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G.R. No.

L-15113 January 28, 1961


ANTONIO MEDINA, petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS respondents.
Eusebio D. Morales for petitioner.Office of the Solicitor General for
respondents.
REYES, J.B.L. J.:
Petition to review a decision of the Court of Tax Appeals upholding a
tax assessment of the Collector of Internal Revenue except with
respect to the imposition of so-called compromise penalties, which
were set aside.
The records show that on or about May 20, 1944, petitioning taxpayer
Antonio Medina married Antonia Rodriguez. Before 1946, the
spouses had neither property nor business of their own. Later,
however, petitioner acquired forest, concessions in the municipalities
of San Mariano and Palanan in the Province of Isabela. From 1946 to
1948, the logs cut and removed by the petitioner from his
concessions were sold to different persons in Manila through his
agent, Mariano Osorio.
Some time in 1949, Antonia R. Medina, petitioner's wife, started to
engage in business as a lumber dealer, and up to around 1952,
petitioner sold to her almost all the logs produced in his San Mariano,
concession. Mrs. Medina, In turn, sold in Manila the logs bought from
her husband through the same agent, Mariano Osorio. The proceeds
were, upon instructions from petitioner, either received by Osorio for
petitioner or deposited by said agent in petitioner's current account
with the Philippine National Bank.
On the thesis that the sales made by petitioner to his wife were null
and void pursuant to the provisions of Article 1490 of the Civil Code of
the Philippines (formerly, Art. 1458, Civil Code of 1889), the Collector
considered the sales made by Mrs. Medina as the petitioner's original
sales taxable under Section 186 of the National Internal Revenue
Code and, therefore, imposed a tax assessment on petitioner, calling
for the payment of P4,553.54 as deficiency sales taxes and
surcharges from 1949 to 1952. This same assessment of September
26, 1953 sought also the collection of another sum of P643.94 as
deficiency sales tax and surcharge based on petitioner's quarterly
returns from 1946 to 1952.
On November 30, 1953, petitioner protested the assessment; however, respondent
Collector insisted on his demand. On July 9, 1954, petitioner filed a petition for
reconsideration revealing for the first time the existence of an alleged premarital
agreement of complete separation of properties between him and his wife, and
contending that the assessment for the years 1946 to 1952 had already prescribed.
After one hearing, the Conference Staff of the Bureau of Internal Revenue eliminated
the 50% fraud penalty and held that the taxes assessed against him before 1948 had
already prescribed. Based on these findings, the Collector issued a modified
assessment, demanding the payment of only P3,325.68, computed as follows:
5% tax due on P7,209.83 -1949 P
360.49
5% tax due on 16,945.55 - 1950 847.28
5% tax due on 16,874.52 - 1951 843.75
5% tax due on 11,009.94 - 1952
550.50
TOTAL sales tax due P2,602.
0
25% Surcharge thereon 650.51
Short taxes per quarterly returns, 3rd 58.52
quarter, 1950
25% Surcharge thereon
14.63
TOTAL AMOUNT due & collectible P3,325.
68
Petitioner again requested for reconsideration, but respondent
Collector, in his letter of April 4, 1955, denied the same.
Petitioner appealed to the Court of Tax Appeals, which rendered
judgment as aforesaid. The Court's decision was based on two main
findings, namely, (a) that there was no premarital agreement of
absolute separation of property between the Medina spouse; and (b)
assuming that there was such an agreement, the sales in question
made by petitioner to his wife were fictitious, simulated, and not bona
fide.
In his petition for review to this Court, petitioner raises several
assignments of error revolving around the central issue of whether or
not the sales made by the petitioner to his wife could be considered
as his original taxable sales under the provisions of Section 186 of
the National Internal Revenue Code.
Relying mainly on testimonial evidence that before their marriage, he
and his wife executed and recorded a prenuptial agreement for a
regime of complete separation of property, and that all trace of the
document was lost on account of the war, petitioner imputes lack of
basis for the tax court's factual finding that no agreement of complete
separation of property was ever executed by and between the
spouses before their marriage. We do not think so. Aside from the
material inconsistencies in the testimony of petitioner's witnesses
pointed out by the trial court, the circumstantial evidence is against
petitioner's claim. Thus, it appears that at the time of the marriage
between petitioner and his wife, they neither had any property nor
business of their own, as to have really urged them to enter into the
supposed property agreement. Secondly, the testimony that the
separation of property agreement was recorded in the Registry of
Property three months before the marriage, is patently absurd, since
such a prenuptial agreement could not be effective before marriage is
celebrated, and would automatically be cancelled if the union was
called off. How then could it be accepted for recording prior to the
marriage? In the third place, despite their insistence on the existence
of the ante nuptial contract, the couple, strangely enough, did not act
in accordance with its alleged covenants. Quite the contrary, it was
proved that even during their taxable years, the ownership, usufruct,
and administration of their properties and business were in the
husband. And even when the wife was engaged in lumber dealing,
and she and her husband contracted sales with each other as
aforestated, the proceeds she derived from her alleged subsequent
disposition of the logs incidentally, by and through the same agent
of her husband, Mariano Osorio were either received by Osorio for
the petitioner or deposited by said agent in petitioner's current
account with the Philippine National Bank. Fourth, although petitioner,
a lawyer by profession, already knew, after he was informed by the
Collector on or about September of 1953, that the primary reason
why the sales of logs to his wife could not be considered as the
original taxable sales was because of the express prohibition found in
Article 1490 of the Civil Code of sales between spouses married
under a community system; yet it was not until July of 1954 that he
alleged, for the first time, the existence of the supposed property
separation agreement. Finally, the Day Book of the Register of Deeds
on which the agreement would have been entered, had it really been
registered as petitioner insists, and which book was among those
saved from the ravages of the war, did not show that the document in
question was among those recorded therein.
We have already ruled that when the credibility of witnesses is the
one at issue, the trial court's judgment as to their degree of credence
deserves serious consideration by this Court (Collector vs. Bautista,
et al., G.R. Nos. L-12250 & L-12259, May 27, 1959). This is all the
more true in this case because not every copy of the supposed
agreement, particularly the one that was said to have been filed with
the Clerk of Court of Isabela, was accounted for as lost; so that,
applying the "best evidence rule", the court did right in giving little or
no credence to the secondary evidence to prove the due execution
and contents of the alleged document (see Comments on the Rules
of Court, Moran, 1957 Ed., Vol. 3, pp. 10.12).
The foregoing findings notwithstanding, the petitioner argues that the
prohibition to sell expressed under Article 1490 of the Civil Code has
no application to the sales made by said petitioner to his wife,
because said transactions are contemplated and allowed by the
provisions of Articles 7 and 10 of the Code of Commerce. But said
provisions merely state, under certain conditions, a presumption that
the wife is authorized to engage in business and for the incidents that
flow therefrom when she so engages therein. But the transactions
permitted are those entered into with strangers, and do not constitute
exceptions to the prohibitory provisions of Article 1490 against sales
between spouses.
Petitioner's contention that the respondent Collector can not assail
the questioned sales, he being a stranger to said transactions, is
likewise untenable. The government, as correctly pointed out by the
Tax Court, is always an interested party to all matters involving
taxable transactions and, needless to say, qualified to question their
validity or legitimacy whenever necessary to block tax evasion.
Contracts violative of the provisions of Article 1490 of the Civil Code
are null and void (Uy Sui Pin vs. Cantollas, 70 Phil. 55; Uy Coque vs.
Sioca 45 Phil. 43). Being void transactions, the sales made by the
petitioner to his wife were correctly disregarded by the Collector in his
tax assessments that considered as the taxable sales those made by
the wife through the spouses' common agent, Mariano Osorio. In
upholding that stand, the Court below committed no error.
It is also the petitioner's contention that the lower court erred in using
illegally seized documentary evidence against him. But even
assuming arguendo the truth of petitioner's charge regarding the
seizure, it is now settled in this jurisdiction that illegally obtained
documents and papers are admissible in evidence, if they are found
to be competent and relevant to the case (see Wong & Lee vs.
Collector of Internal Revenue, G.R. No. L-10155, August 30, 1958). In
fairness to the Collector, however, it should be stated that petitioner's
imputation is vehemently denied by him, and relying on Sections 3, 9,
337 and 338 of the Tax Code and the pertinent portions of Revenue
Regulations No. V-1 and citing this Court's ruling in U.S. vs. Aviado,
38 Phil. 10, the Collector maintains that he and other internal revenue
officers and agents could require the production of books of accounts
and other records from a taxpayer. Having arrived at the foregoing
conclusion, it becomes unnecessary to discuss the other issues
raised, which are but premised on the assumption that a premarital
agreement of total separation of property existed between the
petitioner and his wife.
WHEREFORE, the decision appealed from is affirmed, with costs
against the petitioner.
Padilla, Bautista Angelo, Labrador, Barrera, Gutierrez David and
Dizon, JJ., concur.

