Secretary as
a waiver by petitioners of their right over the subject
property.
that:

13

In the said Order, the DAR Secretary ordered

HEacDA

WHEREFORE, premises considered, the September 15,


1999 Order is hereby SET ASIDE and a new Order is
hereby issued APPROVING the application to purchase Lot
[No.] 6-B of Elena Socco-Beltran.

14

Petitioners sought remedy from the Office of the President by


appealing the 9 November 2001 Decision of the DAR Secretary.
Their appeal was docketed as O.P. Case No. 02-A-007. On 30 June
2003, the Office of the President rendered its Decision denying
petitioners' appeal and affirming the DAR Secretary's
Decision.

15

Thefallo of the Decision reads:

WHEREFORE, premises considered, judgment appealed


from is AFFIRMED and the instant appealDISMISSED.

16

Petitioners' Motion for Reconsideration was likewise denied by the


Office of the President in a Resolution dated 30 September
2004.

17

In the said Resolution, the Office of the President noted

that petitioners failed to allege in their motion the date when


they received the Decision dated 30 June 2003. Such date was
material considering that the petitioners' Motion for
Reconsideration was filed only on 14 April 2004, or almost nine
months after the promulgation of the decision sought to be
reconsidered. Thus, it ruled that petitioners' Motion for
Reconsideration, filed beyond fifteen days from receipt of the
decision to be reconsidered, rendered the said decision final and
executory.
Consequently, petitioners filed an appeal before the Court of
Appeals, docketed as CA-G.R. SP No. 87066. Pending the
resolution of this case, the DAR already issued on 8 July 2005 a
Certificate of Land Ownership Award (CLOA) over the subject
property in favor of the respondent's niece and representative,
Myrna Socco-Beltran.
-

18Respondent

passed away on 21 March 2001,

19

but the

records do not ascertain the identity of her legal heirs and her
legatees.

Acting on CA-G.R. SP No. 87066, the Court of Appeals


subsequently promulgated its Decision, dated 31 January 2006,
affirming the Decision dated 30 June 2003 of the Office of the
President. It held that petitioners could not have been actual
occupants of the subject property, ( CA ) since actual occupancy
requires the positive act of occupying and tilling the land, not just
the introduction of an unfinished skeletal structure thereon. The
Contract to Sell on which petitioners based their claim over the
subject property was executed by Miguel Socco, who was not the
owner of the said property and, therefore, had no right to transfer
the same. Accordingly, the Court of Appeals affirmed
respondent's right over the subject property, which was derived
from the original allocatees thereof.
Decision reads:

20

The fallo of the said

cAECST

WHEREFORE, premises considered, the


instant PETITION FOR REVIEW is DISMISSED.
Accordingly, the Decision dated 30 June 2003 and the
Resolution dated 30 December 2004 both issued by the
Office of the President are hereby AFFIRMED in toto.

21

The Court of Appeals denied petitioners' Motion for


Reconsideration of its Decision in a Resolution dated 16 August
2006.

22

Hence, the present Petition, wherein petitioners raise the


following issues:
I
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN AFFIRMING THE FINDINGS OF THE OFFICE OF
THE PRESIDENT THAT THE SUBJECT LOT IS VACANT AND
THAT PETITIONERS ARE NOT ACTUAL OCCUPANTS

THEREOF BY DENYING THE LATTER'S CLAIM THAT THEY


HAVE BEEN IN OPEN, CONTINUOUS, EXCLUSIVE,
NOTORIOUS AND AVDERSE POSSESSION THEREOF SINCE
1954 OR FOR MORE THAN THIRTY (30) YEARS.
II
WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN
IT HELD THAT PETITIONERS "CANNOT LEGALLY ACQUIRE
THE SUBJECT PROPERTY AS THEY ARE NOT CONSIDERED
LANDLESS AS EVIDENCED BY A TAX DECLARATION."
III
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
HOLDING THAT ". . . WHATEVER RESERVATION WE HAVE
OVER THE RIGHT OF MYRNA SOCCO TO SUCCEED WAS
ALREADY SETTLED WHEN NO LESS THAN MIGUEL SOCCO
(PREDECESSOR-IN INTEREST OF HEREIN PETITIONERS)
EXECUTED HIS WAIVER OF RIGHT DATED APRIL 19, 2005
OVER THE SUBJECT PROPERTY IN FAVOR OF MYRNA
SOCCO.
IV
WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN
IT DENIED PETITIONERS MOTION FOR NEW TRIAL
THEREBY BRUSHING ASIDE THE FACT THAT MYRNA V.
SOCCO-ARIZO GROSSLY MISREPRESENTED IN HER
INFORMATION SHEET OF BENEFICIARIES AND
APPLICATION TO PURCHASE LOT IN LANDED ESTATES
THAT SHE IS A FILIPINO CITIZEN, WHEN IN TRUTH AND IN
FACT, SHE IS ALREADY AN AMERICAN NATIONAL.23

CaTcSA

THE MAIN ISSUE IN THIS CASE IS WHETHER OR NOT


PETITIONERS HAVE A BETTER RIGHT TO THE SUBJECT

PROPERTY OVER THE RESPONDENT. ( WHO HAS BETTER


RIGHT ?)
- Petitioner's claim over the subject property is anchored on the
Contract to Sell executed between Miguel Socco and Arturo Reyes
on 5 September 1954. Petitioners additionally allege that they
and their predecessor-in-interest, Arturo Reyes, have been in
possession of the subject lot since 1954 for an uninterrupted
period of more than 40 years.
=The Court is unconvinced.
Petitioners cannot derive title to the subject property by
virtue of the Contract to Sell.
***-It was unmistakably stated in the Contract and made clear to
both parties thereto that the vendor, Miguel R. Socco, was NOT
YET THE OWNER OF THE SUBJECT PROPERTY AND WAS
MERELY EXPECTING TO INHERIT ( MERE EXPECTATION TO
INHERITANCE ) the same as his share as a co-heir of Constancia's
estate.

24

It was also declared in the Contract itself that Miguel R.

Socco's conveyance of the subject to the buyer, Arturo Reyes,


was a = CONDITIONAL SALE. It is, therefore, apparent that
the sale of the subject property in favor of Arturo Reyes
was conditioned upon the event that Miguel Socco would
actually inherit and become the owner of the said
property. Absent such occurrence, Miguel R. Socco never
acquired ownership of the subject property which he
could validly transfer to Arturo Reyes.
Under Article 1459 of the Civil Code on contracts of sale, "The
thing must be licit and the vendor must have a right to
transfer ownership thereof at the time it is delivered." The
law specifically requires that the vendor must have ownership of
the property at the time it is delivered. Petitioners claim that the

property was constructively delivered to them in 1954 by virtue


of the Contract to Sell. However, as already pointed out by this
Court, it was explicit in the Contract itself that, at the time it was
executed, Miguel R. Socco was not yet the owner of the property
and was only expecting to inherit it. Hence, there was no valid
sale from which ownership of the subject property could have
transferred from Miguel Socco to Arturo Reyes. Without acquiring
ownership of the subject property, Arturo Reyes also could not
have conveyed the same to his heirs, herein petitioners.
Petitioners, nevertheless, insist that they physically
occupied the subject lot for more than 30 years and, thus,
they gained ownership of the property through
acquisitive prescription, citing Sandoval v. Insular
Government25 and San Miguel Corporation v. Court of
Appeals.

26

SIacTE

In Sandoval, petitioners therein sought the enforcement of


Section 54, paragraph 6 of Act No. 926, otherwise known as the
Land Registration Act, which required for the issuance of a
certificate of title to agricultural public lands the open,
continuous, exclusive, and notorious possession and occupation
of the same in good faith and under claim of ownership for more
than ten years. After evaluating the evidence presented,
consisting of the testimonies of several witnesses and proof that
fences were constructed around the property, the Court in the
afore-stated case denied the petition on the ground that
petitioners failed to prove that they exercised acts of ownership
or were in open, continuous, and peaceful possession of the
whole land, and had caused it to be enclosed to the exclusion of
other persons. It further decreed that whoever claims such
possession shall exercise acts of dominion and ownership which

cannot be mistaken for the momentary and accidental enjoyment


of the property.

27

In San Miguel Corporation, the Court reiterated the rule that the
open, exclusive, and undisputed possession of alienable public
land for the period prescribed by law creates the legal fiction
whereby land ceases to be public land and is, therefore, private
property. It stressed, however, that the occupation of the land for
30 years must be conclusively established. Thus, the evidence
offered by petitioner therein tax declarations, receipts, and the
sole testimony of the applicant for registration, petitioner's
predecessor-in-interest who claimed to have occupied the land
before selling it to the petitioner = were considered insufficient to
satisfy the quantum of proof required to establish the claim of
possession required for acquiring alienable public land.

28

As in the two aforecited cases, petitioners herein were unable to


prove actual possession of the subject property for the period
required by law. It was underscored in San Miguel
Corporation that the open, continuous, exclusive, and notorious
occupation of property for more than 30 years must be no less
thanconclusive, such quantum of proof being necessary to avoid
the erroneous validation of actual fictitious claims of possession
over the property that is being claimed.

29

( LACK OF EVIDENCE TO PROCE THAT 30 YEAR POSSESSION OF


PROPERTY ).In the present case, the evidence presented by the
petitioners falls short of being conclusive. Apart from their selfserving statement that they took possession of the subject
property, the only proof offered to support their claim was a
general statement made in the letter

30

dated 4 February 2002

of Barangay Captain Carlos Gapero, certifying that Arturo Reyes


was the occupant of the subject property "since peace time and
at present". The statement is rendered doubtful by the fact that

as early as 1997, when respondent filed her petition for issuance


of title before the DAR, Arturo Reyes had already died and was
already represented by his heirs, petitioners herein.

aTEScI

Moreover, the certification given by Barangay Captain Gapero


that Arturo Reyes occupied the premises for an unspecified
period of time, i.e., since peace time until the present, cannot
prevail over Legal Officer Pinlac's more particular findings in her
Report/Recommendation. Legal Officer Pinlac reported that
petitioners admitted that it was only in the 1970s that they built
the skeletal structure found on the subject property. She also
referred to the averments made by Patricia Hipolito in an
Affidavit,

31

dated 26 February 1999, that the structure was left

unfinished because respondent prevented petitioners from


occupying the subject property. Such findings disprove
petitioners' claims that their predecessor-in-interest, Arturo
Reyes, had been in open, exclusive, and continuous possession of
the property since 1954. The adverted findings were the result of
Legal Officer Pinlac's investigation in the course of her official
duties, of matters within her expertise which were later affirmed
by the DAR Secretary, the Office of the President, and the Court
of Appeals. The factual findings of such administrative officer, if
supported by evidence, are entitled to great respect.

32

In contrast, respondent's claim over the subject property is


backed by sufficient evidence. Her predecessors-in-interest, the
spouses Laquian, have been identified as the original allocatees
who have fully paid for the subject property. The subject property
was allocated to respondent in the extrajudicial settlement by the
heirs of Constancia's estate. The document entitled "Extra-judicial
Settlement of the Estate of the Deceased Constancia Socco" was
not notarized and, as a private document, can only bind the
parties thereto. However, its authenticity was never put into

question, nor was its legality impugned. Moreover, executed in


1965 by the heirs of Constancia Socco, or more than 30 years
ago, it is an ancient document which appears to be genuine on its
face and therefore its authenticity must be upheld.

33

Respondent

has continuously paid for the realty tax due on the subject
property, a fact which, though not conclusive, served to
strengthen her claim over the property.

34

From the foregoing, it is only proper that respondent's claim over


the subject property be upheld. This Court must, however, note
that the Order of the DAR Secretary, dated 9 November 2001,
WHICH GRANTED THE PETITIONER'S RIGHT TO PURCHASE
THE PROPERTY, IS FLAWED AND MAY BE ASSAILED IN THE
PROPER PROCEEDINGS. Records show that the DAR affirmed
that respondent's predecessors-in-interest, Marcelo Laquian and
Constancia Socco, having been identified as the original
allocatee, have fully paid for the subject property as provided
under an agreement to sell. By the nature of a contract or
agreement to sell, the title over the subject property is
transferred to the vendee upon the full payment of the stipulated
consideration. Upon the full payment of the purchase price, and
absent any showing that the allocatee violated the conditions of
the agreement, ownership of the subject land should be conferred
upon the allocatee.

35

Since the extrajudicial partition transferring

Constancia Socco's interest in the subject land to the respondent


is valid, there is clearly no need for the respondent to purchase
the subject property, despite the application for the purchase of
the property erroneously filed by respondent. The only act which
remains to be performed is the issuance of a title in the name of
her legal heirs, now that she is deceased.

AcSIDE

Moreover, the Court notes that the records have not clearly
established the right of respondent's representative, Myrna
Socco-Arizo, over the subject property. Thus, it is not clear to this
Court why the DAR issued on 8 July 2005 a CLOA

36

over the

subject property in favor of Myrna Socco-Arizo.

-Respondent's death does not automatically transmit her


rights to the property to Myrna Socco-Beltran. Respondent
only authorized Myrna Socco-Arizo, through a Special Power of
Attorney

37

dated 10 March 1999, to represent her in the present

case and to administer the subject property for her benefit. There
is nothing in the Special Power of Attorney to the effect that
Myrna Socco-Arizo can take over the subject property as owner
thereof upon respondent's death. That Miguel V. Socco,
respondent's only nephew, the son of the late Miguel R. Socco,
and Myrna Socco-Arizo's brother, executed a waiver of his right to
inherit from respondent, does not automatically mean that the
subject property will go to Myrna Socco-Arizo, absent any proof
that there is no other qualified heir to respondent's estate. =
Thus, this Decision does not in any way confirm the
issuance of the CLOA in favor of Myrna Socco-Arizo, which
may be assailed in appropriate proceedings.

9.) RUDOLF LIETZ, INC., petitioner, vs. THE


COURT OF APPEALS, AGAPITO BURIOL, TIZIANA
TURATELLO & PAOLA SANI, respondents.
Ricardo J.M. Rivera for petitioner.
Zoilo C. Cruzat and Carpio Villaraza & Cruz for private
respondents.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; SALES; SALE OF IMMOVABLE;
IN A UNIT PRICE CONTRACT, THE STATEMENT OF AREA OF
IMMOVABLE IS NOT CONCLUSIVE AND THE PRICE MAY BE
REDUCED OR INCREASED DEPENDING ON THE AREA
ACTUALLY DELIVERED. Article 1539 governs a sale of
immovable by the unit, that is, at a stated rate per unit area. In a
unit price contract, the statement of area of immovable is not
conclusive and the price may be reduced or increased depending
on the area actually delivered. If the vendor delivers less than
the area agreed upon, the vendee may oblige the vendor to
deliver all that may be stated in the contract or demand for the
proportionate reduction of the purchase price if delivery is not
possible. If the vendor delivers more than the area stated
in the contract, the vendee has the option to accept only the

amount agreed upon or to accept the whole area, provided he


pays for the additional area at the contract rate.
2. ID.; ID.; ID.; ID.; WHEN THE CONTRACT IS FOR A LUMP SUM,
THERE SHALL BE NO INCREASE NOR DECREASE OF THE
PRICE ALTHOUGH THERE BE A GREATER OR LESSER AREA
OR NUMBER THAN THAT STATED IN THE CONTRACT. In
some instances, a sale of an immovable may be made for a lump
sum and not at a rate per unit. The parties agree on a stated
purchase price for an immovable the area of which may be
declared based on an estimate or where both the area and
boundaries are stated. In the case where the area of the
immovable is stated in the contract based on an estimate, the
actual area delivered may not measure up exactly with the area
stated in the contract. According to Article 1542 of the Civil Code,
in the sale of real estate, made for a lump sum and not at the
rate of a certain sum for a unit of measure or number, there shall
be no increase or decrease of the price although there be a
greater or lesser area or number than that stated in the contract.
However, the discrepancy must not be substantial. A vendee of
land, when sold in gross or with the description "more or less"
with reference to its area, does not thereby ipso facto take all risk
of quantity in the land. The use of "more or less" or similar words
in designating quantity covers only a reasonable excess or
deficiency.
3. ID.; ID.; ID.; ID.; IN SALE OF LAND IN A MASS, THE
SPECIFIC BOUNDARIES STATED IN THE CONTRACT MUST
CONTROL OVER ANY STATEMENT WITH RESPECT TO THE
AREA CONTAINED WITHIN ITS BOUNDARIES; APPLICATION IN
CASE AT BAR.
Where both the area and the boundaries of the immovable
are declared, the area covered within the boundaries of the

immovable prevails over the stated area. IN CASES OF


CONFLICT BETWEEN AREAS AND BOUNDARIES, IT IS THE
LATTER, WHICH SHOULD PREVAIL. What really defines a piece
of ground is not the area, calculated with more or less certainty,
mentioned in its description, but the boundaries therein laid
down, as enclosing the land and indicating its limits. In a
contract of sale of land in a mass, it is well established that
the specific boundaries stated in the contract must control over
any statement with respect to the area contained within its
boundaries. IT IS NOT OF VITAL CONSEQUENCE THAT A DEED OR
CONTRACT OF SALE OF LAND SHOULD DISCLOSE THE AREA WITH
MATHEMATICAL ACCURACY. It is sufficient if its extent is
objectively indicated with sufficient precision to enable one to
identify it. An error as to the superficial area is immaterial. Thus,
the obligation of the vendor is to deliver everything within the
boundaries, inasmuch as it is the entirety thereof that
distinguishes the determinate object. As correctly noted by the
trial court and the Court of Appeals, the sale between petitioner
and respondent Buriol involving the latter's property is one made
for a lump sum. The Deed of Absolute Sales hows that the parties
agreed on the purchase price on a predetermined area of five
hectares within the specified boundaries and not based on a
particular rate per area. In accordance with Article 1542, there
shall be no reduction in the purchase price even if the area
delivered to petitioner is less than that stated in the
contract. In the instant case, the area within the boundaries as
stated in the contract shall control over the area agreed upon in
the contract.
4. ID.; DAMAGES; AWARD OF EXEMPLARY DAMAGES SHALL HAVE
NO BASIS WITH THE DELETION OF THE AWARD OF MORAL
DAMAGES. The filing alone of a civil action should not be a
ground for an award of moral damages in the same way that a

clearly unfounded civil action is not among the grounds for moral
damages. Exemplary or corrective damages are imposed, by way
of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages. With the
deletion of the award for moral damages, there is no basis for the
award of exemplary damages.