G.R. No. L-57499 June 22, 1984


MERCEDES CALIMLIM- CANULLAS, petitioner,
vs.
HON. WILLELMO FORTUN, Judge, Court of First instance of
Pangasinan, Branch I, and CORAZON DAGUINES, respondents.
Fernandez Law Offices for petitioner.
Francisco Pulido for respondents.

MELENCIO-HERRERA, J.:
Petition for Review on certiorari assailing the Decision, dated October
6, 1980, and the Resolution on the Motion for Reconsideration, dated
November 27, 1980, of the then Court of First Instance of
Pangasinan, Branch I, in Civil Case No. 15620 entitled "Corazon
DAGUINES vs. MERCEDES Calimlim-Canullas," upholding the sale
of a parcel of land in favor of DAGUINES but not of the conjugal
house thereon'
The background facts may be summarized as follows: Petitioner
MERCEDES Calimlim-Canullas and FERNANDO Canullas were
married on December 19, 1962. They begot five children. They lived
in a small house on the residential land in question with an area of
approximately 891 square meters, located at Bacabac, Bugallon,
Pangasinan. After FERNANDO's father died in 1965, FERNANDO
inherited the land.
In 1978, FERNANDO abandoned his family and was living with
private respondent Corazon DAGUINES. During the pendency of this
appeal, they were convicted of concubinage in a judgment rendered
on October 27, 1981 by the then Court of First Instance of
Pangasinan, Branch II, which judgment has become final.
On April 15, 1980, FERNANDO sold the subject property with the
house thereon to DAGUINES for the sum of P2,000.00. In the
document of sale, FERNANDO described the house as "also
inherited by me from my deceased parents."
Unable to take possession of the lot and house, DAGUINES initiated
a complaint on June 19, 1980 for quieting of title and damages
against MERCEDES. The latter resisted and claimed that the house
in dispute where she and her children were residing, including the
coconut trees on the land, were built and planted with conjugal funds
and through her industry; that the sale of the land together with the
house and improvements to DAGUINES was null and void because
they are conjugal properties and she had not given her consent to the
sale,
In its original judgment, respondent Court principally declared
DAGUINES "as the lawful owner of the land in question as well as the
one-half () of the house erected on said land." Upon reconsideration
prayed for by MERCEDES, however, respondent Court resolved:
WHEREFORE, the dispositive portion of the Decision of this Court,
promulgated on October 6, 1980, is hereby amended to read as
follows:
(1) Declaring plaintiff as the true and lawful owner of the land in
question and the 10 coconut trees;
(2) Declaring as null and void the sale of the conjugal house to
plaintiff on April 15, 1980 (Exhibit A) including the 3 coconut trees and
other crops planted during the conjugal relation between Fernando
Canullas (vendor) and his legitimate wife, herein defendant Mercedes
Calimlim- Canullas;
xxx xxx xxx
The issues posed for resolution are (1) whether or not the
construction of a conjugal house on the exclusive property of the
husband ipso facto gave the land the character of conjugal property;
and (2) whether or not the sale of the lot together with the house and
improvements thereon was valid under the circumstances
surrounding the transaction.
The determination of the first issue revolves around the interpretation
to be given to the second paragraph of Article 158 of the Civil Code,
which reads:
xxx xxx xxx
Buildings constructed at the expense of the partnership during the
marriage on land belonging to one of the spouses also pertain to the
partnership, but the value of the land shall be reimbursed to the
spouse who owns the same.
We hold that pursuant to the foregoing provision both the land and
the building belong to the conjugal partnership but the conjugal
partnership is indebted to the husband for the value of the land. The
spouse owning the lot becomes a creditor of the conjugal partnership
for the value of the lot, 1 which value would be reimbursed at the liquidation of the
conjugal partnership. 2
In his commentary on the corresponding provision in the Spanish
Civil Code (Art. 1404), Manresa stated:
El articulo cambia la doctrine; los edificios construidos durante el
matrimonio en suelo propio de uno de los conjuges son gananciales,
abonandose el valor del suelo al conj uge a quien pertenezca.
It is true that in the case of Maramba vs. Lozano, 3 relied upon by
respondent Judge, it was held that the land belonging to one of the
spouses, upon which the spouses have built a house, becomes conjugal
property only when the conjugal partnership is liquidated and indemnity
paid to the owner of the land. We believe that the better rule is that
enunciated by Mr. Justice J.B.L. Reyes in Padilla vs. Paterno, 3 SCRA 678,
691 (1961), where the following was explained:
As to the above properties, their conversion from paraphernal to
conjugal assets should be deemed to retroact to the time the conjugal
buildings were first constructed thereon or at the very latest, to the
time immediately before the death of Narciso A. Padilla that ended
the conjugal partnership. They can not be considered to have
become conjugal property only as of the time their values were paid
to the estate of the widow Concepcion Paterno because by that time
the conjugal partnership no longer existed and it could not acquire the
ownership of said properties. The acquisition by the partnership of
these properties was, under the 1943 decision, subject to the
suspensive condition that their values would be reimbursed to the
widow at the liquidation of the conjugal partnership; once paid, the
effects of the fulfillment of the condition should be deemed to retroact
to the date the obligation was constituted (Art. 1187, New Civil
Code) ...
The foregoing premises considered, it follows that FERNANDO could
not have alienated the house and lot to DAGUINES since
MERCEDES had not given her consent to said sale. 4
Anent the second issue, we find that the contract of sale was null and
void for being contrary to morals and public policy. The sale was
made by a husband in favor of a concubine after he had abandoned
his family and left the conjugal home where his wife and children lived
and from whence they derived their support. That sale was
subversive of the stability of the family, a basic social institution which
public policy cherishes and protects. 5
Article 1409 of the Civil Code states inter alia that: contracts whose
cause, object, or purpose is contrary to law, morals, good customs,
public order, or public policy are void and inexistent from the very
beginning.
Article 1352 also provides that: "Contracts without cause, or with
unlawful cause, produce no effect whatsoever. The cause is unlawful
if it is contrary to law, morals, good customs, public order, or public
policy."
Additionally, the law emphatically prohibits the spouses from selling
property to each other subject to certain exceptions. 6 Similarly,
donations between spouses during marriage are prohibited. 7 And this is so
because if transfers or con conveyances between spouses were allowed
during marriage, that would destroy the system of conjugal partnership, a
basic policy in civil law. It was also designed to prevent the exercise of
undue influence by one spouse over the other, 8 as well as to protect the
institution of marriage, which is the cornerstone of family law. The
prohibitions apply to a couple living as husband and wife without benefit of
marriage, otherwise, "the condition of those who incurred guilt would turn
out to be better than those in legal union." Those provisions are dictated by
public interest and their criterion must be imposed upon the wig of the
parties. That was the ruling in Buenaventura vs. Bautista, also penned by
Justice JBL Reyes (CA) 50 O.G. 3679, and cited in Matabuena vs.
Cervantes. 9 We quote hereunder the pertinent dissertation on this point:
We reach a different conclusion. While Art. 133 of the Civil Code
considers as void a donation between the spouses during the
marriage, policy considerations of the most exigent character as wen
as the dictates of morality require that the same prohibition should
apply to a common-law relationship.
As announced in the outset of this opinion, a 1954 Court of Appeals
decision, Buenaventura vs. Bautista, 50 OG 3679, interpreting a
similar provision of the old Civil Code speaks unequivocally. If the
policy of the law is, in the language of the opinion of the then Justice
J.B.L. Reyes of that Court, 'to prohibit donations in favor of the other
consort and his descendants because of fear of undue influence and
improper pressure upon the donor, a prejudice deeply rooted in our
ancient law, ..., then there is every reason to apply the same
prohibitive policy to persons living together as husband and wife
without benefit of nuptials. For it is not to be doubted that assent to
such irregular connection for thirty years bespeaks greater influence
of one party over the other, so that the danger that the law seeks to
avoid is correspondingly increased'. Moreover, as pointed out by
Ulpian (in his lib 32 ad Sabinum, fr. 1), "It would not be just that such
donations should subsist, lest the conditions of those who incurred
guilt should turn out to be better." So long as marriage remains the
cornerstone of our family law, reason and morality alike demand that
the disabilities attached to marriage should likewise attach to
concubinage (Emphasis supplied),
WHEREFORE, the Decision of respondent Judge, dated October 6,
1980, and his Resolution of November 27, 1980 on petitioner's
Motion for Reconsideration, are hereby set aside and the sale of the
lot, house and improvements in question, is hereby declared null and
void. No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., and De la
Fuente, JJ., concur.