DECISION

TINGA, J :
p

This is a petition for review on certiorari under Rule 45 of the


Revised Rules of Court, praying for the annulment of
the Decision

dated April 17, 1995 and the Resolution

dated

October 25, 1995 of the Court of Appeals in CA-G.R. CV No.


38854. The Court of Appeals affirmed the Decision

in Civil Case

No. 2164 of the Regional Trial Court (RTC), Branch 48, of Palawan
and Puerto Princesa City with the modification that herein
respondents Tiziana Turatello and Paola Sani are entitled to
damages, attorney's fees, and litigation expenses.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing and as prayed for
by the defendants, the instant complaint is hereby
DISMISSED. Defendant's counterclaim is likewise
DISMISSED. Plaintiff, however, is ordered to pay
defendant Turatello and Sani's counsel the sum of
P3,010.38 from August 9, 1990 until fully paid
representing the expenses incurred by said counsel when
the trial was cancelled due to the non-appearance of
plaintiff's witnesses. With costs against the plaintiff.

SO ORDERED.

As culled from the records, the following antecedents appear:


Respondent Agapito Buriol previously owned a parcel of
unregistered land situated at Capsalay Island, Port Barton, San
Vicente, Palawan. On August 15, 1986, respondent Buriol entered
into a lease agreement with Flavia Turatello and respondents
Turatello and Sani, all Italian citizens, involving one (1) hectare of
respondent Buriol's property. The lease agreement was for a
period of 25 years, renewable for another 25 years. The lessees
took possession of the land after paying respondent Buriol a
down payment of P10,000.00.

The lease agreement, however,

was reduced into writing only in January 1987.


On November 17, 1986, RESPONDENT BURIOL SOLD TO
PETITIONER RUDOLF LIETZ, INC. THE SAME PARCEL OF LAND FOR
THE AMOUNT OF P30,000.00. THE DEED OF ABSOLUTE
SALE embodying the agreement described the land as follows:
A parcel of land, consisting of FIVE (5) hectares, more or
less, a portion of that parcel of land declared in the name
of Agapito Buriol, under Tax Declaration No. 0021, revised
in the year 1985, together with all improvements thereon,
situated at the Island of Capsalay, Barangay Port Barton,
municipality of San Vicente, province of Palawan which
segregated from the whole parcel described in said tax
declaration, has the following superficial boundaries:
NORTH, Sec. 01-017; and remaining property of the
vendor; EAST, by Seashore; SOUTH, 01-020; and WEST,
by 01-018 (now Elizabeth Lietz).

Petitioner later discovered that respondent Buriol owned only four


(4) hectares, and with one more hectare covered by lease , ONLY
THREE (3) HECTARES WERE ACTUALLY DELIVERED TO

PETITIONER. = complaint for Annulment of Lease with Recovery


of Possession with Injunction and Damages against respondents
and Flavia Turatello before the RTC. The complaint alleged that
with evident bad faith and malice, respondent Buriol sold to
petitioner five (5) hectares of land when respondent Buriol knew
for a fact that he owned only four (4) hectares and managed to
lease one more hectare to Flavia Turatello and respondents
Tiziana Turatello and Paola Sani. The complaint sought the
issuance of a restraining order and a writ of preliminary injunction
to prevent Flavia Turatello and respondents Turatello and Sani
from introducing improvements on the property, the annulment
of the lease agreement between respondents, and the restoration
of the amount paid by petitioner in excess of the value of the
property sold to him. Except for Flavia Turatello, respondents filed
separate answers raising similar defenses of lack of cause of
action and lack of jurisdiction over the action for recovery of
possession. Respondents Turatello and Sani also prayed for the
award of damages and attorney's fees.

After trial on the merits, the trial court rendered judgment on May
27, 1992, dismissing both petitioner's complaint and respondents'
counterclaim for damages. Petitioner and respondents Turatello
and Sani separately appealed the RTC Decision to the Court of
Appeals, which affirmed the dismissal of petitioner's complaint
and awarded respondents Turatello and Sani damages and
attorney's fees. The dispositive portion of the Court of
Appeals Decision reads:
WHEREFORE, the decision appealed from is hereby
AFFIRMED, with the following modification:
Plaintiff-appellant Rudolf Lietz, Inc. is hereby (1) ordered
to pay defendants-appellants Turatello and Sani, the sum
of P100,000.00 as moral damages; (2) P100,000.00 as

exemplary damages; (3) P135,728.73 as attorney's fees;


and (4) P10,000.00 as litigation expenses.
SO ORDERED.

ISCTcH

Petitioner brought to this Court the instant petition after the


denial of its motion for reconsideration of the Court of
Appeal Decision. The instant petition imputes the following errors
to the Court of Appeals.
I. IN DEFENDING AGAPITO BURIOL'S GOOD FAITH AND IN
STATING THAT ASSUMING THAT HE (BURIOL) WAS IN
BAD FAITH PETITIONER WAS SOLELY RESPONSIBLE
FOR ITS INEXCUSABLE CREDULOUSNESS.
II. IN ASSERTING THAT ARTICLES 1542 AND 1539 OF THE
NEW CIVIL CODE ARE, RESPECTIVELY, APPLICABLE
AND INAPPLICABLE IN THE CASE AT BAR.
III. IN NOT GRANTING PETITIONER'S CLAIM FOR ACTUAL
AND EXEMPLARY DAMAGES.
IV. IN GRANTING RESPONDENTS TIZIANA TURATELLO AND
PAOLA SANI EXHORBITANT [sic] AMOUNTS AS
DAMAGES WHICH ARE EVEN BEREFT OF
EVIDENTIARY BASIS.

ISSUES : main issues confront this Court, namely: (I) WHETHER


OR NOT PETITIONER IS ENTITLED TO THE DELIVERY OF THE
ENTIRE FIVE HECTARES OR ITS EQUIVALENT, AND (II) WHETHER
OR NOT DAMAGES MAY BE AWARDED TO EITHER PARTY.
Petitioner contends that it is entitled to the corresponding
reduction of the purchase price because the agreement was for
the sale of five (5) hectares although respondent Buriol owned
only four (4) hectares. As in its appeal to the Court of Appeals,
PETITIONER ANCHORS ITS ARGUMENT ON THE SECOND

PARAGRAPH OF ARTICLE 1539 OF THE CIVIL CODE, which


provides:
Art. 1539. The obligation to deliver the thing sold includes
that of placing in the control of the vendee all that is
mentioned in the contract, in conformity with the
following rules:
If the sale of real estate should be made with a statement
of its area, at the rate of a certain price for a unit of
measure or number, the vendor shall be obliged to
deliver to the vendee, if the latter should demand
it, all that may have been stated in the contract;
but, should this be not possible, the vendee may
choose between a proportional reduction of the
price and the rescission of the contract, provided
that, in the latter case, the lack in the area be not less
than one-tenth of that stated.
xxx xxx xxx

The Court of Appeals Decision, however, declared as inapplicable


the above quoted provision and instead ruled that petitioner is no
longer entitled to a reduction in price based on the provisions of
Article 1542 of the Civil Code, which read:
Art. 1542. In the sale of real estate, made for a lump sum
and not at the rate of a certain sum for a unit of measure
or number, there shall be no increase or decrease of the
price, although there be a greater or lesser area or
number than that stated in the contract.

AHCETa

The same rule shall be applied when two or more


immovable are sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in
every conveyance of real estate, its area or number

should be designated in the contract, the vendor shall be


bound to deliver all that is included within said
boundaries, even when it exceeds the area or number
specified in the contract; and, should he not be able to do
so, he shall suffer a reduction in the price, in proportion to
what is lacking in the area or number, unless the contract
is rescinded because the vendee does not accede to the
failure to deliver what has been stipulated.

Article 1539 governs a sale of immovable by the unit, that is, at a


stated rate per unit area. In a unit price contract, the statement
of area of immovable is not conclusive and the price may be
reduced or increased depending on the area actually delivered. If
the vendor delivers less than the area agreed upon, the vendee
may oblige the vendor to deliver all that may be stated in the
contract or demand for the proportionate reduction of the
purchase price if delivery is not possible. If the vendor delivers
more than the area stated in the contract, the vendee has the
option to accept only the amount agreed upon or to accept the
whole area, provided he pays for the additional area at the
contract rate.

10

In some instances, a sale of an immovable may be made for a


lump sum and not at a rate per unit. The parties agree on a
stated purchase price for an immovable the area of which may be
declared based on an estimate or where both the area and
boundaries are stated.
In the case where the area of the immovable is stated in the
contract based on an estimate, the actual area delivered may not
measure up exactly with the area stated in the contract.
According to Article 1542

11

of the Civil Code, in the sale of real

estate, made for a lump sum and not at the rate of a certain sum
for a unit of measure or number, there shall be no increase or

decrease of the price although there be a greater or lesser area


or number than that stated in the contract. However, the
discrepancy must not be substantial. A vendee of land, when sold
in gross or with the description "more or less" with reference to
its area, does not thereby ipso facto take all risk of quantity in the
land. The use of "more or less" or similar words in designating
quantity covers only a reasonable excess or deficiency.

12

Where both the area and the boundaries of the immovable


are declared, the area covered within the boundaries of
the immovable prevails over the stated area. In cases of
conflict between areas and boundaries, it is the latter which
should prevail. What really defines a piece of ground is not the
area, calculated with more or less certainty, mentioned in its
description, but the boundaries therein laid down, as enclosing
the land and indicating its limits. In a contract of sale of land in a
mass, it is well established that the specific boundaries stated in
the contract must control over any statement with respect to the
area contained within its boundaries. It is not of vital
consequence that a deed or contract of sale of land should
disclose the area with mathematical accuracy. It is sufficient if its
extent is objectively indicated with sufficient precision to enable
one to identify it. An error as to the superficial area is
immaterial.

13

Thus, the obligation of the vendor is to deliver

everything within the boundaries, inasmuch as it is the entirety


thereof that distinguishes the determinate object.

14

= As correctly noted by the trial court and the Court of Appeals,


the sale between petitioner and respondent Buriol involving the
latter's property is one made for a lump sum. The Deed of
Absolute Sale shows that the parties agreed on the purchase
price on a predetermined area of five hectares within the

specified boundaries and not based on a particular rate per area.


In accordance with Article 1542, there shall be no reduction in the
purchase price even if the area delivered to petitioner is less than
that stated in the contract. In the instant case, the area within
the boundaries as stated in the contract shall control over the
area agreed upon in the contract.

TEDAHI

The Court rejects petitioner's contention that the property's


boundaries as stated in the Deed of Absolute Saleare superficial
and unintelligible and, therefore, cannot prevail over the area
stated in the contract. First, as pointed out by the Court of
Appeals, at an ocular inspection prior to the perfection of the
contract of sale, respondent Buriol pointed to petitioner the
boundaries of the property. Hence, petitioner gained a fair
estimate of the area of the property sold to him. Second,
petitioner cannot now assail the contents of the Deed of Absolute
Sale, particularly the description of the boundaries of the
property, because petitioner's subscription to the Deed of
Absolute Sale indicates his assent to the correct description of
the boundaries of the property.
Petitioner also asserts that respondent Buriol is guilty of
misleading petitioner into believing that the latter was buying five
hectares when he knew prior to the sale that he owned only four
hectares. The review of the circumstances of the alleged
misrepresentation is factual and, therefore, beyond the province
of the Court. Besides, this issue had already been raised before
and passed upon by the trial court and the Court of Appeals. The
factual finding of the courts below that no sufficient evidence
supports petitioner's allegation of misrepresentation is binding on
the Court.
The Court of Appeals reversed the trial court's dismissal of
respondents Turatello and Sani's counterclaim for moral and

exemplary damages, attorney's fees and litigation expenses. In


awarding moral damages in the amount of P100,000 in favor of
Turatello and Sani, the Court of Appeals justified the award to
alleviate the suffering caused by petitioner's unfounded civil
action. The filing alone of a civil action should not be a ground for
an award of moral damages in the same way that a clearly
unfounded civil action is not among the grounds for moral
damages.

15

Exemplary or corrective damages are imposed, by way of


example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages.

16

With

the deletion of the award for moral damages, there is no basis for
the award of exemplary damages.
WHEREFORE, the instant petition for review on certiorari is
GRANTED in PART. The Court of Appeals Decision in CA-G.R. CV
No. 38854 is 1

10.) DOLORES SALINAS, assisted by her


husband, JUAN CASTILLO, petitioner, vs. SPS.
BIENVENIDO S. FAUSTINO and ILUMINADA
G. FAUSTINO, respondents.

DECISION

CARPIO-MORALES, J :
p

It appears that respondent ( BUYER ) Bienvenido


S. Faustino (Faustino), by a Deed of Absolute Sale (Deed of
Sale) purchased from his several co-heirs, including his first
cousins Benjamin Salinas and herein petitioner Dolores Salinas,
their respective shares to a parcel of land covered by Tax
Declaration No. 14687, in the name of their grandmother
Carmen Labitan, located in Subic, Zambales, with a "superficial
area of 300.375 square meters [sq. m.] more or less", and
with boundaries "in the North: Carmen Labitan; in the South:
Calle, in the East: Callejon and in the West: Roque Demetrio".
On March 15, 1982, respondent Faustino, joined by his wife, filed
before the then Court of First Instance of Zambales a
COMPLAINT FOR RECOVERY OF POSSESSION WITH
DAMAGES AGAINST PETITIONER, assisted by her husband,
docketed as Civil Case No. 3382-0, ALLEGING THAT THE PARCEL
OF LAND HE BOUGHT VIA THE JUNE 27, 1962 DEED OF SALE
FROM HIS CO-HEIRS CONSISTED OF 1,381 SQ. M. and is more
particularly described as follows:

ISCTcH

A residential land located at Barrio Matain, Subic,


Zambales now know as Lot 3, Block 5-K, Psd8268bounded on the NORTH by Road Lot 1, Block 5-1,
PSD-8268; on the SOUTH by Road Lot 2, Block 5-1, Psd8268; on the EAST by Road Lot 2, Block 5-1, Psd-8286;
and, on the WEST by the property of Roque Demetrio Lot
2, Block 5-k, Psd 8268; containing an area of ONE
THOUSAND THREE HUNDRED EIGHTY-ONE (1,381)
SQUARE METERS, more or less. Declared for taxation
purposes under Tax Declaration No. 1896 in the name of
Spouses Bienvenido S. Faustino and Iluminada
G. Faustino.

(Emphasis and underscoring supplied)

Respondent spouses further alleged that they ALLOWED


PETITIONER AND CO-HEIRS TO OCCUPY AND BUILD A HOUSE ON
A 627 SQ. M. PORTION OF THE LAND,- :On the condition that
they would VOLUNTARILY AND IMMEDIATELY REMOVE THE
HOUSE AND VACATE THAT PORTION of the land should they
(respondents) need the land; and that when they asked petitioner
and her co-heir-occupants to remove the house and restore the
possession of the immediately-described portion of the land, they
refused, hence, the filing of the complaint.
In her Answer,

SCHIcT

petitioner claimed that she is the owner of a 628

sq. m. lot covered by Tax Declaration No. 1017 in her name,


particularly described as follows:
A residential lot, together with the two (2) storey house
thereon constructed, and all existing improvements
thereon, situated at Matain, Subic, Zambales, containing
an area of 628 square meters, more or less. Bounded
on the North, by Lot 12313 [sic]; on the East, by Lot
12413 (Road Lot); on the South, by Lot 12005Cecilia Salinas; and on the West, by Lot 12006, Loreto

Febre. Declared under Tax No. 1017, in the name of


Dolores Salinas Castillo. (Emphasis and underscoring
supplied);

that if respondents refer to the immediately described


lot, then they have no right or interest thereon;

AND

THAT HER SIGNATURE IN DEED OF SALE IS FORGED.


After trial, Branch 73 of the Regional Trial Court (RTC) of
Olongapo City, by Decision of August 31, 1993, found petitioners
claim of forgery unsupported. It nevertheless dismissed the
complaint,

it holding that, inter alia,the Deed of Sale

indicated that only 300.375 sq. m. was sold to petitioner.


. . . [I]n the . . . Deed of Sale [dated June 27, 1962]
(Exhibit "B"), the area of the land sold was only 300.375
square meters while the plaintiffs[-herein respondents]
in their complaint claim 1,381 square meters or the whole
of the lot shown by exhibit "A" (Lot 3, Block 5-A, Psd8268). Since the document is the best evidence, and the
deed of sale indicates only 300.375 square meters, so
then, only the area as stated in the Deed of Sale
should be owned by the plaintiffs. The
allegations [sic] that there might be a typographical error
is again mere conjecture and not really supported by
evidence.

DCSTAH

The boundaries of the land indicated in the Deed of


Sale (Exhibit "B") [are] different from that of
Exhibit "A" claimed by the plaintiff[s-herein
respondents] to be the plan of the lot which they
allegedly bought. The Deed of Sale states [that the
boundary of the lot in the] North is the lot of Carmen
Labitan while Exhibit "A" indicated that North of the land

is Lot 3, Block 5-A, Psd-8268 (Exhibit "A") is a Road Lot


(Lot 1, Block 5-1, Psd-8268).
***This Court believes that after examining the
documents presented, that the land bought by the
plaintiff is ONLY A PORTION OF THE LAND appearing in
Exhibit "A" and not the whole lot. The land bought being
situated at the southern portion of Lot 3, Block 5-K, Psd8268. This explains why the northern portion of the lot
sold indicated in the Deed of Sale is owned by Carmen
Labitan, the original owner of the whole Lot 3, Block 5-K,
Psd-8268 (Exhibit "C-1").
Even the tax declaration submitted by the plaintiff
indicates DIFFERENT BOUNDARIES with that of the
land indicated in the Deed of Sale. The law states in
Art. 434 of the Civil Code:
"Art. 434. In an action to recover, the property must
be identified, and the plaintiff must rely on the
weakness of the defendant's claim."
xxx xxx xxx
Herein plaintiffs[-respondents] only own the area of
300.375 square meters of the said lot and not the
whole area of 1,381 square meters as claimed by them.
There is no evidence to substantiate the plaintiffs' claim
for the area of 1,381 square meters.
xxx xxx xxx

(Emphasis and underscoring supplied)

On respondents' appeal,
December 20, 2001,

the Court of Appeals, by Decision of

modified the RTC decision.