G.R. No. L-68838 March 11, 1991


FLORENCIO FABILLO and JOSEFA TANA (substituted by their
heirs Gregorio Fabillo, Roman Fabillo, Cristeta F. Maglinte and
Antonio Fabillo), petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT (Third
Civil Case Division) and ALFREDO MURILLO (substituted by his
heirs Fiamita M. Murillo, Flor M. Agcaoili and Charito M. Babol),
respondents.
Francisco A. Tan for petitioners.Von Kaiser P. Soro for private
respondent.
FERNAN, C.J.:
In the instant petition for review on certiorari, petitioners seek the
reversal of the appellate court's decision interpreting in favor of
lawyer Alfredo M. Murillo the contract of services entered into
between him and his clients, spouses Florencio Fabillo and Josefa
Taa.
In her last will and testament dated August 16, 1957, Justina Fabillo
bequeathed to her brother, Florencio, a house and lot in San
Salvador Street, Palo, Leyte which was covered by tax declaration
No. 19335, and to her husband, Gregorio D. Brioso, a piece of land in
Pugahanay, Palo, Leyte. After Justina's death, Florencio filed a
1

petition for the probate of said will. On June 2, 1962, the probate
court approved the project of partition "with the reservation that the
ownership of the land declared under Tax Declaration No. 19335 and
the house erected thereon be litigated and determined in a separate
proceedings." 2

Two years later, Florencio sought the assistance of lawyer Alfredo M.


Murillo in recovering the San Salvador property. Acquiescing to
render his services, Murillo wrote Florencio the following handwritten
letter:
Dear Mr. Fabillo:
I have instructed my stenographer to prepare the complaint and file
the same on Wednesday if you are ready with the filing fee and
sheriffs fee of not less than P86.00 including transportation expenses.
Considering that Atty. Montilla lost this case and the present action is
a revival of a lost case, I trust that you will gladly give me 40% of the
money value of the house and lot as a contigent (sic) fee in case of a
success. When I come back I shall prepare the contract of services
for your signature.
Thank you.
Cordially yours,
(Sgd.) Alfredo M. Murillo
Aug. 9, 1964 3

Thirteen days later, Florencio and Murillo entered into the following
contract:
CONTRACT OF SERVICES
KNOW ALL MEN BY THESE PRESENTS:
That I, FLORENCIO FABILLO, married to JOSEFA TANA, of legal
age, Filipino citizen and with residence and postal address at Palo,
Leyte, was the Petitioner in Special Proceedings No. 843, entitled "In
the Matter of the Testate Estate of the late Justina Fabillo, Florencio
Fabillo, Petitioner" of the Court of First Instance of Leyte;
That by reason of the Order of the Court of First Instance of Leyte
dated June 2, 1962, my claim for the house and lot mentioned in
paragraph one (1) of the last will and testament of the late Justina
Fabillo, was denied altho the will was probated and allowed by the
Court;
That acting upon the counsel of Atty. Alfredo M. Murillo, I have
cause(d) the preparation and filing of another case, entitled "Florencio
Fabillo vs. Gregorio D. Brioso," which was docketed as Civil Case No.
3532 of the Court of First Instance of Leyte;
That I have retained and engaged the services of Atty. ALFREDO M.
MURILLO, married and of legal age, with residence and postal
address at Santa Fe, Leyte to be my lawyer not only in Social
Proceedings No. 843 but also in Civil Case No. 3532 under the
following terms and conditions;
That he will represent me and my heirs, in case of my demise in the
two cases until their successful conclusion or until the case is settled
to my entire satisfaction;
That for and in consideration for his legal services, in the two cases, I
hereby promise and bind myself to pay Atty. ALFREDO M. MURILLO,
in case of success in any or both cases the sum equivalent to
FORTY PER CENTUM (40%) of whatever benefit I may derive from
such cases to be implemented as follows:
If the house and lot in question is finally awarded to me or a part of
the same by virtue of an amicable settlement, and the same is sold,
Atty. Murillo, is hereby constituted as Atty. in-fact to sell and convey
the said house and lot and he shall be given as his compensation for
his services as counsel and as attorney-in-fact the sum equivalent to
forty per centum of the purchase price of the house and lot;
If the same house and lot is just mortgage(d) to any person, Atty.
Murillo shall be given the sum equivalent to forty per centum (40%) of
the proceeds of the mortgage;
If the house and lot is leased to any person, Atty. Murillo shall be
entitled to receive an amount equivalent to 40% (FORTY PER
CENTUM) of the rentals of the house and lot, or a part thereof;
If the house and lot or a portion thereof is just occupied by the
undersigned or his heirs, Atty. Murillo shall have the option of either
occupying or leasing to any interested party FORTY PER CENT of
the house and lot.
Atty. Alfredo M. Murillo shall also be given as part of his
compensation for legal services in the two cases FORTY PER
CENTUM of whatever damages, which the undersigned can collect in
either or both cases, provided, that in case I am awarded attorney's
fees, the full amount of attorney's fees shall be given to the said Atty.
ALFREDO M. MURILLO;
That in the event the house and lot is (sic) not sold and the same is
maintained by the undersigned or his heirs, the costs of repairs,
maintenance, taxes and insurance premiums shall be for the account
of myself or my heirs and Attorney Murillo, in proportion to our rights
and interest thereunder that is forty per cent shall be for the account
of Atty. Murillo and sixty per cent shall be for my account or my heirs.
IN WITNESS HEREOF, I hereby set unto my signature below this
22nd day of August 1964 at Tacloban City.
(Sgd.) FLORENCIO FABILLO
(Sgd.) JOSEFA T. FABILLO
WITH MY CONFORMITY:
(Sgd.) ALFREDO M. MURILLO
(Sgd.) ROMAN T. FABILLO (Sgd.) CRISTETA F. MAGLINTE
(Witness) (Witness)4