CA : ( ILLOGICAL DECISION ) It held that since respondents are


claiming the whole lot containing 1,381 sq. m. but that petitioner

is claiming 628 sq. m. thereof, then respondents are "entitled to


the remaining portion . . . of 753 square meters". The appellate
court explained:
. . . [T]he Court agrees with the court a quo that only a
portion of the whole lot was indeed sold to the
plaintiffs-appellants by the heirs of deceased
Isidro Salinas and Carmen Labitan. What remains to be
determined is the particular portion of the area
that was sold to the plaintiffs-appellants.

ESDHCa

. . . BASIS DECISION : [W]hat really defines a piece of


land is not the area calculated with more or less certainty
mentioned in the description but the boundaries therein
laid down as enclosing the land and indicating its limits.
Where the land is sold for a lump sum and not so much
per unit of measure or number, the boundaries of the
land stated in the contract determine the effects and
scope of the sale not the area thereof.
Based on these rules, plaintiffs-appellants are not strictly
bound by the area stated in the Deed of Sale which is
merely 300.375 square meters, but by the metes and
bounds stated therein. As found by thecourt a quo, the
land bought by the plaintiffs-appellants is a portion of the
land appearing in Exhibit "A", situated at the southern
portion of Lot 3, Block 5-K, Psd 8268 where the northern
portion of the land sold as indicated in the Deed of Sale is
owned by Carmen Labitan, the original owner of the
whole Lot 3, Block 5-K, Psd-8268 (Exhibit "C-1".) None of
the other heirs questioned the sale of the property as
described in the Deed of Sale.

Considering the foregoing, this Court believes


that plaintiffs-appellants[-herein respondents] own more
than 300.375 square meters of the land in question.
However, said ownership does not extend to the northern
portion of the land being claimed by the defendantsappellees, consisting of 628 (erroneously stated in the
decision of the court a quo as 268) square
meters and covered by Tax Declaration No. 1017 in the
name of defendant-appellee[-herein petitioner]
Dolores Salinas. Plaintiffs-appellants are[,] however,
entitled to the remaining portion of the property
consisting of seven hundred fifty-three (753)
square meters, more or less. (Emphasis and
underscoring supplied)

The appellate court thus disposed:

CDcaSA

WHEREFORE, based on the foregoing premises, the


judgment appealed from is hereby MODIFIED, as follows:
1. Plaintiffs-appellants Bienvenido S. Faustino and
Iluminada G. Faustin[o] are declared owners
of seven hundred fifty-three (753) square
meters, more or less, of the parcel of land
subject of this case.
2. Plaintiffs-appellants and defendants-appellees
are directed to cause the segregation of their
respective shares in the property as
determined by this Court, with costs equally
shared between them.
xxx xxx xxx

10

(Underscoring supplied)

Petitioner's motion for reconsideration having been denied,


filed the present petition

12

faulting the Court of Appeals:

11

she

a. . . . IN MODIFYING THE DECISION OF THE COURT A QUO


DISMISSING THE COMPLAINT FOR INSUFFICIENCY
OF EVIDENCE;
b. . . . IN DECLARING THE PRIVATE RESPONDENTS
OWNERS OF 753 SQUARE METERS, MORE OR LESS,
OF THE PARCEL OF LAND SUBJECT OF THE CASE[;]
c. . . . IN NOT AFFIRMING THE DECISION OF THE COURT A
QUO AND XXX IN NOT DECLARING THE PETITIONER
AS OWNER OF HER PROPERTY WHICH, SINCE THEN
UP TO THE PRESENT, SHE HAD BEEN OCCUPYING
AND DESPITE PREPONDERANCE OF EVIDENCE OF
HER OWNERSHIP THERETO.

13(Underscoring

in the

original)

The petition is meritorious.


Indeed, in a contract of sale of land in a mass, the SPECIFIC
BOUNDARIES STATED IN THE CONTRACT MUST CONTROL
OVER ANY STATEMENT WITH RESPECT TO THE AREA
contained within its boundaries.

14

Thus, it is the boundaries

indicated in a deed of absolute sale, and not the area in sq. m.


mentioned therein 300.375 sq. m. in the Deed of Sale in
respondents' favor that control in the determination of which
portion of the land a vendee acquires.

HSDCTA

In concluding that respondents acquired via the June 27, 1962


Deed of Sale the total land area of 753 sq. m., the Court of
Appeals subtracted from the total land area of 1,381 sq. m.
reflected in Exh. "A", which is "Plan of Lot 3, Block 5-k, Psd-8268,
as prepared for Benjamin R. Salinas" containing an area of 1,381
sq. m. and which was prepared on February 10, 1960 by a private
land surveyor, the 628 sq. m. area of the lot claimed by petitioner

as reflected in Tax Declaration No. 1017 in her name. As will be


shown shortly, however, the basis of the appellate court's
conclusion is erroneous.
As the immediately preceding paragraph reflects, the "Plan of Lot
3, Bk 5-K, Psd-82" was prepared for respondent Faustino's and
petitioner's first cousin co-heir Benjamin Salinas on February 10,
1960.
( ERROR OF THE APPELLATE COURT ) Why the appellate
court, after excluding the 628 sq. m. lot covered by a Tax
Declaration in the name of PETITIONER from the 1,381 sq.
m. lot surveyed for Benjamin P. Salinas in 1960,=
concluded that what was sold via the 1962 Deed of Sale to
respondent Faustino was the remaining 753 sq. m., despite
the clear provision of said Deed of Sale that what was conveyed
was 300.375 sq. m., escapes comprehension. =It defies logic,
given that respondents base their claim of ownership of
the questioned 628 sq. m. occupied by petitioner on that
June 27, 1962 Deed of Sale covering a 300.375 sq. m.
lot.

TEacSA

- The trial court in fact noted in its Pre-trial Order that "the
parties cannot agree as to the identity of the property sought
to be recovered by the plaintiff."

15

(Emphasis and underscoring

supplied.) Indeed, in her Answer to the Complaint, petitioner


alleged "[t]hat if the plaintiffs refer to [the lot covered by Tax
Declaration No. 1017], then they have no right or interest or
participation whatsoever over the same . . . ."

16

(Emphasis and

italics supplied.)
****Even the boundaries of the 628 sq. m. area covered by Tax
Declaration No. 1017 in petitioner's name and those alleged by
respondents to be occupied by petitioner are different.

Thus, the boundaries of the lot covered by Tax Declaration No.


1017 are: Lot No. 12302 on the North; Lot No. 12005
(Cecilia Salinas) on the South; Lot No. 12413 (road lot) on the
East; and Lot No. 12006 (Loreto Febre) on the West.

17

Whereas,

following respondents' claim, the 627 sq. m. area occupied by


petitioner has the following boundaries, viz.:
The northeastern portion of the land of the plaintiffs
described in Paragraph 2 of this complaint; bounded on
the NORTH by Road Lot 1, Block 5-1, Psd-8268; on
the EAST by Road Lot 2, Block 5-1, Psd-8268; and on
the SOUTH and WEST by the remaining portion of Lot 5,
Block 5-1, PSD-8268 of herein plaintiffs which is the land
described in Paragraph 2 of this complaint owned by the
plaintiffs and that this portion in question has an area of
SIX HUNDRED TWENTY-SEVEN (627) SQUARE METERS,
more or less.

18

(Emphasis and underscoring supplied)

( ERROR CA ) The Court of Appeals thus doubly erred in


concluding that 1) what was sold to respondents via the June 27,
1962 Deed of Sale was the 1,381 sq. m. parcel of land reflected in
the Plan-Exh. "A" prepared in 1960 for Benjamin Salinas, and 2)
petitioner occupied 628 sq. m. portion thereof, hence,
respondents own the remaining 753 sq. m.
WHEREFORE, the petition is GRANTED. The Decision of the Court
of Appeals dated December 20, 2001 is REVERSED and SET
ASIDE, and the

11.)

RAYMUNDO

BENITA T. ONG,

S.

DE

respondent.

LEON, petitioner, vs.

CORONA, J :
p

On March 10, 1993, petitioner Raymundo S. de Leon sold three


parcels of land
respondent

with improvements situated in Antipolo, Rizal to

Benita

MORTGAGED

to

T.

Ong.

Real

As

these

Savings

and

properties

Loan

were

Association,

Incorporated (RSLAI),
- petitioner and respondent executed a notarized deed of
absolute sale with assumption of mortgage

stating:

xxx xxx xxx


That for and in consideration of the sum of ONE MILLION
ONE

HUNDRED

Philippine

THOUSAND

currency,

acknowledged

the

from

PESOS

receipt

(P1.1

whereof

[RESPONDENT]

to

million),

is

hereby

the

entire

satisfaction of [PETITIONER], said [PETITIONER] does


hereby sell, transfer and convey in a manner
absolute and irrevocable, unto said [RESPONDENT],
his heirs and assigns that certain real estate together
with the buildings and other improvements existing
thereon, situated in [Barrio] Mayamot, Antipolo, Rizal
under the following terms and conditions:
1. That upon full payment of [respondent] of the
amount

of

THOUSAND

FOUR
FIVE

HUNDRED

HUNDRED

FIFTEEN

(P415,000),

[petitioner] shall execute and sign a deed of


assumption
[respondent]

of

mortgage

without

any

in

favor

further

of
cost

whatsoever;
2. That [respondent] shall assume payment of the
outstanding loan of SIX HUNDRED EIGHTY

FOUR

THOUSAND

(P684,500)
LOAN,

with

Cainta,

supplied)

FIVE

HUNDRED

REAL

Rizal

PESOS

SAVINGS
.

AND

(emphasis

cTACIa

xxx xxx xxx

Pursuant to this deed, respondent gave petitioner P415,500 as


partial payment. Petitioner, on the other hand, handed the keys
to the properties and wrote a letter informing RSLAI of the sale
and authorizing it to accept payment from respondent and
release the certificates of title. ( RES PAID PARTIAL PAYMENT,
WITH KEYS AND RELEASE CERTIFICATE OF TITLE).
Thereafter,

respondent

improvements

on

the

undertook
properties.

repairs
5

and

Respondent

made
likewise

informed RSLAI of her agreement with petitioner for her


to assume petitioner's outstanding loan. = RSLAI required
her to undergo credit investigation.
Subsequently,
- respondent learned that ( RESOLD PROP TO 3 RD PERSON )
petitioner again sold the same properties to one Leona Viloria
after March 10, 1993 and changed the locks, rendering the keys
he gave her useless. Respondent thus proceeded to RSLAI to
inquire about the credit investigation. However, she was informed
that petitioner had already paid the amount due and had taken
back the certificates of title.
Respondent persistently contacted petitioner but her efforts
proved futile.
On June 18, 1993, respondent filed a complaint for specific
performance, declaration of nullity of the second sale and
damages

against petitioner and Viloria in the Regional Trial

Court (RTC) of Antipolo, Rizal, Branch 74. She claimed that since
petitioner had previously sold the properties to her on March 10,
1993, he no longer had the right to sell the same to Viloria. Thus,
petitioner fraudulently deprived her of the properties.

AcSEHT

Petitioner, on the other hand, insisted that respondent did not


have a cause of action against him and consequently prayed for
the dismissal of the complaint. He claimed that since the
transaction was subject to a condition (i.e., that RSLAI approve
the

assumption

of

mortgage),

they

only

entered

into

CONTRACT TO SELL. Inasmuch as respondent did apply for a


loan from RSLAI, the condition did not arise. Consequently, the
sale was not perfected and he could freely dispose of the
properties. Furthermore, he made a counter-claim for damages as
respondent filed the complaint allegedly with gross and evident
bad faith.
( RTC DECISION ) Because respondent was a licensed real estate
broker, the RTC concluded that she knew that the validity of the
sale was subject to a condition. The perfection of a contract of
sale depended on RSLAI's approval of the assumption of
mortgage. Since RSLAI did not allow respondent to assume
petitioner's obligation, the RTC held that the sale was never
perfected.
In a decision dated August 27, 1999,

the RTC dismissed the

complaint for lack of cause of action and ordered respondent to


pay petitioner P100,000 moral damages, P20,000 attorney's fees
and the cost of suit.
Aggrieved,
(CA),

respondent

appealed

to

the

Court

of

Appeals

asserting that the court a quo erred in dismissing the

complaint.

( CA ) The CA found that the March 10, 2003 contract executed


by the parties did not impose any condition on the sale and held
that

the

parties

entered

into

contract

of

sale.

Consequently, because petitioner no longer owned the properties


when he sold them to Viloria, it declared the second sale void.
Moreover, it found petitioner liable for moral and exemplary
damages for fraudulently depriving respondent of the properties.
In a decision dated July 22, 2005,

the CA upheld the sale to

respondent and nullified the sale to Viloria. It likewise ordered


respondent to reimburse petitioner P715,250 (or the amount he
paid to RSLAI). Petitioner, on the other hand, was ordered to
deliver the certificates of titles to respondent and pay her
P50,000 moral damages and P15,000 exemplary damages.
Petitioner moved for reconsideration but it was denied in a
resolution
petition,

11

dated

November

11,

2005.

10

Hence,

this

with the sole issue being whether the parties entered

into a contract of sale or a contract to sell.


Petitioner insists that he entered into a contract to sell since the
validity of the transaction was subject to a suspensive condition,
that is, the approval by RSLAI of respondent's assumption of
mortgage. Because RSLAI did not allow respondent to assume his
(petitioner's)

obligation,

the

condition

never

materialized.

Consequently, there was no sale.


Respondent, on the other hand, asserts that they entered into a
contract of sale as petitioner already conveyed full ownership of
the subject properties upon the execution of the deed.
We modify the decision of the CA.
ISSSUE : WON THE SUBJECT IM CASE AT BAR IS
CONTRACT OF SALE OR CONTRACT TO SELL?

The RTC and the CA had conflicting interpretations of the March


10, 1993 deed. The RTC ruled that it was a contract to sell while
the CA held that it was a contract of sale.

DTSaHI

In a contract of sale, the seller conveys ownership of the property


to the buyer upon the perfection of the contract. Should the
buyer default in the payment of the purchase price, the seller
may either sue for the collection thereof or have the contract
judicially resolved and set aside. The non-payment of the price is
therefore a negative resolutory condition.

12

On the other hand, a contract to sell is subject to a positive


suspensive condition. The buyer does not acquire ownership of
the property until he fully pays the purchase price. For this
reason, if the buyer defaults in the payment thereof, the seller
can only sue for damages.

13

The deed executed by the parties (as previously quoted) stated


that petitioner sold the properties to respondent "in a manner
absolute and irrevocable" for a sum of P1.1 million. With regard
to the manner of payment, it required respondent to pay
P415,500 in cash to petitioner upon the execution of the deed,
with the balance

15

payable directly to RSLAI (on behalf of

petitioner) within a reasonable time.

16

Nothing in said instrument

implied that petitioner reserved ownership of the properties until


the full payment of the purchase price.

17

On the contrary, the

terms and conditions of the deed only affected the manner of


payment, not the immediate transfer of ownership (upon
the execution of the notarized contract) from petitioner as seller
to respondent as buyer ( THE TERMS AND AGREEMENT IN THE
CONTRACT REFER TO THE MANNER OF PAYMENT AND NOT THE
TRANSFER OF OWNERSHIP ) . Otherwise stated, the said terms

and conditions pertained to the performance of the contract, not


the perfection thereof nor the transfer of ownership.
Settled is the rule that the seller is obliged to transfer title over
the properties and deliver the same to the buyer.
regard, Article 1498 of the Civil Code

19

18

In this

provides that, as a rule,

the execution of a notarized deed of sale is equivalent to the


delivery of a thing sold.
In this instance, =

petitioner executed a notarized deed of

absolute sale in favor of respondent. Moreover, not only did


petitioner

turn

over

the

keys

to

the

properties

to

respondent, he also authorized RSLAI to receive payment


from respondent and release his certificates of title to
her. The totality of petitioner's acts clearly indicates that he had
unqualifiedly

delivered

and

transferred

ownership

of

the

properties to respondent. Clearly, it was a =contract of sale the


parties entered into.
Furthermore, even assuming arguendo that the agreement of the
parties was subject to the condition that RSLAI had to approve
the assumption of mortgage, the said condition was considered
fulfilled as petitioner prevented its fulfillment by paying his
outstanding obligation and taking back the certificates of title
without even notifying respondent. In this connection, Article
1186 of the Civil Code provides:
Article 1186. The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment.

VOID SALE OR DOUBLE SALE?


Petitioner sold the same properties to two buyers, first to
respondent
occasions.

20

and

then

to

Viloria

on

two

separate

However, the second sale was not void for the sole

reason that petitioner had previously sold the same properties to


respondent. On this account, the CA erred.

aTcSID

This case involves a double sale as the disputed properties were


sold validly on two separate occasions by the same seller to the
two different buyers in good faith.
Article 1544 of the Civil Code provides:
Article 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof
in good faith, if it should be movable property.
RULE : Should it be immovable property, the
ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry
of Property.
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the
person who presents the oldest title, provided
there is good faith. (emphasis supplied)

This provision clearly states that the rules on double or


multiple sales apply only to purchasers in good faith. Needless
to say, it disqualifies any purchaser in bad 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 an
interest in, such property and pays a full and fair price for the
same at the time of such purchase, or before he has notice of
some other person's claim or interest in the property.

21

The law

requires, on the part of the buyer, lack of notice of a defect in the


title of the seller and payment in full of the fair price at the time

of the sale or prior to having notice of any defect in the seller's


title.
Was respondent a purchaser in good faith? Yes.
Respondent

purchased

the

properties,

knowing

they

were

encumbered only by the mortgage to RSLAI. According to her


agreement with petitioner, respondent had the obligation
to

assume

the

balance

of

petitioner's

outstanding

obligation to RSLAI. Consequently, respondent informed RSLAI


of the sale and of her assumption of petitioner's obligation.
However, because petitioner surreptitiously paid his outstanding
obligation and took back her certificates of title, petitioner
himself rendered respondent's obligation to assume petitioner's
indebtedness to RSLAI impossible to perform. ( IMPOSSIBLE
CONDITION)
Article 1266 of the Civil Code provides:
Article 1266. The debtor in obligations to do shall be
released when the prestation become legally or physically
impossible without the fault of the obligor.

Since

respondent's

obligation

to

assume

petitioner's

outstanding balance with RSLAI became impossible without


her fault, she was released from the said obligation. Moreover,
because petitioner himself willfully prevented the condition vis-vis the payment of the remainder of the purchase price, the
said condition is considered fulfilled pursuant to Article 1186 of
the Civil Code. For purposes, therefore, of determining
whether respondent was a purchaser in good faith, she
is deemed to have fully complied with the condition of
the payment of the remainder of the purchase price.
Respondent was not aware of any interest in or a claim on the
properties other than the mortgage to RSLAI which she undertook

to

assume.

Moreover,

Viloria

bought

the

properties

from

petitioner after the latter sold them to respondent. Respondent


was therefore a purchaser in good faith. Hence, the rules on
double sale are applicable.
Article 1544 of the Civil Code provides that when neither buyer
registered the sale of the properties with the registrar of deeds,
the one who took prior possession of the properties shall be the
lawful owner thereof.
( PERFECTED CONTRACT OF SALE ) In this instance, petitioner
delivered the properties to respondent when he executed the
notarized deed

22

and handed over to respondent the keys to the

properties. For this reason, respondent took actual possession


and

exercised

control

thereof

by

making

repairs

and

improvements thereon. Clearly, the sale was perfected and


consummated on March 10, 1993. Thus, respondent became the
lawful owner of the properties.
Nonetheless, while the condition as to the payment of the
balance of the purchase price was deemed fulfilled, respondent's
obligation to pay it subsisted. Otherwise, she would be unjustly
enriched at the expense of petitioner.
Therefore, respondent must pay petitioner P684,500, the amount
stated in the deed. This is because the provisions, terms and
conditions of the contract constitute the law between the parties.
Moreover, the deed itself provided that the assumption of
mortgage "was without any further cost whatsoever." Petitioner,
on the other hand, must deliver the certificates of title to
respondent. We likewise affirm the award of damages.

cECaHA

WHEREFORE, the July 22, 2005 decision and November 11, 2005
resolution of the Court of Appeals in CA-G.R. CV No. 59748 are
hereby AFFIRMED with MODIFICATION insofar as respondent

Benita T. Ong is ordered to pay petitioner Raymundo de Leon


P684,500 representing the balance of the purchase price as
provided in their March 10, 1993 agreement.
Costs against petitioner.
SO ORDERED.
Carpio,

Velasco, Jr., Nachura and Peralta, JJ., concur.

|||

12.) ASSET PRIVATIZATION TRUST, petitioner, vs.


T.J. ENTERPRISES, respondent.

DECISION

TINGA, J :
p

This is a Rule 45 petition


of Appeals' decision
decision

which seeks the reversal of the Court

and resolution

affirming the RTC's

holding petitioner liable for actual damages for breach

of contract.

DAcSIC

Petitioner Asset Privatization Trust

(petitioner) was a

government entity created for the purpose to conserve, to


provisionally manage and to dispose assets of government
institutions.

Petitioner had acquired from the Development Bank

of the Philippines (DBP) assets consisting of machinery and


refrigeration equipment which were then stored at Golden City
compound, Pasay City. The compound was then leased to
and in the physical possession of Creative Lines, Inc.,
(Creative Lines). These assets were being sold on an asis-where-is basis.
On 7 November 1990, petitioner and respondent entered into an
absolute deed of sale over certain machinery and refrigeration
equipment identified as Lots Nos. 2, 3 and 5. Respondent paid the
full amount of P84,000.00 as evidenced by petitioner's Receipt
No. 12844. After two (2) days, respondent demanded the
delivery of the machinery it had purchased. (RESPONDENT IS
THE PURCHASER )
Sometime in March 1991, petitioner issued Gate Pass No. 4955.
Respondent was able to pull out from the compound the
properties designated as Lots Nos. 3 and 5. However, during the
hauling of Lot No. 2 consisting of sixteen (16) items, only nine (9)
items were pulled out by respondent. The seven (7) items that
were left behind consisted of the following: (1) one (1) Reefer Unit
1; (2) one (1) Reefer Unit 2; (3) one (1) Reefer Unit 3; (4) one (1)
unit blast freezer with all accessories; (5) one (1) unit chest
freezer; (6) one (1) unit room air-conditioner; and (7) one (1) unit

air compressor. Creative Lines' employees prevented respondent


from hauling the remaining machinery and equipment.
Respondent filed a complaint for specific performance and
damages against petitioner and Creative Lines. 7During the
pendency of the case, respondent was able to pull out the
remaining machinery and equipment. However, upon inspection
it was discovered that the machinery and equipment were
damaged and had missing parts.
Petitioner argued that upon the execution of the deed of sale it
had complied with its obligation to deliver the object of the sale
since there was no stipulation to the contrary. It further argued
that being a sale on an as-is-where-is basis, it was the
duty of respondent to take possession of the property.
Petitioner claimed that there was already a constructive delivery
of the machinery and equipment.
( RTC RULED IN FAVOR OF PET ) The RTC ruled that the execution
of the deed of absolute sale did not result in constructive
delivery of the machinery and equipment. It found that at the
time of the sale, petitioner did not have control over the
machinery and equipment and, thus, could not have transferred
ownership by constructive delivery. The RTC ruled that petitioner
is liable for breach of contract and should pay for the actual
damages suffered by respondent.

CDAEHS

On petitioner's appeal, the Court of Appeals affirmed in toto the


decision of the RTC.
Hence this petition.
Before this Court, petitioner raises issues by attributing the
following errors to the Court of Appeals, to wit:
I.

The Court of Appeals erred in not finding that petitioner


had complied with its obligation to make delivery of the
properties subject of the contract of sale.
II.
The Court of Appeals erred in not considering that the
sale was on an "as-is-where-is" basis wherein the
properties were sold in the condition and in the place
where they were located.
III.
The Court of Appeals erred in not considering that
respondent's acceptance of petitioner's disclaimer of
warranty forecloses respondent's legal basis to enforce
any right arising from the contract.
IV.
The reason for the failure to make actual delivery of the
properties was not attributable to the fault and was
beyond the control of petitioner. The claim for damages
against petitioner is therefore bereft of legal basis.

ISSUE : WHETHER OR NOT there was a constructive delivery of


the machinery and equipment upon the execution of the deed of
absolute sale between petitioner and respondent.
The ownership of a thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof.

The thing sold

shall be understood as delivered when it is placed in the control


and possession of the vendee.

10

TaDAHE

As a general rule, when the sale is made through a public


instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from

the deed the contrary does not appear or cannot clearly be


inferred.
And with regard to MOVABLE PROPERTY, its delivery may also be
made by the delivery of the keys of the place or depository where
it is stored or kept.

11

In order for the execution of a public

instrument to effect tradition, the purchaser must be placed in


control of the thing sold.

12

- However, the execution of a public instrument only gives


rise to a prima facie presumption of delivery. Such
presumption is destroyed when the delivery is not
effected because of a legal impediment.

13

It is necessary

that the vendor shall have control over the thing sold that, at the
moment of sale, its material delivery could have been
made.

14

Thus, a person who does not have actual possession

of the thing sold cannot transfer constructive possession by the


execution and delivery of a public instrument.

15

***In this case, there was no constructive delivery of the


machinery and equipment upon the execution of the deed
of absolute sale or upon the issuance of the gate pass
since it was not petitioner but Creative Lines which had
actual possession of the property. The presumption of
constructive delivery is not applicable as it has to yield to the
reality that the purchaser was not placed in possession and
control of the property.
On the second issue, petitioner posits that the sale being in
an as-is-where-is basis, respondent agreed to take possession of
the things sold in the condition where they are found and from
the place where they are located. The phrase as-is whereis basis pertains solely to the physical condition of the
thing sold, not to its legal situation.

16

It is merely

descriptive of the state of the thing sold. Thus, the as-is whereis basis merely describes the actual state and location of the
machinery and equipment sold by petitioner to respondent. The
depiction does not alter petitioner's responsibility to deliver the
property to respondent.
( EF OF DISCLAIMER ) Anent the third issue, petitioner maintains
that the presence of the disclaimer of warranty in the deed of
absolute sale absolves it from all warranties, implied or
otherwise. The position is untenable.
The vendor is bound to transfer the ownership of and deliver, as
well as warrant the thing which is the object of the
sale.

17

Ownership of the thing sold is acquired by the vendee

from the moment it its * delivered to him in any of the ways


specified in articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from
the vendor to the vendee.

18

A perusal of the deed of absolute

sale shows that both the vendor and the vendee represented
and warranted to each other that each had all the requisite power
and authority to enter into the deed of absolute sale and that
they shall perform each of their respective obligations under the
deed of absolute in accordance with the terms thereof.

19

As

previously shown, there was no actual or constructive delivery of


the things sold. Thus, petitioner has not performed its obligation
to transfer ownership and possession of the things sold to
respondent.

aIcHSC

As to the last issue, petitioner claims that its failure to make


actual delivery was beyond its control. It posits that the refusal of
Creative Lines to allow the hauling of the machinery and
equipment was unforeseen and constituted a fortuitous event.

The matter of fortuitous events is governed by Art. 1174 of the


Civil Code which provides that except in cases expressly specified
by the law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires assumption of risk, no
person shall be responsible for those events which could not be
foreseen, or which though foreseen, were inevitable. The
elements of a fortuitous event are: (a) the cause of the
unforeseen and unexpected occurrence, must have been
independent of human will; (b) the event that constituted
the caso fortuito must have been impossible to foresee or, if
foreseeable, impossible to avoid; (c) the occurrence must have
been such as to render it impossible for the debtors to fulfill their
obligation in a normal manner, and; (d) the obligor must have
been free from any participation in the aggravation of the
resulting injury to the creditor.

20

A fortuitous event may either be an act of God, or natural


occurrences such as floods or typhoons, or an act of man such as
riots, strikes or wars.

21

However, when the loss is found to be

partly the result of a person's participation whether by active


intervention, neglect or failure to act the whole occurrence
is humanized and removed from the rules applicable to a
fortuitous event.

22

( INCAB )

We quote with approval the following findings of the Court of


Appeals, to wit:
We find that Creative Lines' refusal to surrender the
property to the vendee does not constitute force
majeure which exculpates APT from the payment of
damages. This event cannot be considered unavoidable
or unforeseen. APT knew for a fact that the properties to
be sold were housed in the premises leased by Creative
Lines. It should have made arrangements with Creative

Lines beforehand for the smooth and orderly removal of


the equipment. The principle embodied in the act of God
doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all
human agencies are to be excluded from creating or
entering into the cause of the mischief. When the effect,
the cause of which is to be considered, is found to be in
part the result of the participation of man, whether it be
from active intervention or neglect, or failure to act, the
whole occurrence is thereby humanized, as it were, and
removed from the rules applicable to the acts of God.

23

Moreover, Art. 1504 of the Civil Code provides that where actual
delivery has been delayed through the fault of either the buyer or
seller the goods are at the risk of the party in fault. The risk of
loss or deterioration of the goods sold does not pass to the buyer
until there is actual or constructive delivery thereof. As previously
discussed, there was no actual or constructive delivery of the
machinery and equipment. Thus, the risk of loss or deterioration
of property is borne by petitioner. Thus, it should be liable for
the damages that may arise from the delay.

SHDAEC

Assuming arguendo that Creative Lines' refusal to allow the


hauling of the machinery and equipment is a fortuitous event,
petitioner will still be liable for damages. This Court agrees with
the appellate court's findings on the matter of damages, thus:
Article 1170 of the Civil Code states: "Those who in the
performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner
contravene the tenor thereof are liable for damages". In
contracts and quasi-contracts, the damages for which the

obligor who acted in good faith is liable shall be those


that are the natural and probable consequences of the
breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time
the obligation was constituted.

24

The trial court correctly

awarded actual damages as pleaded and proven during


trial.

25

WHEREFORE, the Court AFFIRMS in toto the Decision of the


Court of Appeals dated 31 August 2004. Cost against petitioner.
SO ORDERED.
Carpio Morales,

Velasco, Jr., Leonardo-de Castro

**

and Brion,

JJ., c
(Asset Privatization Trust v. T.J. Enterprises, G.R. No. 167195,
[May 8, 2009], 605 PHIL 563-573)
|||

13.) BOARD OF LIQUIDATORS, petitioner and


appellant, vs. EXEQUIEL FLORO, ET
AL., oppositors and appellees.

Godofredo Zandueta for appellant.


Isidero A. Vera for appellee.
SYLLABUS

1. OBLIGATIONS AND CONTRACTS; SALVAGE CONTRACT;


RIGHTS OF SALVOR; SALVOR BECOMES OWNER OF GOODS
SALVAGED UPON POSSESSION THEREOF AND NOT AFTER
PAYMENT OF STIPULATED PRICE. The fact that the salvor
was required under the contract of salvage to post a bond to
guarantee compliance with its terms; that the operations
for salvage were entirely at the salvor's expense and
risks; that gold, silver, copper, coins, currency, Jewelry,
precious stones, etc. were excepted from the contract;
and that expenses for storage, including guard service,
were for the salvor's account, it is clear that ownership of
the goods passed to the salvor-contractor as soon as they were
recovered or salvaged, and not after payment of the stipulated
price. While there can be reservation of title in the seller until
full payment of the price (Art. 1478, N.C.C.) or until fulfillment
of a condition (Art. 1505, N.C.C.); and while execution of a
public instrument amounts to delivery only when from the
deed the contrary does not appear or cannot clearly be
inferred (Art. 1498), the contract in question does not show
reservation of title or withholding of delivery.
2. ID.; BOND; LAPSE OF BOND DOES NOT EXTINGUISH
PRINCIPAL OBLIGATION. Inasmuch as a bond merely stands
as guaranty for a principal obligation which may exist
independently of said bond, the latter being merely an
accessory contract ( BOND IS MERELY AN ACCESSORY
CONTRACT ).(Valencia vs. Phil., 444), =the mere lapse of
said bond does not extinguish the principal obligation.
3. ID.; NOVATION IS NEVER PRESUMED; MERE
EXTENSION OF PERIOD OF PAYMENT IS NOT NOVATION.
Where there is neither express novation nor incompatibility
from which it could be implied, no novation could take place

because the same is never presumed, it being required that


the intent to novate be expressed clearly and unequivocally, or
that the terms of the new agreement be incompatible with the
old contract (Art. 1292, N.C.C.; Martinez vs. Cavives, 25 Phil.
581; Tiu Siuce vs. Habana, 45 Phil. 707; Pablo vs.Sapungan, 71
Phil 145; Young vs.Villa, 93 Phil., 21; 49 Off. Gaz., [5] 1818).
Moreover, a mere extension of the period for payment or
performance is not novation (Inchausti vs. Yulo, 34 Phil. 978;
Zapanta vs. De Rotaeche, 21 Phil. 154; Pablo vs. Sapungan, 71
Phil., 145.
4. ID.; INSOLVENCY PROCEEDINGS; FRAUDULENT
TRANSFERS; PROCEEDINGS TO SET ASIDE BY ASSIGNEE.
Under Section 36, No. 8, of the Insolvency Act, all proceedings
to set aside fraudulent transfers should be brought and
prosecuted by the assignee, who can legally represent all the
creditors of the insolvent (Maceda, et al. vs. Hernandez, et al.,
70 Phil. 261); ruling that a sale is not fraudulent under Sec. 70
of the Insolvency Law, without proceeding to determine such
fraudulent character, is premature.

DECISION

REYES, J. B. L., J :
p

From the order of the Court of First Instance of Manila,


dated August 10, 1955, denying its petition to exclude certain
pieces of steel matting from the assets of the insolvent M. P.
Malabanan, the Board of Liquidators appealed to the Court of
Appeals. The latter certified the case to this Court on the
ground that only questions of law are involved.