Pursuant to said contract, Murillo filed for Florencio Fabillo Civil Case
No. 3532 against Gregorio D. Brioso to recover the San Salvador
property. The case was terminated on October 29, 1964 when the
court, upon the parties' joint motion in the nature of a compromise
agreement, declared Florencio Fabillo as the lawful owner not only of
the San Salvador property but also the Pugahanay parcel of land.
Consequently, Murillo proceeded to implement the contract of
services between him and Florencio Fabillo by taking possession and
exercising rights of ownership over 40% of said properties. He
installed a tenant in the Pugahanay property.
Sometime in 1966, Florencio Fabillo claimed exclusive right over the
two properties and refused to give Murillo his share of their produce. 5

Inasmuch as his demands for his share of the produce of the


Pugahanay property were unheeded, Murillo filed on March 23, 1970
in the then Court of First Instance of Leyte a complaint captioned
"ownership of a parcel of land, damages and appointment of a
receiver" against Florencio Fabillo, his wife Josefa Taa, and their
children Ramon (sic) Fabillo and Cristeta F. Maglinte. 6
Murillo prayed that he be declared the lawful owner of forty per cent
of the two properties; that defendants be directed to pay him jointly
and severally P900.00 per annum from 1966 until he would be given
his share of the produce of the land plus P5,000 as consequential
damages and P1,000 as attorney's fees, and that defendants be
ordered to pay moral and exemplary damages in such amounts as
the court might deem just and reasonable.
In their answer, the defendants stated that the consent to the contract
of services of the Fabillo spouses was vitiated by old age and
ailment; that Murillo misled them into believing that Special
Proceedings No. 843 on the probate of Justina's will was already
terminated when actually it was still pending resolution; and that the
contingent fee of 40% of the value of the San Salvador property was
excessive, unfair and unconscionable considering the nature of the
case, the length of time spent for it, the efforts exerted by Murillo, and
his professional standing.
They prayed that the contract of services be declared null and void;
that Murillo's fee be fixed at 10% of the assessed value of P7,780 of
the San Salvador property; that Murillo be ordered to account for the
P1,000 rental of the San Salvador property which he withdrew from
the court and for the produce of the Pugahanay property from 1965 to
1966; that Murillo be ordered to vacate the portion of the San
Salvador property which he had occupied; that the Pugahanay
property which was not the subject of either Special Proceedings No.
843 or Civil Case No. 3532 be declared as the exclusive property of
Florencio Fabillo, and that Murillo be ordered to pay moral damages
and the total amount of P1,000 representing expenses of litigation
and attorney's fees.
In its decision of December 2, 1975, the lower court ruled that there
7

was insufficient evidence to prove that the Fabillo spouses' consent to


the contract was vitiated. It noted that the contract was witnessed by
two of their children who appeared to be highly educated. The
spouses themselves were old but literate and physically fit.
In claiming jurisdiction over the case, the lower court ruled that the
complaint being one "to recover real property from the defendant
spouses and their heirs or to enforce a lien thereon," the case could
be decided independent of the probate proceedings. Ruling that the
contract of services did not violate Article 1491 of the Civil Code as
said contract stipulated a contingent fee, the court upheld Murillo's
claim for "contingent attorney's fees of 40% of the value of
recoverable properties." However, the court declared Murillo to be the
lawful owner of 40% of both the San Salvador and Pugahanay
properties and the improvements thereon. It directed the defendants
to pay jointly and severally to Murillo the amount of P1,200
representing 40% of the net produce of the Pugahanay property from
1967 to 1973; entitled Murillo to 40% of the 1974 and 1975 income of
the Pugahanay property which was on deposit with a bank, and
ordered defendants to pay the costs of the suit.
Both parties filed motions for the reconsideration of said decision:
Fabillo, insofar as the lower court awarded 40% of the properties to
Murillo and the latter insofar as it granted only P1,200 for the produce
of the properties from 1967 to 1973. On January 29, 1976, the lower
court resolved the motions and modified its decision thus:
ACCORDINGLY, the judgment heretofore rendered is modified to
read as follows:
(a) Declaring the plaintiff as entitled to and the true and lawful owner
of forty percent (40%) of the parcels of land and improvements
thereon covered by Tax Declaration Nos. 19335 and 6229 described
in Paragraph 5 of the complaint;
(b) Directing all the defendants to pay jointly and severally to the
plaintiff the sum of Two Thousand Four Hundred Fifty Pesos
(P2,450.00) representing 40% of the net produce of the Pugahanay
property from 1967 to 1973;
(c) Declaring the plaintiff entitled to 40% of the 1974 and 1975
income of said riceland now on deposit with the Prudential Bank,
Tacloban City, deposited by Mr. Pedro Elona, designated receiver of
the property;
(d) Ordering the defendants to pay the plaintiff the sum of Three
Hundred Pesos (P 300.00) as attorney's fees; and
(e) Ordering the defendants to pay the costs of this suit.
SO ORDERED.
In view of the death of both Florencio and Justina Fabillo during the
pendency of the case in the lower court, their children, who
substituted them as parties to the case, appealed the decision of the
lower court to the then Intermediate Appellate Court. On March 27,
1984, said appellate court affirmed in toto the decision of the lower
court.8

The instant petition for review on certiorari which was interposed by


the Fabillo children, was filed shortly after Murillo himself died. His
heirs likewise substituted him in this case. The Fabillos herein
question the appellate court's interpretation of the contract of services
and contend that it is in violation of Article 1491 of the Civil Code.
The contract of services did not violate said provision of law. Article
1491 of the Civil Code, specifically paragraph 5 thereof, prohibits
lawyers from acquiring by purchase even at a public or judicial
auction, properties and rights which are the objects of litigation in
which they may take part by virtue of their profession. The said
prohibition, however, applies only if the sale or assignment of the
property takes place during the pendency of the litigation involving
the client's property.9

Hence, a contract between a lawyer and his client stipulating a


contingent fee is not covered by said prohibition under Article 1491
(5) of the Civil Code because the payment of said fee is not made
during the pendency of the litigation but only after judgment has been
rendered in the case handled by the lawyer. In fact, under the 1988
Code of Professional Responsibility, a lawyer may have a lien over
funds and property of his client and may apply so much thereof as
may be necessary to satisfy his lawful fees and disbursements. 10

As long as the lawyer does not exert undue influence on his client,
that no fraud is committed or imposition applied, or that the
compensation is clearly not excessive as to amount to extortion, a
contract for contingent fee is valid and enforceable. 11
Moreover,
contingent fees were impliedly sanctioned by No. 13 of the Canons of
Professional Ethics which governed lawyer-client relationships when
the contract of services was entered into between the Fabillo spouses
and Murillo. 12

However, we disagree with the courts below that the contingent fee
stipulated between the Fabillo spouses and Murillo is forty percent of
the properties subject of the litigation for which Murillo appeared for
the Fabillos. A careful scrutiny of the contract shows that the parties
intended forty percent of the value of the properties as Murillo's
contingent fee. This is borne out by the stipulation that "in case of
success of any or both cases," Murillo shall be paid "the sum
equivalent to forty per centum of whatever benefit" Fabillo would
derive from favorable judgments. The same stipulation was earlier
embodied by Murillo in his letter of August 9, 1964 aforequoted.
Worth noting are the provisions of the contract which clearly states
that in case the properties are sold, mortgaged, or leased, Murillo
shall be entitled respectively to 40% of the "purchase price,"
"proceeds of the mortgage," or "rentals." The contract is vague,
however, with respect to a situation wherein the properties are neither
sold, mortgaged or leased because Murillo is allowed "to have the
option of occupying or leasing to any interested party forty per cent of
the house and lot." Had the parties intended that Murillo should
become the lawful owner of 40% of the properties, it would have been
clearly and unequivocally stipulated in the contract considering that
the Fabillos would part with actual portions of their properties and
cede the same to Murillo.
The ambiguity of said provision, however, should be resolved against
Murillo as it was he himself who drafted the contract. This is in
13

consonance with the rule of interpretation that, in construing a


contract of professional services between a lawyer and his client,
such construction as would be more favorable to the client should be
adopted even if it would work prejudice to the lawyer. Rightly so
14

because of the inequality in situation between an attorney who knows


the technicalities of the law on the one hand and a client who usually
is ignorant of the vagaries of the law on the other hand. 15

Considering the nature of the case, the value of the properties subject
matter thereof, the length of time and effort exerted on it by Murillo,
we hold that Murillo is entitled to the amount of Three Thousand
Pesos (P3,000.00) as reasonable attorney's fees for services
rendered in the case which ended on a compromise agreement. In so
ruling, we uphold "the time-honored legal maxim that a lawyer shall at
all times uphold the integrity and dignity of the legal profession so that
his basic ideal becomes one of rendering service and securing
justice, not money-making. For the worst scenario that can ever
happen to a client is to lose the litigated property to his lawyer in
whom all trust and confidence were bestowed at the very inception of
the legal controversy." 16

WHEREFORE, the decision of the then Intermediate Appellate Court


is hereby reversed and set aside and a new one entered (a) ordering
the petitioners to pay Atty. Alfredo M. Murillo or his heirs the amount
of P3,000.00 as his contingent fee with legal interest from October
29, 1964 when Civil Case No. 3532 was terminated until the amount
is fully paid less any and all amounts which Murillo might have
received out of the produce or rentals of the Pugahanay and San
Salvador properties, and (b) ordering the receiver of said properties
to render a complete report and accounting of his receivership to the
court below within fifteen (15) days from the finality of this decision.
Costs against the private respondent.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

G.R. No. L-31606 March 28, 1983


DONATO REYES YAP and MELITONA MARAVILLAS, petitioners,
vs.
HON. EZEKIEL S. GRAGEDA, as Judge of the Court of First
Instance of Albay and JOSE A. RICO, respondents.
Jose P. Oira for petitioners.
Rodolfo A. Madrid for respondents.

GUTIERREZ, JR., J.:


We are asked in this petition to review the amended decision of the
respondent court which declared as absolutely null and void the sale
of a residential lot in Guinobatan, Albay to a Chinese national and
ordered its reconveyance to the vendors thirty years after the sale
inspite of the fact that the vendee had been a naturalized Filipino
citizen for fifteen years at the time.
We grant the petition. The questioned decision and the order
amending it are reversed and set aside.
The facts are not disputed.
On April 12, 1939, Maximino Rico, for and in his own behalf and that
of the minors Maria Rico, Filomeno Rico, Prisco Rico, and Lourdes'
Rico, executed a Deed of Absolute Sale (Annex 'A' to the complaint)
over Lot 339 and a portion of Lot 327 in favor of the petitioner Donato
Reyes Yap who was then a Chinese national. Respondent Jose A.
Rico is the eldest son of Maximino Rico, one of the vendors in Annex
'A'.
Subsequently, the petitioner as vendee caused the registration of the
instrument of sale and the cancellation of Original Certificates of Title
Nos. 29332 and 29410 and the consequent issuance in his favor of
Transfer Certificate of Title No. T-2433 covering the two lots subject
matter of the Contract of Sale.
After the lapse of nearly fifteen years from and after the execution of
the deed of absolute sale, Donato Reyes Yap was admitted as a
Filipino citizen and allowed to take his oath of allegiance to the
Republic of the Philippines. He was, thereafter, issued Certificate of
Naturalization No. 7, File No. 19 of the Court of First Instance of
Albay.
On December 1, 1967, the petitioner ceded the major portion of Lot
No. 327 consisting of 1,078 square meters which he acquired by
purchase under the deed of sale in favor of his engineer son, Felix
Yap, who was also a Filipino citizen because of the Filipino
citizenship of his mother and the naturalization of his father Donato
Reyes Yap.
Subsequently, Lourdes Rico, aunt and co-heir of respondent Jose A.
Rico. sold the remaining portion of Lot 327 to the petitioner who had
his rights thereon duly registered under Act 496. Petitioner, Donato
Reyes Yap, has been in possession of the lots in question since
1939, openly, publicly, continuously, and adversely in the concept of
owner until the present time. The petitioner has one surviving son by
his first marriage to a Filipino wife. He has five children by his second
marriage also to a Filipina and has a total of 23 grandchildren all of
whom are Filipino citizens.
The respondent court considered Section 5, Article XIII of the 1935
Constitution that "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 in the Philippines" to be
an absolute and unqualified prohibition and, therefore, ruled that a
conveyance contrary to it would not be validated nor its void nature
altered by the subsequent naturalization of the vendee.
The dispositive portion of the amended decision reads:
WHEREFORE, in view of all the foregoing, the Contract of Sale
embodied in the 'Escritura de Compra Venta' which is attached to the
Complaint as Annex 'A', is hereby declared null and void ab initio and
without any legal force and effect.
The action to recover Lot 339 of the Cadastral Survey of Guinobatan,
Albay, covered by Transfer Certificate of Title No. T2433. and Lot 327
covered by the same Transfer Certificate of Title, is hereby granted to
plaintiff, upon payment of the consideration price of P150.00 and
declaring plaintiff as the lawful owner and entitled to the possession
thereof.
Defendant Donato Reyes Yap is hereby ordered to produce his
Transfer Certificate of Title No. T-2433 to the Register of Deeds of
Albay, so as to enable said office to make the due and proper
annotations on said title as well as in the original of the declaration of
nullity as herein adjudged. Let Transfer Certificate of Title issued to
plaintiff, concerning said Lots 339 and 327 of the Cadastral Survey of
Guinobatan, Albay.
COSTS AGAINST DEFENDANTS.
The rulings in Vasquez v.Leng Seng Giap et al. (96 Phil. 447) and
Sarosa Vda. de Bersabia v. Cuenco (113 SCRA 547) sustain the
petitioner's contentions. We stated in Sarosa Vda de Bersabia:
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 in. 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
Leng 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.
Only recently, we had occasion to reiterate the above rulings in
Vicente Godines v. Fong Pak Luen, et al. (G.R. No. L-36731, January
27, 1983).
WHEREFORE, the amended judgment of the respondent court is
hereby REVERSED and SET ASIDE. The complaint is DISMISSED.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and
Relova, JJ., concur.

G.R. No. 102909 September 6, 1993


SPOUSES VICENTE and LOURDES PINGOL, petitioners,
vs.
HON. COURT OF APPEALS and HEIRS OF FRANCISCO N.
DONASCO, namely: MELINDA D. PELAYO, MARIETTA D.
SINGSON, MYRNA D. CUEVAS, NATIVIDAD D. PELAYO,
YOLANDA D. CACERES and MARY DONASCO, respondents.
Bernardo S. Chan for petitioners.
Orlando A. Galope for respondents.