The Board of Liquidators (hereinafter referred to as the


Board) is an agency of the Government created under
Executive Order No. 372 (November 24, 1950), and, pursuant
to Executive Order No. 377 (December 1, 1950), took over the
functions of the defunct Surplus Property Liquidating
Committee.
On June 14, 1952 Melecio Malabanan entered into an
agreement with the Board for the salvage of surplus
properties sunk in territorial waters off the provinces of
Mindoro, La Union, and Batangas (Exhibit "A"). By its
terms, Malabanan was to commence operations within 30 days
from execution of said contract, which was to be effective for a
period of one (1) year from the start of operations, extendible
for a total period of not more than six (6) months. On June 10,
1953, Malabanan requested for an EXTENSION OF ONE
(1) YEAR FOR THE SALVAGE IN WATERS OF MINDORO
and Batangas; and the Board extended the contract up
to November 30, 1953. On November 18, 1953, Malabanan
requested a second extension of one (1) more year for the
waters of Occidental Mindoro, and the Board again extended
the contract up to August 31, 1954. Malabanan submitted a
recovery report dated July 26,1954, wherein it is stated that he
had recovered a total of 13,107 pieces of steel mattings, as
follows:
1. December, 1953-April 30, 1954 2,555
2. May 1, 1954-June 30, 1954 10,552
______
13,107 (pieces)

Four months previously, Malabanan had entered


into an agreement with Exequiel Floro, dated March

31,1964 (Exhibit 1, Floro), in which, among other things, it was


agreed that Floro would advance to Malabanan certain sums of
money, not to exceed P25,000.00, repayment thereof being
secured by quantities of steel mattings which Malabanan
would consign to Floro; that said advances were to be paid
within a certain period, and upon default at the expiration
thereof, Floro was authorized to sell whatever steel mattings
were in his possession under said contract, in an amount
sufficient to satisfy the advance. Pursuant thereto, Floro claims
to have made total advances to the sum of P24,224.50.
It appears that as Malabanan was not able to repay
Floro's advances, the latter, by a document dated August 4,
1954, sold 11,047 pieces of steel mattings to Eulalio Legaspi
for the sum of P24,303.40.
Seventeen days later, on August 21, 1964, MALABANAN
FILED IN THE COURT OF FIRST INSTANCE OF MANILA A
PETITION FOR VOLUNTARY INSOLVENCY, ATTACHING
THERETO A SCHEDULE OF ACCOUNTS, IN WHICH THE BOARD
WAS LISTED AS ONE OF THE CREDITORS for P10,874.46, and
Exequiel Floro for P24,220.50, the origin of the obligations
being described as "Manila Royalty" and "Salvaging
Operations", respectively. Also attached was an Inventory of
Properties, listing certain items of personal property allegedly
aggregating P33,707.00 in value. In this list were included
11,167 pieces of steel mattings with an alleged estimated
value of P33,501.00.
Soon after, the Board, claiming to be the owner of the
listed steel matting, filed a petition to exclude them from the
inventory; and to make the insolvent account for a further
1,940 pieces of steel matting, the difference between the
number stated in the insolvent's recovery report of July

26,1954 and that stated in the inventory. Exequiel Floro


opposed the Board's petition and claimed that the steel
matting listed had become the property of Eulalio Legaspi by
virtue of a deed of sale in his favor, executed by Floro pursuant
to the latter's contract with Malabanan on March 31, 1954. The
court below, after reception of evidence as to the genuineness
and due execution of the deed of sale to Legaspi, as well as of
the contract between Malabanan and Floro, denied the Board's
petition, declaring that Malabanan had acquired ownership
over the steel mattings under his contract with the Board; that
Exequiel Floro was properly authorized to dispose of the steel
mattings under Floro's contract with Malabanan; and that the
sale to Eulalio Legaspi was valid and not contrary to the
Insolvency Law.
In this appeal, the Board contends that Malabanan did
not acquire ownership over the steel mattings due to his
failure to comply with the terms of the contract, allegedly
constituting conditions precedent for the transfer of title,
namely: payment of the price; audit and check as to the
nature, quantity and value of properties salvaged; weighing of
the salvaged properties to be conducted jointly by
representatives of the Board and of Malabanan; determination
of the site for storage; audit and verification of the recovery
reports by government auditors; and filing of a performance
bond.
We are of the opinion, and so hold, that the contract
(Exhibit "A") between Malabanan and the Board had the effect
of vesting Malabanan with title to, or ownership of, the steel
mattings in question as soon as they were brought up from the
bottom of the sea. This is shown by pertinent provisions of the
contract as follows:

"10. For and in consideration of the assignment by


the BOARD OF LIQUIDATORS to the CONTRACTOR
(Malabanan) of all right, title and interest in and to all
surplus properties salvaged by the CONTRACTOR under
this contract, the CONTRACTOR shall pay to the
Government NINETY PESOS (P90.00) per long ton (2,240
lbs.) of surplus properties recovered.
"11. Payment of the agreed price shall be made
monthly during the first ten (10) days of every month on
the basis of recovery reports of sunken surplus properties
salvaged during the preceding month, duly verified and
audited by the authorized representative of the BOARD
OF LIQUIDATORS."

That Malabanan was required under the contract to post


a bond of P10,000.00 to guarantee compliance with the terms
and conditions of the contract; that the operations for salvage
were entirely at Malabanan's expense and risks; that gold,
silver, copper, coins, currency, jewelry, precious stones, etc.
were excepted from the contract, and were instead required to
be turned over to the Board for disposition; that the expenses
for storage, including guard service, were for Malabanan's
account all these circumstances indicated that ownership of
the goods passed to Malabanan as soon as they were
recovered or salvaged (i.e., as soon as the salvor had gained
effective possession of the goods), and not only after payment
of the stipulated price.
While there can be reservation of title in the seller until
full payment of the price (Article 1478, N.C.C.), or, until
fulfillment of a condition (Article 1505, N.C.C.); and while
execution of a public instrument amounts to delivery only
when from the deed the contrary does not appear or cannot

clearly be inferred (Article 1498,supra), there is nothing in the


said contract which may be deemed a reservation of title, or
from which it may clearly be inferred that delivery was not
intended.

(TRADITIO LONGA MANU) The contention that there


was no delivery is incorrect. While there was no physical
tradition, there was one by agreement (traditio longa manu) in
conformity with Article 1499 of the Civil Code.
"Article 1499 The delivery of movable property
may likewise be made by the mere consent or agreement
of the contracting parties, if the thing sold cannot be
transferred to the possession of the vendee at the time of
the sale. . . ."

As observed earlier, there is nothing in the terms of the


public instrument in question from which an intent to withhold
delivery or transfer of title may be inferred.
The Board also contends that as no renewal of the bond
required was filed for the extension of the contract, it ceased
to have any force and effect; and, as the steel mattings were
recovered during the extended period of the contract,
Malabanan did not acquire any rights thereto. The pertinent
portion of the contract provides:
"12. Jointly with the execution of this contract, the
CONTRACTOR shall file a bond in the amount of TEN
THOUSAND (10,000.00) Pesos to guarantee his faithful
compliance with the terms and conditions herein;
Provided, that this contract shall not be considered to
have been executed notwithstanding the signing hereof

by the parties until said bond shall have been properly


filed."

Malabanan filed a bond dated June 10, 1952, effective for


one (1) year, or up to June 10, 1953. The principal contract,
executed on June 14, 1952, was first extended to November
30, 1953, and finally, to August 31, 1954. As can be seen,
there was no longer any bond from June 11, 1953 to August
31, 1954.
The lapse of the bond did not extinguish the contract
between Malabanan and the Board. The requirement that a
bond be posted was already complied with when Malabanan
filed the bond dated June 10, 1952. A BOND MERELY
STANDS AS GUARANTY FOR A PRINCIPAL OBLIGATION
WHICH MAY EXIST INDEPENDENTLY OF SAID BOND, THE
LATTER BEING MERELY AN ACCESSORY CONTRACt
(Valencia vs. RFC & C.A., 103 Phil., 444). Significantly, its
purpose, as per the terms of the contract, was "to guarantee
his (Malabanan's) faithful compliance with the terms and
conditions herein"; and, for violation of the contract, the Board
may declare "the bond forfeited" (par. 13). Being for its
benefit, the Board could legally waive the bond requirement
(Valencia vs. RFC, et al.,supra.), and it did so when, the bond
already having expired, it extended the contract not only once,
but twice. In none of the resolutions extending the contract
(Annexes "C" & "E", pp. 108-112, Record on Appeal) was there
a requirement that the bond be renewed, in the face of the
first endorsement by the Executive Officer of the Board (Annex
"F", pp. 112-113, Record on Appeal) recommending that
Malabanan's request for a second extension be granted
"provided the bond be originally posted should continue."

There is no merit to the suggestion that there being a


novation, Article 1299 of the Civil Code should govern.
Novation is never presumed, it being required that the intent
to novate be expressed clearly and unequivocally, or that the
terms of the new agreement be incompatible with the old
contract (Article 1292, N.C.C.; Martinez vs. Cavives, 25 Phil.
581; Tiu Siuce vs. Habana, 45 Phil. 707; Pablo vs. Sapungan,
71 Phil. 145; Young vs. Villa, 93 Phil., 21; 49 Off. Gaz., [5]
1818.) Here there was neither express novation nor
incompatibility from which it could be implied.
Moreover, a mere extension of the term (period) for
payment or performance is not novation
(Inchausti vs. Yulo, 34 Phil. 978; Zapanta vs. De Rotaeche, 21
Phil. 154; Pablovs. Sapungan, supra); and, while the extension
covered only some of the areas originally agreed upon, this
change did not alter the essence of the contract (cf.
Ramos vs. Gibbon, 67 Phil, 371; Bank of P. I. vs. Herridge, 47
Phil., 57).
It is next contended that the sale by Floro to Legaspi: on
August 4, 1954 (within 30 days prior to petition far insolvency)
was void as a fraudulent transfer under Section 70 of the
Insolvency Law. The court below held that the sale to Legaspi
was valid and not violative of Section 70; but there having
been no proceedings to determine whether the sale was
fraudulent, we think it was premature for the court below to
decide this point, especially because under section 36, No. 8,
of the Insolvency Act, all proceedings to set aside fraudulent
transfers should be brought and prosecuted by the assignee,
who can legally represent all the creditors of the insolvent
(Maceda, et al., vs. Hernandez, et al., 70 Phil., 261 ). To allow a
single creditor to bring such a proceeding would invite a
multiplicity of suits, since the resolution of his case would not

bind the other creditors, who may refile the same claim
independently, with diverse proofs, and possibly give rise to
contradictory rulings by the courts.
The order appealed from is hereby affirmed in so far as it
declares the disputed goods to be the property of the
insolvent; but without prejudice to the right of the assignee in
insolvency to take whatever action may be proper to attack
the alleged fraudulent transfer of the steel matting to Eulalio
Legaspi, and to make the proper parties account for the
difference between the number of pieces of steel matting
stated in the insolvent's recovery report, Annex "B"? (13,107),
and that stated in his inventory (11,167). Costs against
appellant.
Pars, C. J., Bengzon, Bautista Angelo, Labrador,
Barrera, Gutierrez David, Paredes and Dizon, JJ., concur.
(Board of Liquidators v. Floro, G.R. No. L-15155, [December 29,
1960], 110 PHIL 482-489)
|||

14.)
SAN LORENZO DEVELOPMENT
CORPORATION, petitioner, vs. COURT OF
APPEALS, PABLO S. BABASANTA, SPS. MIGUEL
LU and PACITA ZAVALLA LU, respondents.

DECISION

TINGA, J :
p

From a coaptation of the records of this case, it appears that


respondents Miguel Lu and Pacita Zavalla, (hereinafter, the
Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa,
Laguna covered by TCT No. T-39022 and TCT No. T-39023 both
measuring 15,808 square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two
parcels of land to respondent Pablo Babasanta, (hereinafter,
Babasanta) for the price of fifteen pesos (P15.00) per square
meter. Babasanta made a downpayment of fifty thousand pesos
(P50,000.00) as evidenced by a memorandum receipt issued by
Pacita Lu of the same date. Several other payments totaling two
hundred thousand pesos (P200,000.00) were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to
demand the execution of a final deed of sale in his favor so that
he could effect full payment of the purchase price. In the same
letter, Babasanta notified the spouses about having received
information that the spouses sold the same property to
another without his knowledge and consent. He demanded

that the second sale be cancelled and that a final deed of sale be
issued in his favor.

cEAIHa

In response, Pacita Lu wrote a letter to Babasanta wherein


she acknowledged having agreed to sell the property to him
at fifteen pesos (P15.00) per square meter. She, however,
reminded Babasanta that when the balance of the purchase price
became due, he requested for a reduction of the price and when
she refused, =Babasanta backed out of the sale. Pacita added
that she returned the sum of fifty thousand pesos (P50,000.00) to
Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before
the Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna,
a Complaint for Specific Performance and Damages

against his

co-respondents herein, the Spouses Lu. Babasanta alleged that


the lands covered by TCT No. T-39022 and T-39023 had been sold
to him by the spouses at fifteen pesos (P15.00) per square meter.
Despite his repeated demands for the execution of a final deed of
sale in his favor, respondents allegedly refused.
In their Answer,

the Spouses Lu alleged that Pacita Lu obtained

loans from Babasanta and when the total advances of Pacita


reached fifty thousand pesos (P50,000.00), the latter and
Babasanta, without the knowledge and consent of Miguel Lu, had
verbally agreed to transform the transaction into a contract to
sell the two parcels of land to Babasanta with the fifty thousand
pesos (P50,000.00) to be considered as the downpayment for the
property and the balance to be paid on or before 31 December
1987. Respondents Lu added that as of November 1987, total
payments made by Babasanta amounted to only two hundred
thousand pesos (P200,000.00) and the latter allegedly failed to
pay the balance of two hundred sixty thousand pesos
(P260,000.00) despite repeated demands. Babasanta had

purportedly asked Pacita for a reduction of the price from fifteen


pesos (P15.00) to twelve pesos (P12.00) per square meter and
when the Spouses Lu refused to grant Babasanta's request, the
latter rescinded the contract to sell and declared that the original
loan transaction just be carried out in that the spouses would be
indebted to him in the amount of two hundred thousand pesos
(P200,000.00). Accordingly, on 6 July 1989, they purchased
Interbank Manager's Check No. 05020269 in the amount of two
hundred thousand pesos (P200,000.00) in the name of Babasanta
to show that she was able and willing to pay the balance of her
loan obligation.
Babasanta later filed an Amended Complaint dated 17 January
1990

wherein he prayed for the issuance of a writ of preliminary

injunction with temporary restraining order and the inclusion of


the Register of Deeds of Calamba, Laguna as party defendant. He
contended that the issuance of a preliminary injunction was
necessary to restrain the transfer or conveyance by the Spouses
Lu of the subject property to other persons.
The Spouses Lu filed their Opposition

to the amended complaint

contending that it raised new matters which seriously affect their


substantive rights under the original complaint. However, the trial
court in its Order dated 17 January 1990

admitted the amended

complaint.
On 19 January 1990, herein petitioner San Lorenzo Development
Corporation (SLDC) filed a Motion for Intervention

before the

trial court. SLDC alleged that it had legal interest in the subject
matter under litigation because on 3 May 1989, the two parcels
of land involved, namely Lot 1764-A and 1764-B, had been sold to
it in a Deed of Absolute Sale with Mortgage.

It alleged that it

was a buyer in good faith and for value and therefore it had a
better right over the property in litigation.

In his Opposition to SLDC's motion for intervention,

respondent

Babasanta demurred and argued that the latter had no legal


interest in the case because the two parcels of land involved
herein had already been conveyed to him by the Spouses Lu and
hence, the vendors were without legal capacity to transfer or
dispose of the two parcels of land to the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990
allowed SLDC to intervene. SLDC filed its Complaint-inIntervention on 19 April 1990.

Respondent Babasanta's motion

for the issuance of a preliminary injunction was likewise granted


by the trial court in its Order dated 11 January
1991

10

conditioned upon his filing of a bond in the amount of

fifty thousand pesos (P50,000.00).

cAECST

SLDC in its Complaint-in-Intervention alleged that on 11 February


1989, the Spouses Lu executed in its favor an Option to Buy the
lots subject of the complaint. Accordingly, it paid an option
money in the amount of three hundred sixteen thousand one
hundred sixty pesos (P316,160.00) out of the total consideration
for the purchase of the two lots of one million two hundred sixtyfour thousand six hundred forty pesos (P1,264,640.00). After the
Spouses Lu received a total amount of six hundred thirty-two
thousand three hundred twenty pesos (P632,320.00) they
executed on 3 May 1989 a Deed of Absolute Sale with
Mortgage in its favor. SLDC added that the certificates of title
over the property were delivered to it by the spouses clean and
free from any adverse claims and/or notice of lis pendens. SLDC
further alleged that it only learned of the filing of the complaint
sometime in the early part of January 1990 which prompted it to
file the motion to intervene without delay. Claiming that it was a
buyer in good faith, SLDC argued that it had no obligation to look
beyond the titles submitted to it by the Spouses Lu particularly

because Babasanta's claims were not annotated on the


certificates of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July
1993 upholding the sale of the property to SLDC. It ordered the
Spouses Lu to pay Babasanta the sum of two hundred thousand
pesos (P200,000.00) with legal interest plus the further sum of
fifty thousand pesos (P50,000.00) as and for attorney's fees. On
the complaint-in-intervention, the trial court ordered the Register
of Deeds of Laguna, Calamba Branch to cancel the notice of lis
pendens annotated on the original of the TCT No. T-39022 (T7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that
since both Babasanta and SLDC did not register the respective
sales in their favor, ownership of the property should pertain to
the buyer who first acquired possession of the property. The trial
court equated the execution of a public instrument in favor of
SLDC as sufficient delivery of the property to the latter. It
concluded that symbolic possession could be considered to have
been first transferred to SLDC and consequently ownership of the
property pertained to SLDC who purchased the property in good
faith.
Respondent Babasanta appealed the trial court's decision to the
Court of Appeals alleging in the main that the trial court erred in
concluding that SLDC is a purchaser in good faith and in
upholding the validity of the sale made by the Spouses Lu in
favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of
Appeals. They contended that the trial court erred in failing to
consider that the contract to sell between them and Babasanta
had been novated when the latter abandoned the verbal contract

of sale and declared that the original loan transaction just be


carried out. The Spouses Lu argued that since the properties
involved were conjugal, the trial court should have declared the
verbal contract to sell between Pacita Lu and Pablo Babasanta
null and void ab initio for lack of knowledge and consent of
Miguel Lu. They further averred that the trial court erred in not
dismissing the complaint filed by Babasanta; in awarding
damages in his favor and in refusing to grant the reliefs prayed
for in their answer.
On 4 October 1995, the Court of Appeals rendered
its Decision

11

which set aside the judgment of the trial court. It

declared that the sale between Babasanta and the Spouses Lu


was valid and subsisting and ordered the spouses to execute the
necessary deed of conveyance in favor of Babasanta, and the
latter to pay the balance of the purchase price in the amount of
two hundred sixty thousand pesos (P260,000.00). The appellate
court ruled that the Absolute Deed of Sale with Mortgage in favor
of SLDC was null and void on the ground that SLDC was a
purchaser in bad faith. The Spouses Lu were further ordered to
return all payments made by SLDC with legal interest and to pay
attorney's fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for
reconsideration with the appellate court.