DAVIDE, JR., J.:


An action denominated as one for specific performance and damages
was brought by the private respondents against the petitioners before
the Regional Trial Court (RTC) of Caloocan City which, after due trial,
rendered a decision in favor of the petitioners. On appeal, the
respondent Court reversed the trial court's decision.
It is from this judgment that the petitioners have appealed to this
Court by way of a petition for review on certiorari.
The material facts of this case are simple and undisputed.
Petitioner Vicente Pingol is the owner of Lot No. 3223 of the
Cadastral Survey of Caloocan, with an area of 549 square meters,
located at Bagong Barrio, Caloocan City and more particularly
described in Transfer Certificate of Title (TCT) No. 7435 of the
Registry of Deeds of Caloocan City. On 17 February 1969, he
executed a "DEED OF ABSOLUTE SALE OF ONE-HALF OF (1/2)
[OF] AN UNDIVIDED PORTION OF A PARCEL OF LAND" in favor of
Francisco N. Donasco which was acknowledged before a notary
public. The parcel of land referred to herein is Lot No. 3223 and the
pertinent portions of the document read as follows:
That for and in consideration of the sum of TWENTY THOUSAND
AND FIVE HUNDRED THIRTY (P20,530.00) PESOS, Philippine
Currency, the VENDOR hereby these presents SELL, CONVEY AND
CONVEY by way of Absolute Sale the one-half (1/2) portion,
equivalent to Two Hundred Seventy Four and point Fifty (274.50)
square meters, to VENDEE, the above-mentioned property, his heirs,
assigns and successors-in- interest;
That the VENDOR hereby confesses and acknowledges the receipt
of TWO THOUSAND (P2,000.00) PESOS from VENDEE as
advanced (sic) and partial payment to the above-cited consideration
of the Sale herein mentioned, leaving therefor a balance of Eighteen
Thousand and Five Hundred Thirty (P18,530) Pesos to be paid in
several equal installments within a period of six (6) years, beginning
January, 1970;
That after computing the above-mentioned equal installments, the
VENDEE agrees and undertakes to pay unto the VENDOR a monthly
amount equivalent to Two Hundred Fifty Seven (sic) and Thirty Six
Centavos (P257.36) within a period of Seventy One (71) months and
on the Seven Two [sic] (72) month, the amount of (P257.44) as the
last and final installment thereof;
That the VENDEE agrees that in case of default in the payment of the
installment due the same shall earn a legal rate of interest, and to
which the VENDOR likewise agrees;
That the VENDEE undertakes to pay unto the VENDOR the herein
monthly installment within the first five (5) days of each month and
the same shall be made available and to be paid at the residence of
the VENDOR, payment to be made either directly to the VENDOR,
his wife or his authorized representative or factor;
That in case of partition of the above-described property between
herein VENDOR and VENDEE the same shall be divided into two (2)
equal parts, the VENDOR gets the corner facing J. De Jesus and
Malolos Avenue and the VENDEE shall get the portion with fifteen 15
meters frontage facing J. De Jesus Street only. 1
Pursuant to the contract, Donasco paid P2,000.00 to Pingol. The one-
half portion, designated as Lot No. 3223-A, was then segregated from
the mother lot, and the parties prepared a subdivision plan (Exhibit
"C") which was approved by the Land Registration Commission. 2
Francisco immediately took possession of the subject lot and
constructed a house thereon. In January 1970, he started paying the
monthly installments but was able to pay only up to 1972.
On 13 July 1984, Francisco Donasco died. At the time of his demise,
he had paid P8,369.00, plus the P2,000.00 advance payment, leaving
a balance of P10,161.00 on the contract price. 3
Lot No. 3223-A
remained in the possession of Donasco's heirs.
On 19 October 1988, the heirs of Francisco Donasco filed an action
for "Specific Performance and Damages, with Prayer for Writ of
Preliminary Injunction" against the spouses Vicente and Lourdes
Pingol (petitioners herein) before the RTC of Caloocan City. The
action was docketed as Civil Case No. 13572 and raffled off to
Branch 125 of the said court.
In their complaint, 4 the plaintiffs (private respondents herein) averred that
after the death of their father, they offered to pay the balance of
P10,161.00 plus the stipulated legal rate of interest thereon to Vicente
Pingol but the latter rebuffed their offer and has "been demanding for a
bigger and unreasonable amount, in complete variance to what is lawfully
due and payable." They stated that they had "exerted earnest efforts to
forge or reach an amicable and peaceful settlement with the defendants"
for the payment of the property in question but to no avail. They further
alleged that the defendants were committing "acts of forcible entry and
encroachment" upon their land and asked that a writ of preliminary
injunction be issued to restrain the defendants from the acts complained of.
Plaintiffs then prayed that the defendants be ordered, inter alia:
a. . . . to accept the amount of P10,161.00, more or less, plus the
stipulated legal rate of interest due thereon, as full and complete
payment of the balance for the agreed price/consideration on the
one- half (1/2) portion of the parcel of land . . .; [and]
b. . . . to execute the final deed of sale on the one-half (1/2) portion of
the lot . . . in accordance with the partition reflected in the survey and
subdivision plan, . . . . 5
In their answer with counterclaim, 6 defendants admitted the execution of
the aforementioned deed of sale, the segregation of the portion sold and
the preparation and approval of the subdivision plan, but set up the
following special and affirmative defenses: (1) plaintiffs' cause of action
had already prescribed; (2) the deed of sale embodied a conditional
contract of sale "as the consideration is to be paid on installment basis
within a period of six years beginning January, 1970"; (3) the subdivision
plan was prepared on the assumption that Francisco Donasco would be
able to comply with his obligation; (4) when Francisco died, he had not fully
paid the total consideration agreed upon; and (5) considering the breach
by Francisco of his contractual obligation way back in 1976, the sale was
deemed to have been cancelled and the continuous occupancy of
Francisco after 1976 and by his heirs thereafter was by mere tolerance of
Vicente Pingol. They then asked that the plaintiffs be ordered to vacate the
premises and to pay them attorney's fees and a reasonable compensation
for the use of the land.
In their Reply and Answer to Counterclaim, 7 the plaintiffs pointed out
that there is no provision in the deed of sale for its cancellation in case of
default in the payment of the monthly installments and invoked Article 1592
of the New Civil Code. They specifically denied the allegations in the
counterclaim.
The issues having been joined, the case was then tried on the merits.
On 22 January 1990, the trial court rendered a decision 8 dismissing
the complaint and ordering the plaintiffs to pay the defendants P350.00 as
reasonable monthly rental for the use of the premises from the filing of the
complaint, P10,000.00 by way of attorney's fees, and the costs of the suit.
It held that: (1) the deed of absolute sale in question, marked and offered
in evidence as Exhibit "A," is a contract to sell, not a contract of sale, since
Vicente Pingol had no intention to part with the ownership of the loan
unless the full amount of the agreed price had been paid; (2) the contract
was deemed to have been cancelled from the moment the late father of the
plaintiffs defaulted in the payment of the monthly installments; (3) title and
ownership over the lot did not pass to Francisco Donasco and his heirs
since the contract to sell was never consummated; and (5) assuming,
arguendo, that the plaintiffs have a cause of action for specific
performance, such action had already prescribed since the complaint was
filed only on 19 October 1988 or more than ten years from the time that
they could have lawfully demanded performance. 9
Plaintiffs elevated the case to the Court of Appeals where the appeal
was docketed as CA-G.R. CV No. 25967. On 12 November 1991, the
said court rendered a decision 10 reversing the appealed decision and
decreeing as follows:
WHEREFORE, the decision appealed from is hereby REVERSED
and SET ASIDE and another one is rendered:
(1) Ordering appellee-vendor Vicente Pingol to accept the sum of
P10,161.00, plus the legal interest due thereon from the date of
institution of this action on October 19, 1988;
(2) Upholding the validity of the "DEED OF ABSOLUTE SALE OF
ONE- HALF (1/2) (of) AN UNDIVIDED PORTION OF A PARCEL OF
LAND" (Exh. A), and by virtue and on the strength of which declaring
the "Heirs of the Deceased Francisco N. Domingo" as the owners of
the 274.50 sq. m. land, denominated as Lot 3223-A, (LRC) Psd-
146255 under the technical description (exh. D) and reflected in the
Plan of Subdivision Survey which was approved By Commissioner of
Land Registration on August 13, 1971 (exh. C), representing one-half
portion [of] lot 3223, situated at the corner of Malolos Avenue and G.
de Jesus St., Bagong Barrio, Caloocan City, and covered by TCT No.
7435 of the Registry of Deeds of Caloocan City (exh. B); and
(3) Ordering the defendants-appellees to pay the costs.
SO ORDERED. 11
The Court of Appeals ruled that the deed of sale in question reveals
the clear intention of Vicente Pingol to part with the ownership of the
one-half portion of the land by way of an absolute sale; that the failure
to fully pay the agreed price was not a ground for the cancellation of
the sale; and that the plaintiffs' action is imprescriptible since it is akin
to an action to quiet title to property in one's possession. 12
Dissatisfied with the decision of the Court of Appeals, the defendants,