12

aManifestation dated 20 December 1995,

However, in

13

the Spouses Lu

informed the appellate court that they are no longer contesting


the decision dated 4 October 1995.

In its Resolution dated 11 March 1996,

14

the appellate court

considered as withdrawn the motion for reconsideration filed by


the Spouses Lu in view of their manifestation of 20 December

1995. The appellate court denied SLDC's motion for


reconsideration on the ground that no new or substantial
arguments were raised therein which would warrant modification
or reversal of the court's decision dated 4 October 1995.

DIcSHE

Hence, this petition.


SLDC assigns the following errors allegedly committed by the
appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN
LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE
WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM
IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO
WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE
PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO
APPRECIATE THE ESTABLISHED FACT THAT THE ALLEGED
FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN
POSSESSION OF THE DISPUTED PROPERTY WHEN SAN
LORENZO BOUGHT AND TOOK POSSESSION OF THE
PROPERTY AND NO ADVERSE CLAIM, LIEN,
ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON
THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO
APPRECIATE THE FACT THAT RESPONDENT BABASANTA
HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN
LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN
THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT
NOTWITHSTANDING ITS FULL CONCURRENCE ON THE
FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED
AND SET ASIDE THE DECISION OF THE TRIAL COURT

UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER


AND FIRST POSSESSOR IN GOOD FAITH.

15

SLDC contended that the appellate court erred in concluding that


it had prior notice of Babasanta's claim over the property merely
on the basis of its having advanced the amount of two hundred
thousand pesos (P200,000.00) to Pacita Lu upon the latter's
representation that she needed the money to pay her obligation
to Babasanta. It argued that it had no reason to suspect that
Pacita was not telling the truth that the money would be used to
pay her indebtedness to Babasanta. At any rate, SLDC averred
that the amount of two hundred thousand pesos (P200,000.00)
which it advanced to Pacita Lu would be deducted from the
balance of the purchase price still due from it and should not be
construed as notice of the prior sale of the land to Babasanta. It
added that at no instance did Pacita Lu inform it that the lands
had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its
favor it immediately took possession of the property and asserted
its rights as new owner as opposed to Babasanta who has never
exercised acts of ownership. Since the titles bore no adverse
claim, encumbrance, or lien at the time it was sold to it, SLDC
argued that it had every reason to rely on the correctness of the
certificate of title and it was not obliged to go beyond the
certificate to determine the condition of the property. Invoking
the presumption of good faith, it added that the burden rests on
Babasanta to prove that it was aware of the prior sale to him but
the latter failed to do so. SLDC pointed out that the notice of lis
pendens was annotated only on 2 June 1989 long after the sale of
the property to it was consummated on 3 May 1989.
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August
1999, the Spouses Lu informed the Court that due to financial

constraints they have no more interest to pursue their rights in


the instant case and submit themselves to the decision of the
Court of Appeals.

16

On the other hand, respondent Babasanta argued that SLDC


could not have acquired ownership of the property because it
failed to comply with the requirement of registration of the sale in
good faith. He emphasized that at the time SLDC registered the
sale in its favor on 30 June 1990, there was already a notice oflis
pendens annotated on the titles of the property made as early as
2 June 1989. Hence, petitioner's registration of the sale did not
confer upon it any right. Babasanta further asserted that
petitioner's bad faith in the acquisition of the property is evident
from the fact that it failed to make necessary inquiry regarding
the purpose of the issuance of the two hundred thousand pesos
(P200,000.00) manager's check in his favor.

HTCISE

ISSUE: The core issue presented for resolution in the instant


petition is who between SLDC and Babasanta has a better right
over the two parcels of land subject of the instant case in view of
the successive transactions executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor,
Babasanta presented a document signed by Pacita Lu
acknowledging receipt of the sum of fifty thousand pesos
(P50,000.00) as partial payment for 3.6 hectares of farm lot
situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,
Laguna.

17

While the receipt signed by Pacita did not mention the

price for which the property was being sold, this deficiency was
supplied by Pacita Lu's letter dated 29 May 1989

18

wherein she

admitted that she agreed to sell the 3.6 hectares of land to


Babasanta for fifteen pesos (P15.00) per square meter.

An analysis of the facts obtaining in this case, as well as the


evidence presented by the parties, irresistibly leads to the
conclusion that the agreement between Babasanta and the
Spouses Lu is a contract to sell and not a contract of sale.
Contracts, in general, are perfected by mere consent,

19

which is

manifested by the meeting of the offer and the acceptance upon


the thing which are to constitute the contract. The offer must be
certain and the acceptance absolute.

20

Moreover, contracts shall

be obligatory in whatever form they may have been entered into,


provided all the essential requisites for their validity are
present.

21

The receipt signed by Pacita Lu merely states that she accepted


the sum of fifty thousand pesos (P50,000.00) from Babasanta as
partial payment of 3.6 hectares of farm lot situated in Sta. Rosa,
Laguna. While there is no stipulation that the seller reserves the
ownership of the property until full payment of the price which is
a distinguishing feature of a contract to sell, the subsequent acts
of the parties convince us that the Spouses Lu never intended to
transfer ownership to Babasanta except upon full payment of the
purchase price.
Babasanta's letter dated 22 May 1989 was quite telling. He
stated therein that despite his repeated requests for the
execution of the final deed of sale in his favor so that he could
effect full payment of the price, Pacita Lu allegedly refused to do
so. In effect, Babasanta himself recognized that ownership of the
property would not be transferred to him until such time as he
shall have effected full payment of the price. Moreover, had the
sellers intended to transfer title, they could have easily executed
the document of sale in its required form simultaneously with
their acceptance of the partial payment, but they did not.

Doubtlessly, the receipt signed by Pacita Lu should legally be


considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is
quite germane. In a contract of sale, title passes to the vendee
upon the delivery of the thing sold; whereas in a contract to sell,
by agreement the ownership is reserved in the vendor and is not
to pass until the full payment of the price.

22

In a contract of sale,

the vendor has lost and cannot recover ownership until and
unless the contract is resolved or rescinded; whereas in a
contract to sell, title is retained by the vendor until the full
payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from
becoming effective.

23

The perfected contract to sell imposed upon Babasanta the


obligation to pay the balance of the purchase price. There being
an obligation to pay the price, Babasanta should have made the
proper tender of payment and consignation of the price in court
as required by law. Mere sending of a letter by the vendee
expressing the intention to pay without the accompanying
payment is not considered a valid tender of
payment.

24Consignation

of the amounts due in court is essential

in order to extinguish Babasanta's obligation to pay the balance


of the purchase price. Glaringly absent from the records is any
indication that Babasanta even attempted to make the proper
consignation of the amounts due, thus, the obligation on the part
of the sellers to convey title never acquired obligatory force.
On the assumption that the transaction between the parties is a
contract of sale and not a contract to sell, Babasanta's claim of
ownership should nevertheless fail.

Sale, being a consensual contract, is perfected by mere


consent

25

and from that moment, the parties may reciprocally

demand performance.

26

The essential elements of a contract of

sale, to wit: (1) consent or meeting of the minds, that is, to


transfer ownership in exchange for the price; (2) object certain
which is the subject matter of the contract; (3) cause of the
obligation which is established.

27

The perfection of a contract of sale should not, however,


be confused with its consummation. In relation to the
acquisition and transfer of ownership, it should be noted
that sale is not a mode, but merely a title. A mode is the
legal means by which dominion or ownership is created,
transferred or destroyed, but title is only the legal basis by which
to affect dominion or ownership.

28

Under Article 712 of the Civil

Code, "ownership and other real rights over property are acquired
and transmitted by law, by donation, by testate and intestate
succession, and in consequence of certain contracts, by
tradition." Contracts only constitute titles or rights to the transfer
or acquisition of ownership, while delivery or tradition is the
mode of accomplishing the same.

29

Therefore, sale by itself does

not transfer or affect ownership; the most that sale does is to


create the obligation to transfer ownership. It is tradition or
delivery, as a consequence of sale, that actually transfers
ownership.

aHSCcE

Explicitly, the law provides that the ownership of the thing sold is
acquired by the vendee from the moment it is delivered to him in
any of the ways specified in Article 1497 to 1501.

30

The word

"delivered" should not be taken restrictively to mean transfer of


actual physical possession of the property. The law recognizes

two principal modes of delivery, to wit: (1) actual delivery; and


(2) legal or constructive delivery.
****Actual delivery consists in placing the thing sold in the control
and possession of the vendee.

31

Legal or constructive delivery,

on the other hand, may be had through any of the following


ways: the execution of a public instrument evidencing the
sale;

32

symbolical tradition such as the delivery of the keys of

the place where the movable sold is being kept;

33

traditio

longa manu or by mere consent or agreement if the movable


sold cannot yet be transferred to the possession of the buyer at
the time of the sale;

34

traditio brevi manu if the buyer already

had possession of the object even before the


sale;

35

and traditio constitutum possessorium, where the

seller remains in possession of the property in a different


capacity.

36

Following the above disquisition, respondent Babasanta did not


acquire ownership by the mere execution of the receipt by Pacita
Lu acknowledging receipt of partial payment for the property. For
one, the agreement between Babasanta and the Spouses Lu,
though valid, was not embodied in a public instrument. Hence, no
constructive delivery of the lands could have been effected. For
another, Babasanta had not taken possession of the property at
any time after the perfection of the sale in his favor or exercised
acts of dominion over it despite his assertions that he was the
rightful owner of the lands. Simply stated, there was no delivery
to Babasanta, whether actual or constructive, which is essential
to transfer ownership of the property. Thus, even on the
assumption that the perfected contract between the parties was
a sale, ownership could not have passed to Babasanta in the
absence of delivery, since in a contract of sale ownership is

transferred to the vendee only upon the delivery of the thing


sold.

37

However, it must be stressed that the juridical relationship


between the parties in a double sale is primarily governed by
Article 1544 which lays down the rules of preference between the
two purchasers of the same property. It provides:
Art. 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof
in good faith, if it should be movable property.
Should it be immovable property, the ownership shall
belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.

****THE PRINCIPLE OF PRIMUS TEMPORE, POTIOR JURE (FIRST IN


TIME, STRONGER IN RIGHT) gains greater significance in case of
double sale of immovable property. When the thing sold twice is
an immovable, the one who acquires it and first records it in the
Registry of Property, both made in good faith, shall be deemed
the owner.

38

Verily, the act of registration must be coupled with

good faith that is, the registrant must have no knowledge of


the defect or lack of title of his vendor or must not have been
aware of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the
defects in the title of his vendor.

39

Admittedly, SLDC registered the sale with the Registry of Deeds


after it had acquired knowledge of Babasanta's claim. Babasanta,

however, strongly argues that the registration of the sale by SLDC


was not sufficient to confer upon the latter any title to the
property since the registration was attended by bad faith.
Specifically, he points out that at the time SLDC registered the
sale on 30 June 1990, there was already a notice of lis
pendens on the file with the Register of Deeds, the same having
been filed one year before on 2 June 1989.

ACTIcS

Did the registration of the sale after the annotation of the notice
of lis pendens obliterate the effects of delivery and possession in
good faith which admittedly had occurred prior to SLDC's
knowledge of the transaction in favor of Babasanta? NO
We do not hold so.
It must be stressed that as early as 11 February 1989, the
Spouses Lu executed the Option to Buy in favor of SLDC upon
receiving P316,160.00 as option money from SLDC. After SLDC
had paid more than one half of the agreed purchase price of
P1,264,640.00, the Spouses Lu subsequently executed on 3 May
1989 a Deed of Absolute Sale in favor or SLDC. At the time both
deeds were executed, SLDC had no knowledge of the prior
transaction of the Spouses Lu with Babasanta. Simply stated,
from the time of execution of the first deed up to the moment of
transfer and delivery of possession of the lands to SLDC, it had
acted in good faith and the subsequent annotation of lis
pendens has no effect at all on the consummated sale between
SLDC and the Spouses Lu.
A purchaser in good faith is one who buys 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 for the
same at the time of such purchase, orbefore he has notice of the
claim or interest of some other person in the

property.

40

Following the foregoing definition, we rule that SLDC

qualifies as a buyer in good faith since there is no evidence


extant in the records that it had knowledge of the prior
transaction in favor of Babasanta. At the time of the sale of the
property to SLDC, the vendors were still the registered owners of
the property and were in fact in possession of the lands. Time and
again, this Court has ruled that a person dealing with the owner
of registered land is not bound to go beyond the certificate of title
as he is charged with notice of burdens on the property which are
noted on the face of the register or on the certificate of title.

41

In

assailing knowledge of the transaction between him and the


Spouses Lu, Babasanta apparently relies on the principle of
constructive notice incorporated in Section 52 of the Property
Registration Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice 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.

However, the constructive notice operates as such by the


express wording of Section 52 from the time of the
registration of the notice of lis pendens which in this case was
effected only on 2 June 1989, at which time the sale in favor of
SLDC had long been consummated insofar as the obligation of
the Spouses Lu to transfer ownership over the property to
SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to
the claim of Babasanta the annotation of the notice of lis

pendens cannot help Babasanta's position a bit and it is irrelevant


to the good or bad faith characterization of SLDC as a purchaser.
A notice of lis pendens, as the Court held in Natao v.
Esteban,

42serves

as a warning to a prospective purchaser or

incumbrancer that the particular property is in litigation; and that


he should keep his hands off the same, unless he intends to
gamble on the results of the litigation." Precisely, in this case
SLDC has intervened in the pending litigation to protect its rights.
Obviously, SLDC's faith in the merit of its cause has been
vindicated with the Court's present decision which is the ultimate
denouement on the controversy.
The Court of Appeals has made capital
its Complaint-in-Intervention

44

43

of SLDC's averment in

that at the instance of Pacita Lu it

issued a check for P200,000.00 payable to Babasanta and the


confirmatory testimony of Pacita Lu herself on crossexamination.

45

However, there is nothing in the said pleading

and the testimony which explicitly relates the amount to the


transaction between the Spouses Lu and Babasanta for what they
attest to is that the amount was supposed to pay off the
advances made by Babasanta to Pacita Lu. In any event, the
incident took place after the Spouses Lu had already executed
the Deed of Absolute Sale with Mortgage in favor of SLDC and
therefore, as previously explained, it has no effect on the legal
position of SLDC.

EHSITc

Assuming ex gratia argumenti that SLDC's registration of the sale


had been tainted by the prior notice of lis pendens and assuming
further for the same nonce that this is a case of double sale, still
Babasanta's claim could not prevail over that of SLDC's.
In Abarquez v. Court of Appeals,

46

this Court had the occasion to

rule that if a vendee in a double sale registers the sale after he


has acquired knowledge of a previous sale, the registration

constitutes a registration in bad faith and does not confer upon


him any right. If the registration is done in bad faith, it is as if
there is no registration at all, and the buyer who has taken
possession first of the property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and
registered only after the second vendee, Abarquez, registered
their deed of sale with the Registry of Deeds, but the Israels were
first in possession. This Court awarded the property to the Israels
because registration of the property by Abarquez lacked the
element of good faith. While the facts in the instant case
substantially differ from that in Abarquez, we would not hesitate
to rule in favor of SLDC on the basis of its prior possession of the
property in good faith. Be it noted that delivery of the property to
SLDC was immediately effected after the execution of the deed in
its favor, at which time SLDC had no knowledge at all of the prior
transaction by the Spouses Lu in favor of Babasanta.

The law speaks not only of one criterion. The first criterion is
priority of entry in the registry of property; there being no priority
of such entry, the second is priority of possession; and, in the
absence of the two priorities, the third priority is of the date of
title, with good faith as the common critical element. Since SLDC
acquired possession of the property in good faith in contrast to
Babasanta, who neither registered nor possessed the property at
any time, SLDC's right is definitely superior to that of
Babasanta's.
At any rate, the above discussion on the rules on double sale
would be purely academic for as earlier stated in this decision,
the contract between Babasanta and the Spouses Lu is not a
contract of sale but merely a contract to sell. In Dichoso v.

Roxas,

47

we had the occasion to rule that Article 1544 does not

apply to a case where there was a sale to one party of the land
itself while the other contract was a mere promise to sell the land
or at most an actual assignment of the right to repurchase the
same land. Accordingly, there was no double sale of the same
land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The
decision of the Court of Appeals appealed from is REVERSED and
SET ASIDE and the decision of the Regional Trial Court, Branch 31,
of San Pedro, Laguna is REINSTATED. No costs.
SO ORDERED.
(San Lorenzo Development Corp. v. Court of Appeals, G.R. No.
124242, [January 21, 2005], 490 PHIL 7-27)
|||

15.) PERPETUA ABUAN, ET AL., plaintiffsappellants, vs. EUSTAQUIO S. GARCIA, ET


AL., defendants-appellees.
Emilio R. Gombio for plaintiffs-appellants.
Ruperto G. Martin & Associates for defendants-appellees.
SYLLABUS
1. PUBLIC LAND; PERIOD FOR LEGAL REDEMPTION STARTS FROM
EXECUTION OF DEED OF CONVEYANCE. Under Section 119 of

the Public Land Law the five- year period for legal redemption
starts from the date of the execution of the deed of conveyance,
even if full payment of the purchase price is not made or said
date unless there is a stipulation in the agreement that ownership
will not vest in the vendees until full payment of the price.

DECISION

BENGZON, C.J :
p

This is an action for legal redemption under Section 119 of


the Public Land Law

which provides that:

"Every conveyance of land acquired under the free patent


or homestead provisions, when proper, shall be subject to
REPURCHASE BY THE APPLICANT, HIS WIDOW, OR LEGAL
HEIRS, FOR A PERIOD OF FIVE YEAR'S FROM THE DATE OF
CONVEYANCE."

Acquired by Laureano Abuan the homestead passed after his


death, to his legal heirs, the plaintiff herein. Consequently, the
original certificate of title in his name was CANCELLED, and in
lieu thereof, Transfer Certificate of Title No T-5486 was issued in
their names.
On August 7, 1953, plaintiffs sold the parcel of land to
defendants, the sale being evidenced by a public instrument
entitled "Deed of Absolute Sale"; and by virtue thereof,
Transfer Certificate of Title No. T-5906 was issued to defendants.
Later, plaintiffs filed an action to recover the land, alleging that
the deed of absolute sale had been executed through FRAUD,
WITHOUT CONSIDERATION. However, the case was
subsequently settled amicably, when the parties entered into an

"Agreement" dated February 28, 1955, under the terms of which


defendants paid P500.00 on that day as partial payment of the
purchase price of the land, and promised to pay the balance of
P1500.00 on or before April 30, 1955, with a grace period of thirty
days. The parties also stipulated in said Agreement that it "shall
supersede all previous agreements or contracts heretofore
entered into and executed by and between plaintiffs and
defendants, involving the same parcel of riceland . . ."
Claiming that full payment had been effected only sometime in
May, 1955, plaintiffs instituted the present action on March 4,
1960.
Defendants moved to dismiss, on the ground that plaintiffs' right
of action was already barred, because the five-year redemption
period had already expired.
Sustaining the motion, the Nueva Vizcaya court dismissed the
complaint.
Plaintiffs appealed to the Court of Appeals, which certified the
case to this Court because only a legal issue remains to be
determined.
ISSUE: The sole question is: When did the five-year period
(within which plaintiffs may exercise their right of
repurchase) begin to run? Should it be August 7, 1953, when
the Deed of Absolute Sale was executed, or February 28, 1955,
when the compromise "Agreement" was entered into; or should it
be in May, 1955, upon full payment of the purchase price? It is
obvious that counted from either of the first two dates more than
five years had elapsed when this action for redemption was
brought (March 1960); whereas the action would be well within
the period, if computed from the date of full payment of the
purchase price.

The lower court, in dismissing plaintiffs' complaint, fixed the


starting date as February 28, 1955, when the Agreement (Annex
"B") was entered into. It is plaintiffs' contention, on the other
hand, that THE PRESCRIPTIVE PERIOD SHOULD BE
COUNTED FROM THE FULL PAYMENT OF THE PURCHASE
PRICE, that is, from May, 1955, since it was on this date that the
contract was consummated.
Plaintiffs' contention is untenable. The law speaks of "five
years from date of conveyance". Conveyance means transfer
of ownership; it means the date when the title to the land is
transferred from one person to another. 2The five-year should,
therefore, be reckoned from the date that defendants acquired
ownership of the land.
Now, when did defendants legally acquire ownership over the
land?
Art. 1477 of the New Civil Code provides that ownership of the
thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof; and Art 1496 points out that
ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in
articles 1497 to 1501. Under Art. 1498, when the sale is made
through a public instrument, as in this case the execution
thereof shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed the contrary does not
appear or cannot be clearly inferred.

This manner of delivery of

the thing through the execution of a public document is common


to personal as well as real property.

It is clear, therefore, that defendants acquired ownership to the


land in question upon the execution of the deed of sale. The deed
of sale was executed on August 7, 1953, which was "superseded"

by the Agreement of February 28, 1955, as to the terms and


conditions of payment of the purchase price. The latter
agreement did not entirely abrogate the sale since it did not
operate to revest the ownership of the land in the plaintiffs.

It is apparent that five years had elapsed since the execution of


the deed of sale at the time plaintiffs filed this action for
redemption. Our view finds support in a long line of decisions
holding that the five-year period starts from the date of the
execution of the instrument of conveyance.

But assuming arguendo, that Annex "A" is null and void, as


plaintiffs aver, and did not serve to effectuate delivery of the
property, we can consider the date of the Agreement (Annex
"B"), at the latest, as the time within which ownership vested in
the defendants. True, Annex "B" is a private instrument the
execution of which could not be construed as constructive
delivery under Art. 1498 of the New Civil Code. But Art. 1496
explicitly provides that ownership of the thing sold is acquired by
the vendee from the moment it is delivered to him "in any other
manner signifying an agreement that the possession is
transferred from the vendor to the vendee." DELIVERY BREVI
MANU The intention to give possession (and ownership) is
manifest in the agreement (Annex "B") entered into by the
parties specially considering the following circumstances: (1) the
payment of part of the purchase price, there being no stipulation
in the agreement that ownership will not vest in the vendees until
full payment of the price; and (2) the fact that the agreement was
entered into in consideration of plaintiffs' desistance, as in fact
they did desist, in prosecuting their reivindicatory action, thereby
leaving the property in the hands of the then and now defendants
as owners thereof, necessarily. This was delivery brevi

manu permissible under Articles 1499 and 1501 of the New Civil
Code.
The circumstance that full payment was made only, as plaintiffs
allege, in May, 1955, does not alter the fact that ownership of the
land passed to defendants upon the execution of the agreement
with the intention of letting them hold it as owners. In the
absence of an express stipulation to the contrary, the payment of
the price is not a condition precedent to the transfer of
ownership, which passes by delivery of the thing to the buyer.

IN VIEW OF THE OF FOREGOING, the order of the court a


quo dismissing the complaint is hereby affirmed, with costs
against plaintiffs- appellants.
Bautista Angelo, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal,
Bengzon, J.P. and Zaldivar, JJ., concur.
Concepcion, J., took no part.
Barrera, J., is on leave.
(Abuan v. Garcia, G.R. No. L-20091, [July 30, 1965], 122 PHIL 8994)
|||

16.) PERFECTO DY, JR., petitioner, vs. COURT OF


APPEALS, GELAC TRADING INC., and ANTONIO
V. GONZALES, respondents.
Zosa & Quijano Law Offices for petitioner.
Expedito P. Bugarin for respondent GELAC Trading, Inc.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; CHATTEL MORTGAGE; RIGHT
OF MORTGAGOR TO SELL THE PROPERTY MORTGAGED;
RULE. THE MORTGAGOR WHO GAVE THE PROPERTY AS
SECURITY UNDER A CHATTEL MORTGAGE DID NOT PART
WITH THE OWNERSHIP OVER THE SAME. He had the right
to sell it although he was under the obligation to secure
the written consent of the mortgagee or he lays himself
open to criminal prosecution under the provision of Article
319 par. 2 of the Revised Penal Code. And even if no consent was
obtained from the mortgagee, the validity of the sale would still
not be affected.
2. ID.; ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. We see no
reason why Wifredo Dy, as the chattel mortgagor can not sell the

subject tractor. There is no dispute that the consent of Libra


Finance was obtained in the instant case. In a letter dated August
27, 1979, Libra allowed the petitioner to purchase the tractor and
assume the mortgage debt of his brother. The sale between the
brothers was therefore valid and binding as between them and to
the mortgagee, as well.
3. ID.; ID.; ID.; REMEDY OF MORTGAGEE IN CASE
MORTGAGOR FAILED TO PAY THE DEBT. It was Libra
Finance which was in possession of the subject tractor due to
Wilfredo's failure to pay the amortization as a preliminary step to
foreclosure. As mortgagee, he has the right of foreclosure
upon default by the mortgagor in the performance of the
conditions mentioned in the contract of mortgage. The law
implies that the mortgagee is entitled to possess the mortgaged
property because possession is necessary in order to enable him
to have the property sold. While it is true that Wilfredo Dy was
not in actual possession and control of the subject tractor, his
right of ownership was not divested from him upon his default.
Neither could it be said that Libra was the owner of the subject
tractor because the mortgagee can not become the owner of or
convert and appropriate to himself the property mortgaged
(Article 2088, Civil Code). Said property continues to belong to
the mortgagor. The only remedy given to the mortgagee is to
have said property sold at public auction and the proceeds of the
sale applied to the payment of the obligation secured by the
mortgagee (See Martinez vs. PNB, 93 Phil. 765, 767 [1953]).
There is no showing that Libra Finance has already foreclosed the
mortgage and that it was the new owner of the subject tractor.
Undeniably, Libra gave its consent to the sale of the subject
tractor to the petitioner. It was aware of the transfer of rights to
the petitioner.

4. ID.; ID.; ID.; PURCHASER OF MORTGAGED PROPERTY


STEPS INTO THE SHOES OF THE MORTGAGOR. Where a
third person purchases the mortgaged property, he
automatically steps into the shoes of the original
mortgagor (See Industrial Finance Corp. vs. Apostol, 177 SCRA
521 [1989]). His right of ownership shall be subject to the
mortgage of the thing sold to him. In the case at bar, the
petitioner was fully aware of the existing mortgage of the subject
tractor to Libra. In fact, when he was obtaining Libra's consent to
the sale, he volunteered to assume the remaining balance of the
mortgage debt of Wilfredo Dy which Libra undeniably agreed to.
5. ID.; ID.; SALE; DELIVERY OF PROPERTY VESTS OWNERSHIP TO
THE VENDEE. Article 1496 of the Civil Code states that the
ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in
Articles 1497 to 1501 or in any other manner signifying an
agreement that the possession is transferred from the vendor to
the vendee. We agree with the petitioner that Articles 1498 and
1499 are applicable in the case at bar.
6. ID.; ID.; ID.; ID.; RULE ON CONSTRUCTIVE DELIVERY. In
the instant case, actual delivery of the subject tractor could not
be made. However, there was constructive delivery already
upon the execution of the public instrument pursuant to
Article 1498 and upon the consent or agreement of the parties
when the thing sold cannot be immediately transferred to the
possession of the vendee (Article 1499).
7. ID.; ID.; ID.; CONSUMMATION OF SALE; NOT DEPENDENT
ON THE ENCASHMENT OF CHECK. The payment of the
check was actually intended to extinguish the mortgage
obligation so that the tractor could be released to the petitioner.
It was never intended nor could it be considered as payment of

the purchase price because the relationship between Libra and


the petitioner is not one of sale but still a mortgage. The clearing
or encashment of the check which produced the effect of
payment determined the full payment of the money obligation
and the release of the chattel mortgage. It was not determinative
of the consummation of the sale. The transaction between the
brothers is distinct and apart from the transaction between Libra
and the petitioner. The contention, therefore, that the
consummation of the sale depended upon the encashment of the
check is untenable.
8. REMEDIAL LAW; CIVIL PROCEDURE; EXECUTION OF JUDGMENT;
EXTENDS ONLY OVER PROPERTIES BELONGING TO THE JUDGMENT
DEBTOR NOT EXEMPT BY LAW. The sale of the subject tractor
was consummated upon the execution of the public instrument
on September 4, 1979. At this time constructive delivery was
already effected. Hence, the subject tractor was no longer owned
by Wilfredo Dy when it was levied upon by the sheriff in
December, 1979. Well settled is the rule that only properties
unquestionably owned by the judgment debtor and which are not
exempt by law from execution should be levied upon or sought to
be levied upon. For the power of the court in the execution of its
judgment extends only over properties belonging to the judgment
debtor (Consolidated Bank and Trust Corp. vs. Court of Appeals,
G.R. No. 78771, January 23, 1991).
9. ID.; EVIDENCE; FRAUD; MUST BE ESTABLISHED BY CLEAR
CONVINCING EVIDENCE. There is no sufficient evidence to
show that the sale of the tractor was in fraud of Wilfredo and
creditors. While it is true that Wilfredo and Perfecto are brothers,
this fact alone does not give rise to the presumption that the sale
was fraudulent. Relationship is not a badge of fraud
(Goquiolay vs. Sycip, 9 SCRA 663 [1963]). Moreover, fraud can

not be presumed; it must be established by clear convincing


evidence.

DECISION

GUTIERREZ, JR., J :
p

This is a petition for review on certiorari seeking the reversal of


the March 23, 1990 decision of the Court of Appeals which ruled
that the petitioner's purchase of a farm tractor was not validly
consummated and ordered a complaint for its recovery
dismissed.
The facts as established by the records are as follows:
The petitioner, Perfecto Dy and Wilfredo Dy are brothers.
Sometime in 1979, Wilfredo Dy purchased a truck and a farm
tractor through FINANCING EXTENDED BY LIBRA FINANCE
AND INVESTMENT CORPORATION (LIBRA). Both truck and
tractor were mortgaged to Libra as security for the loan.
The petitioner wanted to buy the tractor from his brother so on
August 20, 1979, he wrote a letter to Libra requesting that he be
allowed to purchase from Wilfredo Dy the said tractor and
assume the mortgage debt of the latter.
In a letter dated August 27, 1979, Libra thru its manager,
Cipriano Ares approved the petitioner's request.
Thus, on September 4, 1979, Wilfredo Dy executed a deed of
absolute sale in favor of the petitioner over the tractor in
question.
At this time, the subject tractor was in the possession of Libra
Finance due to Wilfredo Dy's failure to pay the amortizations.

Despite the offer of full payment by the petitioner to Libra for the
tractor, the immediate release could NOT BE EFFECTED BECAUSE
WILFREDO DY HAD OBTAINED FINANCING NOT ONLY FOR SAID
TRACTOR BUT ALSO FOR A TRUCK AND LIBRA INSISTED ON FULL
PAYMENT FOR BOTH.
The petitioner was able to convince his sister, Carol Dy-Seno, to
purchase the truck so that full payment could be made for both.
On November 22, 1979,= a PNB check was issued in the amount
of P22,000.00 in favor of Libra, thus settling in full the
indebtedness of Wilfredo Dy with the financing firm.
-Payment having been effected through an out-of-town check,
Libra insisted that it be cleared first before Libra could
release the chattels in question.
Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, Inc. v.
Wilfredo Dy", a collection case to recover the sum of P12,269.80
was pending in another court in Cebu.
On the strength of an alias writ of execution issued on December
27, 1979, the provincial sheriff was able to seize and levy on the
tractor which was in the premises of Libra in Carmen, Cebu. The
tractor was subsequently sold at public auction where GELAC
TRADING WAS THE ALONE BIDDER. - Later, Gelac sold the
tractor to one of its stockholders, Antonio Gonzales.
It was only when the check was cleared on January 17, 1980 that
the petitioner learned about GELAC having already taken custody
of the subject tractor. Consequently, the petitioner filed an action
to recover the subject tractor against GELAC Trading with the
Regional Trial Court of Cebu City.
On April 8,1988, the RTC rendered judgment in favor of the
petitioner. The dispositive portion of the decision reads as follows:

"WHEREFORE, judgment is hereby rendered in favor of


the plaintiff and against the defendant, pronouncing that
the plaintiff is the owner of the tractor, subject matter of
this case, and directing the defendants Gelac Trading
Corporation and Antonio Gonzales to return the same to
the plaintiff herein; directing the defendants jointly and
severally to pay to the plaintiff the amount of P1,541.00
as expenses for hiring a tractor; P50,000 for moral
damages; P50,000 for exemplary damages; and to pay
the cost." (Rollo, pp. 35-36)

On appeal, the Court of Appeals reversed the decision of the RTC


and dismissed the complaint with costs against the petitioner.
The Court of Appeals held that the tractor in question still
belonged to Wilfredo Dy when it was seized and levied by the
sheriff by virtue of the alias writ of execution issued in Civil Case
No. R-16646.

The petitioner now comes to the Court raising the following


questions:
A
"WHETHER OR NOT THE HONORABLE COURT OF APPEALS
MISAPPREHENDED THE FACTS AND ERRED IN NOT
AFFIRMING THE TRIAL COURT'S FINDING THAT
OWNERSHIP OF THE FARM TRACTOR HAD ALREADY
PASSED TO HEREIN PETITIONER WHEN SAID TRACTOR
WAS LEVIED ON BY THE SHERIFF PURSUANT TO AN ALIAS
WRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR
OF RESPONDENT GELAC TRADING INC."
B

"WHETHER OR NOT THE HONORABLE COURT OF APPEALS


EMBARKED ON MERE CONJECTURE AND SURMISE IN
HOLDING THAT THE SALE OF THE AFORESAID TRACTOR
TO PETITIONER WAS DONE IN FRAUD OF WILFREDO DY'S
CREDITORS, THERE BEING NO EVIDENCE OF SUCH FRAUD
AS FOUND BY THE TRIAL COURT."
C
"WHETHER OR NOT THE HONORABLE COURT OF APPEALS
MISAPPREHENDED THE FACTS AND ERRED IN NOT
SUSTAINING THE FINDING OF THE TRIAL COURT THAT THE
SALE OF THE TRACTOR BY RESPONDENT GELAC TRADING
TO ITS CORRESPONDENT ANTONIO V. GONZALES ON
AUGUST 2, 1980 AT WHICH TIME BOTH RESPONDENTS
ALREADY KNEW OF THE FILING OF THE INSTANT CASE
WAS VIOLATIVE OF THE HUMAN RELATIONS PROVISIONS
OF THE CIVIL CODE AND RENDERED THEM LIABLE FOR
THE MORAL AND EXEMPLARY DAMAGES SLAPPED
AGAINST THEM BY THE TRIAL COURT." (Rollo, p. 13)

The respondents claim that at the time of the execution of the


deed of sale, no constructive delivery was effected since the
consummation of the sale depended upon the clearance and
encashment of the check which was issued in payment of the
subject tractor.
In the case of Servicewide Specialists Inc. v. Intermediate
Appellate Court. (174 SCRA 80 [1989]), we stated that:
xxx xxx xxx
"The rule is settled that the chattel mortgagor continues
to be the owner of the property, and therefore, has the
power to alienate the same; however, he is obliged under
pain of penal liability, to secure the written consent of the

mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court


in the Philippines, (1972), Volume IV-s Part I, p. 525) Thus,
the instruments of mortgage are binding, while they
subsist, not only upon the parties executing them but
also upon those who later, by purchase or otherwise,
acquire the properties referred to therein.
"The absence of the written consent of the mortgagee to
the sale of the mortgaged property in favor of a third
person, therefore, effects not the validity of the sale but
only the penal liability of the mortgagor under the
Revised Penal Code and the binding effect of such sale on
the mortgagee under the Deed of Chattel Mortgage."
xxx xxx xxx

The mortgagor who gave the property as security under a chattel


mortgage did not part with the ownership over the same. He had
the right to sell it although he was under the obligation to secure
the written consent of the mortgagee or he lays himself open to
criminal prosecution under the provision of Article 319 par. 2 of
the Revised Penal Code. And even if no consent was obtained
from the mortgagee, the validity of the sale would still not be
affected.

prLL

Thus, we see no reason why Wilfredo Dy, as the chattel


mortgagor can not sell the subject tractor. There is no dispute
that the consent of Libra Finance was obtained in the instant
case. In a letter dated August 27, 1979, Libra allowed the
petitioner to purchase the tractor and assume the
mortgage debt of his brother. The sale between the
brothers was therefore valid and binding as between
them and to the mortgagee, as well.