hereinafter referred to as the petitioners, filed this petition for
certiorari on 9 January 1992. Plaintiffs, hereinafter referred to as the
private respondents, filed their comment thereto on 10 September
1992 to which the petitioners filed a reply 11 November 1992. We
gave due course to the petition and required the parties to submit
their respective memoranda, 13 which they subsequently complied with.
Petitioners contend that the Court of Appeals erred:
I
IN HOLDING THAT THE DOCUMENT (EXHIBIT "A")
DENOMINATED AS "ABSOLUTE DEED OF SALE OF ONE-HALF
() OF AN UNDIVIDED PORTION OF A PARCEL OF LAND" IS AN
ABSOLUTE DEED OF SALE SUFFICIENT TO CONFER
OWNERSHIP ON THE VENDEE AND HIS SUCCESSORS-IN-
INTEREST, DESPITE THE FACT THAT BY ITS TERMS AND
CONDITIONS, LIKE THE PRICE BEING PAYABLE ON
INSTALLMENTS WITHIN A FIXED PERIOD, THE SAME IS A
CONDITIONAL DEED OF SALE.
II
IN HOLDING THAT NOTWITHSTANDING THE FACT THAT THE
VENDEE FAILED TO COMPLY WITH THE TERMS OF THE
CONTRACT (EXHIBIT "A") SPECIFICALLY TO COMPLETE THE
PAYMENT OF THE CONSIDERATION ON THE DATE STIPULATED
IN THE CONTRACT WHICH WAS SUPPOSED TO BE IN JANUARY
1976, COMPLETE PAYMENT THEREOF CAN STILL BE
ENFORCED IN AN ACTION INSTITUTED BY THE HEIRS OF THE
VENDEE FILED ON OCTOBER 19, 1988 OR A PERIOD OF MORE
THAN TWELVE (12) YEARS FROM THE TIME COMPLETE
PAYMENT SHOULD HAVE BEEN MADE;
III
IN HOLDING THAT THE PRIVATE RESPONDENTS' ACTION IS
ONE WHICH IS AN OFFER TO COMPLETE THE PAYMENT LEFT
UNPAID BY PRIVATE RESPONDENTS' FATHER WHICH DOES
NOT PRESCRIBE;
IV
IN HOLDING THAT PRIVATE RESPONDENTS' CAUSE OF ACTION
HAS NOT PRESCRIBE. 14
The decisive issue in this case is whether Exhibit "A" embodies a
contract of sale or a contract to sell. The distinction between the two
is important for in a contract of sale, the title passes to the vendee
upon the delivery of the thing sold, whereas in a contract to sell, by
agreement, ownership is reserved in the vendor and is not to pass
until the full payment of the price. 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, failure of which is not a breach but an
event that prevented the obligation of the vendor to convey title from
becoming
effective. 15
A perusal of Exhibit "A" leads to no other conclusion than that it
embodies a contract of sale. The plain and clear tenor of the "DEED
OF ABSOLUTE SALE OF ONE-HALF (1/2) [OF] AN UNDIVIDED
PORTION OF A PARCEL OF LAND" is that "the VENDOR hereby . . .
SELL, CONVEY AND CONVEY by way Absolute Sale the one-half
(1/2) portion . . . to the VENDEE . . . his heirs, assigns and
successors-in-interest." That the vendor, petitioner Vicente Pingol,
had that clear intention was further evidenced by his failure to reserve
his title thereto until the full payment of the price.
In Dignos vs. Court of Appeals, 16 we held that a deed of sale is absolute
in nature although denominated as a "Deed of Conditional Sale" where
there is no stipulation in the deed that title to the property sold is reserved
in the seller until the full payment of the price, nor is there a stipulation
giving the vendor the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period. Exhibit "A" contains neither
stipulation. What is merely stated therein is that "the VENDEE agrees that
in case of default in the payment of the installments due the same shall
earn a legal rate of interest, and to which the VENDOR likewise agrees."
Furthermore, as found by the Court of Appeals, the acts of the
parties, contemporaneous and subsequent to the contract, clearly
show that an absolute deed of sale was intended, by the parties and
not a contract to sell:
[P]ursuant to the deed, the vendor delivered actual and constructive
possession of the property to the vendee, who occupied and took
such possession, constructed a building thereon, had the property
surveyed and subdivided and a plan of the property was prepared
and submitted to the Land Registration Commission which approved
it preparatory to segregating the same and obtaining the
corresponding TCT in his name. Since the sale, appellee
continuously possessed and occupied the property as owner up to his
death on July 13, 1984 and his heirs, after his death, continued the
occupancy and possession of the property up to the present. Those
contemporaneous and subsequent events are demonstrative acts
that the vendor since the sale recognized the vendee as the absolute
owner of the property sold. All those attributes of ownership are
admitted by defendants in their answer, specifically in paragraphs 7
and 9 of their special and affirmative defenses. 17
The contract here being one of absolute sale, the ownership of the
subject lot was transferred to the buyer upon the actual and
constructive delivery thereof. The constructive delivery of the subject
lot was made upon the execution of the deed of sale 18 while the actual
delivery was effected when the private respondents took possession of and
constructed a house on Lot No. 3223-A.
The delivery of the object of the contract divested the vendor of the
ownership over the same and he cannot recover the title unless the
contract is resolved or rescinded pursuant to Article 1592 of the New
Civil Code which provides that:
In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon
the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court may not
grant him a new term.
Both the trial court and the Court of Appeals did not find that a
notarial or judicial rescission of the contract had been made. Although
Vicente Pingol asserts that he had declared to Francisco Donasco
that he was cancelling the contract, he did not prove that his demand
for rescission was made either judicially or by a notarial act.
Petitioners fault the respondent Court for holding that the action of the
petitioners is not barred by the statute of limitations. They argue that
the private respondents' action, being based upon a written contract,
has prescribed since it was brought only in 1988 or more than ten
years from the time when the latter could have lawfully demanded
performance. 19
We disagree.
Although the private respondents' complaint before the trial court was
denominated as one for specific performance, it is in effect an action
to quiet title. In this regard, the following excerpt from Bucton vs.
Gabar 20 is apropos:
The real and ultimate basis of petitioners' action is their ownership of
one- half of the lot coupled with their possession thereof, which
entitles them to a conveyance of the property. In Sapto, et al. v.
Fabiana [103 Phil. 683, 686-87 (1958)], this Court, speaking thru Mr.
Justice J.B.L. Reyes, explained that under the circumstances no
enforcement of the contract is needed, since the delivery of
possession of the land sold had consummated the sale and
transferred title to the purchaser, and that, actually, the action for
conveyance is one to quiet title, i.e., to remove the cloud upon the
appellee's ownership by the refusal of the appellants to recognize the
sale made by their predecessors.
That a cloud has been cast on the title of the private respondents is
indubitable. Despite the fact that the title had been transferred to
them by the execution of the deed of sale and the delivery of the
object of the contract, the petitioners adamantly refused to accept the
tender of payment by the private respondents and steadfastly insisted
that their obligation to transfer title had been rendered ineffective.
A vendee in an oral contract to convey land who had made part
payment thereof, entered upon the land and had made valuable
improvements thereon, is entitled to bring suit to clear his title against
the vendor who had refused to transfer the title to him. It is not
necessary that the vendee has an absolute title, an equitable title
being sufficient to clothe him with personality to bring an action to
quiet title. 21
Prescription thus cannot be invoked against the private respondents
for it is aphoristic that an action to quiet title to property in one's
possession is
imprescriptible. 22 The rationale for this rule has been aptly stated thus:
The owner of real property who is in possession thereof may wait
until his possession is invaded or his title is attacked before taking
steps to vindicate his right. A person claiming title to real property, but
not in possession thereof, must act affirmatively and within the time
provided by the statute. Possession is a continuing right as is the
right to defend such possession. So it has been determined that an
owner of real property in possession has a continuing right to invoke
a court of equity to remove a cloud that is a continuing menace to his
title. Such a menace is compared to a continuing nuisance or
trespass which is treated as successive nuisances or trespasses, not
barred by statute until continued without interruption for a length of
time sufficient to affect a change of title as a matter of law. 23
Private respondents shall, however, be liable to pay the legal rate of
interest on the unpaid balance of the purchase price from the date
default or on 6 January 1976, when the entire balance should have
been paid, pursuant to the provision in the deed of sale.
WHEREFORE, except as above modified, the Decision appealed
from is hereby AFFIRMED. As modified, the interest on the unpaid
balance of P10,161.00, at the legal rate, shall be computed from 6
January 1976. Upon the payment by the private respondents to the
petitioners of the said amount and the interest thereon, the latter are
ordered to deliver Transfer Certificate of Title No. 7435 to the Register
of Deeds of Caloocan City who shall cancel the same and issue two
new transfer certificates of title in lieu thereof, one of which shall be in
the name of the herein private respondents covering Lot No. 3223-A
and the other in the name of the petitioners covering the remainder of
the lot.
SO ORDERED.
Cruz, Grio-Aquino, Bellosillo and Quiason, JJ., concur.