Article 1496 of the Civil Code states that the ownership of the
thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to
1501 or in any other manner signing an agreement that the
possession is transferred from the vendor to the vendee. We
agree with the petitioner that Articles 1498 and 1499 are
applicable in the case at bar.
Article 1498 states:
"Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or
cannot clearly be inferred."
xxx xxx xxx

Article 1499 provides:


"Article 1499. The delivery of movable property may
likewise be made by the mere consent or agreement of
the contracting parties, if the thing sold cannot be
transferred to the possession of the vendee at the time of
the sale, or if the latter already had it in his possession
for any other reason. (1463a)"

In the instant case, actual delivery of the subject tractor could not
be made. However, there was constructive delivery already upon
the execution of the public instrument pursuant to Article 1498
and upon the consent or agreement of the parties when the thing
sold cannot be immediately transferred to the possession of the
vendee. (Art. 1499)
The respondent court avers that the vendor must first have
control and possession of the thing before he could transfer

ownership by constructive delivery. Here, it was Libra Finance


which was in possession of the subject tractor due to
Wilfredo's failure to pay the amortization as a preliminary
step to foreclosure. As mortgagee, he has the right of
foreclosure upon default by the mortgagor in the
performance of the conditions mentioned in the contract
of mortgage. The law implies that the mortgagee is entitled to
possess the mortgaged property because possession is necessary
in order to enable him to have the property sold.
WHILE IT IS TRUE THAT WILFREDO DY WAS NOT IN ACTUAL
POSSESSION AND CONTROL OF THE SUBJECT TRACTOR,
HIS RIGHT OF OWNERSHIP WAS NOT DIVESTED FROM HIM
UPON HIS DEFAULT. Neither could it be said that Libra was the
owner of the subject tractor because the mortgagee can not
become the owner of or convert and appropriate to himself the
property mortgaged. (Article 2088, Civil Code) Said property
continues to belong to the mortgagor. The only remedy
given to the mortgagee is to have said property sold at
public auction and the proceeds of the sale applied to the
payment of the obligation secured by the mortgagee. (See
Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no showing
that Libra Finance has already foreclosed the mortgage and that
it was the new owner of the subject tractor. Undeniably, Libra
gave its consent to the sale of the subject tractor to the
petitioner. It was aware of the transfer of rights to the
petitioner.

llcd

WHERE A THIRD PERSON PURCHASES THE MORTGAGED


PROPERTY, HE AUTOMATICALLY STEPS INTO THE SHOES OF
THE ORIGINAL MORTGAGOR. (See Industrial Finance Corp. v.
Apostol, 177 SCRA 521[1989]). His right of ownership shall be
subject to the mortgage of the thing sold to him. In the case at

bar, the petitioner was fully aware of the existing mortgage of the
subject tractor to Libra. In fact, when he was obtaining
Libra's consent to the sale, he volunteered to assume the
remaining balance of the mortgage debt of Wilfredo Dy
which Libra undeniably agreed to.

cdphil

The payment of the check was actually intended to


extinguish the mortgage obligation so that the tractor
could be released to the petitioner. It was never intended nor
could it be considered as payment of the purchase price because
the relationship between Libra and the petitioner is not one of
sale but still a mortgage. The clearing or encashment of the
check which produced the effect of payment determined the full
payment of the money obligation and the release of the chattel
mortgage. It was not determinative of the consummation
of the sale. The transaction between the brothers is distinct and
apart from the transaction between Libra and the petitioner. The
contention, therefore, that the consummation of the sale
depended upon the encashment of the check is untenable.
The sale of the subject tractor was consummated upon
the execution of the public instrument on September 4,
1979. At this time constructive delivery was already effected.
Hence, the subject tractor was no longer owned by Wilfredo Dy
when it was levied upon by the sheriff in December, 1979. Well
settled is the rule that only properties unquestionably owned by
the judgment debtor and which are not exempt by law from
execution should be levied upon or sought to be levied upon. For
the power of the court in the execution of its judgment extends
only over properties belonging to the judgment debtor.
(Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No.
78771, January 23, 1991).

The respondents further claim that at that time the sheriff levied
on the tractor and took legal custody thereof no one ever
protested or filed a third party claim.
It is inconsequential whether a third party claim has been filed or
not by the petitioner during the time the sheriff levied on the
subject tractor. A person other than the judgment debtor who
claims ownership or right over levied properties is not precluded,
however, from taking other legal remedies to prosecute his claim.
(Consolidated Bank and Trust Corp. v. Court of Appeals, supra)
This is precisely what the petitioner did when he filed the action
for replevin with the RTC.
Anent the second and third issues raised, the Court accords great
respect and weight to the findings of fact of the trial court. There
is no sufficient evidence to show that the sale of the tractor was
in fraud of Wilfredo and creditors. While it is true that Wilfredo
and Perfecto are brothers, this fact alone does not give rise to the
presumption that the sale was fraudulent. Relationship is not a
badge of fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]).
Moreover, fraud can not be presumed; it must be established by
clear convincing evidence.

LexLib

We agree with the trial court's findings that the actuations of


GELAC Trading were indeed violative of the provisions on human
relations. As found by the trial court, GELAC knew very well of the
transfer of the property to the petitioners on July 14, 1980 when it
received summons based on the complaint for replevin filed with
the RTC by the petitioner. Notwithstanding said summons, it
continued to sell the subject tractor to one of its stockholders on
August 2, 1980.

WHEREFORE, the petition is hereby GRANTED. The decision of the


Court of Appeals promulgated on March 23,1990 is SET ASIDE
and the decision of the Regional Trial Court dated April 8, 1988 is
REINSTATED.
SO ORDERED.
Fernan, C.J., Feliciano and Bidin, JJ., concur.
Davide, Jr., J., took no part.
(Dy, Jr. v. Court of Appeals, G.R. No. 92989, [July 8, 1991], 275
PHIL 916-926)
|||

17.)SPECIALRULES

INDUSTRIAL TEXTILE MANUFACTURING


COMPANY OF THE PHILIPPINES,
INC., petitioner, vs.LPJ ENTERPRISES,
INC., respondent.
Bengzon, Zarraga, Narciso, Cudala, Pecson, Azcuna & Bengzon
Law Office for petitioner.
SYLLABUS
1. REMEDIAL LAW; SUPREME COURT; NOT A TRIER OF FACTS. It
is well-entrenched in Our jurisprudence that this Court is not a
trier of facts (Valdez v. CA, 194 SCRA 360 [1991]). As a rule, it is
also settled that the factual findings of the appellate court are
final and conclusive (Bustamante vs. CA, 193 SCRA 603

[1991];Radiowealth Finance Company v. Palileo, 197 SCRA 245


[1991]). However, in a long line of cases, We have pronounced
certain exceptions, as when the inference made is manifestly
mistaken or when the judgment is based on misapprehension of
facts or when the appellate court overlooked relevant facts not
disputed by the parties and which if properly considered, would
justify a different conclusion (Aquino v. CA, 204 SCRA 247
[1991]; Manlapaz v. CA, 147 SCRA 236 [1987]; Sacay v.
Sandiganbayan, 142 SCRA 593 [1986]; Moran v. CA, 133 SCRA 88
[1984]).
2. CIVIL LAW; SPECIAL CONTRACTS; SALES; "SALE OR RETURN"
OR A "SALE ON APPROVAL"; REQUIRES EXPRESS WRITTEN
AGREEMENT. The provision in the Uniform Sales Act and the
Uniform Commercial Code from which Article 1502 was taken,
clearly requires an express written agreement to make a sales
contract either a "sale or return" or a "sale on approval." Parol or
extrinsic testimony could not be admitted for the purpose of
showing that an invoice or bill of sale that was complete in every
aspect and purporting to embody a sale without condition or
restriction constituted a contract of sale or return. If the
purchaser desired to incorporate a stipulation securing to him the
right of return, he should have done so at the time the contract
was made. On the other hand, the buyer cannot accept
part and reject the rest of the goods since this falls
outside the normal intent of the parties in the "on
approval" situation. (67 Am Jur 2d, pp. 733,748).

DECISION

MELO, J :
p

Before Us is a petition for review on certiorari seeking the


reversal of the November 9, 1983 decision of the then
Intermediate Appellate Court in CA-G.R. CV No. 68281, penned by
the Honorable Justice Eduardo P. Caguioa, with Justices Gaviola
and Quetulio-Losa concurring, which dismissed petitioner's
complaint and absolved herein respondent from any liability to
the former.
It appears on record that respondent LPJ Enterprises, Inc. had a
contract to supply 300,000 bags of cement per year to Atlas
Consolidated Mining and Development Corporation (Atlas for
short), a member of the Soriano Group of Companies. The
cement was delivered packed in kraft paper bags, then as
now, in common use.

llcd

Sometime in October, 1970, Cesar Campos, a Vice-President of


petitioner Industrial Textile Manufacturing Company of the
Philippines (or Itemcop, for brevity), asked Lauro Panganiban, Jr.,
President of respondent corporation, if HE WOULD LIKE TO
COOPERATE IN AN EXPERIMENT TO DEVELOP PLASTIC
CEMENT BAGS. Panganiban acquiesced, principally because
Itemcop is a sister corporation of Atlas, respondent's major client.
A few weeks later, Panganiban accompanied Paulino Ugarte,
another Vice-President of Itemcop, to the factory of respondent's
supplier, Luzon Cement Corporation in Norzagaray, Bulacan, to
test fifty (50) pieces of plastic cement bags. The experiment,
however, was unsuccessful. Cement dust oozed out under
pressure through the small holes of the woven plastic bags and
the loading platform was filled with dust. The second batch of
plastic bags subjected to trial was likewise a failure. Although the
weaving of the plastic bags was already tightened, cement dust
still spilled through the gaps. Finally, with three hundred (300)
"improved bags", the seepage was substantially reduced. Ugarte

then asked Panganiban to send 180 bags of cement to Atlas via


commercial shipping. Campos, Ugarte, and two other officials of
petitioner company followed the 180 bags to the plant of Atlas in
Sangi, Toledo, Cebu where they professed satisfaction at the
performance of their own plastic bags. On December 29, 1970,
Campos sent Panganiban a letter proclaiming dramatic results in
the experiment. Consequently, Panganiban agreed to use the
plastic cement bags. Four purchase orders (P.O.s) were thereafter
issued, to wit:
DATE NUMBER OF BAGS UNIT COST AMOUNT
5 January 1971 53,800 P.83 P44,654.00
24 February 1971 11,000 .90 9,900.00
15 March 1971 41,000 .92 37,720.00
6 April 1971 10,000 .92 9,200.00

TOTAL: P101,474.00

Petitioner delivered the above orders consecutively on January


12, February 27, March 19, and April 17, 1971 (p. 74, Rollo).
Respondent, on the other hand, remitted the amounts of
P1,640.00, P2,480.00, and P13,230.00 on March 31, April 31, and
May 3, 1971 respectively, thereby leaving a balance of
P84,123.80 (p. 58, Ibid.). No other payments were made, thus
prompting A. Soriano y Cia of petitioner's Legal Department to
send demand letters to respondent corporation. Reiterations
thereof were later sent by petitioner's counsel. A collection suit
was filed on April 11, 1973 when the demands remained
unheeded.
At the trial on the merits, respondent admitted its liability for the
53,800 polypropylene lime bags covered by the first purchase
order. (TSN, January 5, 1971, p. 131). With respect to the second,
third, and fourth purchase orders, respondent, however, denied

full responsibility therefor. Respondent said that it will pay, as it


did pay for, only the 15,000 plastic bags it actually used in
packing cement. As for the remaining 47,000 bags, the workers of
Luzon Cement strongly objected to the use thereof due to the
serious health hazards posed by the continued seepage of
cement dust. Notwithstanding the measures adopted by
respondent such as the use of masks, gloves, and conveyor
system, the workers still refused to utilize the plastic bags.
Respondent was, therefore, constrained to revert to the use of
kraft paper bags in packing cement. Thereafter, petitioner was
asked to take back the unused plastic bags. Considering however,
that the bags were in the cement factory of respondent's
supplier, petitioner maintained that it was respondent's obligation
to return the bags to them. Apparently, this was not done and so
petitioner demanded payment for the said bags.
On May 25, 1981, the trial court rendered its decision, the
dispositive portion of which reads:

Cdpr

"WHEREFORE, judgment is hereby rendered sentencing


the defendant to pay the sum of P84,123.80 with 12%
interest per annum from May, 1971 plus 15% of the total
obligation as attorney's fees, and the costs.
SO ORDERED." (p. 80, Ibid.)

Respondent corporation's appeal was upheld by the appellate


court when it reversed the trial court's decision and dismissed the
case with costs against petitioner. (p. 28, Ibid.). Hence, the
present recourse.
The first issue to be resolved is the propriety of this petition as it
calls for a re-examination of the factual findings of the appellate
court.

As asserted by herein respondent, it is well-entrenched in Our


jurisprudence that this Court is not a trier of facts (Valdez v. CA,
194 SCRA 360 [1991]). As a rule, it is also settled that the factual
findings of the appellate court are final and conclusive
(Bustamante v. CA, 193 SCRA 603 [1991]; Radiowealth Finance
Company v. Palileo, 197 SCRA 245 [1991]). However, in a long
line of cases, We have pronounced certain exceptions, as when
the inference made is manifestly mistaken or when the judgment
is based on misapprehension of facts or when the appellate court
overlooked relevant facts not disputed by the parties and which if
properly considered, would justify a different conclusion (Aquino
v. CA, 204 SCRA 247 [1991]; Manlapaz v. CA, 147 SCRA 236
[1987];Sacay v. Sandiganbayan, 142 SCRA 593 [1986]; Moran v.
CA, 133 SCRA 88 [1984]).
A review of the record instantly reveals that the case at bar falls
under the last exception. As earlier adverted to, respondent has
repeatedly admitted its liability for the 53,800 plastic lime bags
amounting to P44,654.00 yet the appellate court disregarded this
fact and totally cleared respondent from all responsibility. On this
point alone, the decision of the appellate court may be
overturned, or at least modified.
Let Us now turn to the crux of the controversy, which is whether
or not respondent may be held liable for the 47,000 plastic bags
which were not actually used for packing cement as originally
intended.
It is beyond dispute that prior to respondent's transaction with
petitioner, the bags were already tested and the results thereof,
albeit initially unsuccessful, were nevertheless favorably
considered after due alterations were made. Verily, it is on the
basis of such experimental findings that respondent agreed to
use the plastic cement bags and thereafter issued the purchase

orders heretofore mentioned. Significantly, the quantity of bags


ordered by respondent also negates its position that the bags
were still under experimentation. Indeed, if it were so, the bags
ordered should have been considerably lesser in number and
would normally increase as the suitability of the plastic bags
became more definite. Likewise, it is worthy to note that as of the
date of petitioner's third delivery on March 19, 1971, respondent
has received a total of 52,000 bags. By then, it was very probable
that the problems alluded to by respondent could no longer be
resolved, thus, only 15,000 bags were actually used and 37,000
bags were already considered unfit for packing cement. Under
such predicament, it was but logical for respondent to cancel
then the fourth purchase order for another 10,000 bags.
Surprisingly, respondent still accepted the same upon delivery on
April 17, 1971 and remitted its payments until May 3, 1971.
When petitioner sent letters demanding the full payment of the
bags, respondent simply declared that it did not receive any
because it transferred its offices to another place. In the
meantime, the bags remained in the custody of Luzon Cement,
respondent's supplier and virtually a stranger as far as petitioner
is concerned. It is for this reason that petitioner may not be
expected to just pull out its bags from Luzon Cement.

prcd

Not to be overlooked also is the fact that Panganiban, respondent


corporation's president, also collected due commissions for the
four purchase orders issued in favor of petitioner. (p. 79, Rollo).
Finally, the conditions which allegedly govern the transaction
according to respondent may not be considered. The trial court
correctly observed that such conditions should have been
distinctly specified in the purchase orders and respondent's
failure to do so is fatal to its cause. We find that Article 1502 of

the Civil Code, invoked by both parties herein, has no application


at all to this case. The provision in the Uniform Sales Act and the
Uniform Commercial Code from which Article 1502 was taken,
clearly requires an express written agreement to make a sales
contract either a "sale or return" or a "sale on approval". Parol or
extrinsic testimony could not be admitted for the purpose of
showing that an invoice or bill of sale that was complete in every
aspect and purporting to embody a sale without condition or
restriction constituted a contract of sale or return. If the
purchaser desired to incorporate a stipulation securing to him the
right of return, he should have done so at the time the contract
was made. On the other hand, the buyer cannot accept part and
reject the rest of the goods since this falls outside the normal
intent of the parties in the "on approval" situation. (67 Am Jur 2d,
pp. 733, 748).
In the light of these principles, We hold that the transaction
between respondent and petitioner constituted an absolute sale.
Accordingly, respondent is liable for the plastic bags delivered to
it by petitioner.
WHEREFORE, premises considered, the decision appealed from is
hereby SET ASIDE and the decision of the trial court REINSTATED.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ ., concur.

(Industrial Textile Manufacturing Co. of the Phil., Inc. v. LPJ


Enterprises, Inc., G.R. No. 66140, [January 21, 1993])
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3
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