[G.R. No. 109966. May 31, 1999]

ELISCO TOOL MANUFACTURING CORPORATION, petitioner, vs. COURT OF APPEALS,


ROLANDO LANTAN, and RINA LANTAN, respondents
DECISION
MENDOZA, J.:

This is a petition for review of the decision[1] of the Court of Appeals which affirmed
in toto the decision of the Regional Trial Court of Pasig, Branch 51, declaring
respondent spouses Rolando Lantan and Rina Lantan owners of a 1979 model 2-
door Colt Lancer car which they had acquired under a car plan for top employees of
the Elizalde group of companies.
The facts are as follows:

Private respondent Rolando Lantan was employed at the Elisco Tool Manufacturing
Corporation as head of its cash department. On January 9, 1980, he entered into an
agreement with the company which provided as follows:[2]

That, EMPLOYER is the owner of a car Colt Lancer 2 door, Model 1979, with Serial
No. 3403 under LTC Registration Certificate No. 0526558;

That, for and in consideration of a monthly rental of ONE THOUSAND TEN & 65/100
ONLY (P1,010.65) Philippine Currency, EMPLOYER desire to lease and EMPLOYEE
accept in lease the motor vehicle aforementioned for a period of FIVE (5) years;

That, the EMPLOYEE agree as he hereby agreed to pay the lease rental thru salary
deduction from his monthly remuneration in the amount as above specified for a
period of FIVE (5) years;

That, for the duration of the lease contract, all expenses and costs of registration,
insurance, repair and maintenance, gasoline, oil, part replacement inclusive of all
expenses necessary to maintain the vehicle in top condition shall be for the account
of the EMPLOYEE;

That, at the end of FIVE (5) year period or upon payment of the 60th monthly rental,
EMPLOYEE may exercise the option to purchase the motor vehicle from the
EMPLOYER and all monthly rentals shall be applied to the payment of the full
purchase price of the car and further, should EMPLOYEE desire to exercise this
option before the 5-year period lapse, he may do so upon payment of the remaining
balance on the five year rental unto the EMPLOYER, it being understood however
that the option is limited to the EMPLOYEE;

That, upon failure of the EMPLOYEE to pay THREE (3) accumulated monthly rentals
will vest upon the EMPLOYER the full right to lease the vehicle to another
EMPLOYEE;

That, in the event of resignation and or dismissal from the service, the EMPLOYEE
shall return the subject motor vehicle to the EMPLOYER in its compound at
Kalawaan Sur, Pasig, Metro Manila in good working and body condition.

On the same day, January 9, 1980, private respondent executed a promissory note
reading as follows:[3]

PROMISSORY NOTE

P60,639.00
FOR VALUE RECEIVED, we promise to pay [to] the order of ELISCO TOOL MFG. CORP.
SPECIAL PROJECT, at its office at Napindan, Taguig, Metro Manila, Philippines, the
sum of ONE THOUSAND TEN & 65/100 PESOS (P1,010.65), Philippine Currency,
beginning January 9, 1980, without the necessity of notice or demand in accordance
with the schedule of payment hereto attached as an integral part hereof.

In case of default in the payment of any installment on the stipulated due date, we
agree to pay as liquidated damages 2% of the amount due and unpaid for every
thirty (30) days of default or fraction thereof. Where the default covers two
successive installments, the entire unpaid balance shall automatically become due
and payable.

It is further agreed that if upon such default attorneys services are availed of, an
additional sum equal to TWENTY (20%) percent of the total amount due thereon,
but in no case be less than P1,000.00 shall be paid to holder(s) hereof as attorneys
fees in addition to the legal costs provided for by law. We agree to submit to the
jurisdiction of the proper courts of Makati, Metro Manila or the Province of Rizal, at
the option of the holder(s) waiving for this purpose any other venue.

In case extraordinary inflation or deflation of the currency stipulated should occur


before this obligation is paid in full, the value of the currency at the time of the
establishment of the obligation will be the basis of payment.

Holder(s) may accept partial payment reserving his right of recourse against each
and all endorsers who hereby waive DEMAND PRESENTMENT and NOTICE.

Acceptance by the holder(s) of payment or any part thereof after due date shall not
be considered as extending the time for the payment of the aforesaid obligation or as
a modification of any of the condition hereof.

After taking possession of the car, private respondent installed accessories therein
worth P15,000.00.

In 1981, Elisco Tool ceased operations, as a result of which private respondent


Rolando Lantan was laid off. Nonetheless, as of December 4, 1984, private
respondent was able to make payments for the car in the total amount of
P61,070.94.

On June 6, 1986, petitioner filed a complaint, entitled replevin plus sum of money,
against private respondent Rolando Lantan, his wife Rina, and two other persons,
identified only as John and Susan Doe, before the Regional Trial Court of Pasig, Metro
Manila. Petitioner alleged that private respondents failed to pay the monthly rentals
which, as of May 1986, totalled P39,054.86; that despite demands, private
respondents failed to settle their obligation thereby entitling petitioner to the
possession of the car; that petitioner was ready to post a bond in an amount double
the value of the car, which was P60,000; and that in case private respondents could
not return the car, they should be held liable for the amount of P60,000 plus the
accrued monthly rentals thereof, with interest at the rate of 14% per annum, until
fully paid. Petitioners complaint contained the following prayer:

WHEREFORE, plaintiffs prays that judgment be rendered as follows:

ON THE FIRST CAUSE OF ACTION

Ordering defendant Rolando Lantan to pay the plaintiff the sum of P39,054.86 plus
legal interest from the date of demand until the whole obligation is fully paid;

ON THE SECOND CAUSE OF ACTION

To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle more
particularly described in paragraph 3 of the Complaint, from defendant Rolando
Lantan and/or defendants Rina Lantan, John Doe, Susan Doe and other person or
persons in whose possession the said motor vehicle may be found, complete with
accessories and equipment, and direct deliver thereof to plaintiff in accordance with
law, and after due hearing to confirm said seizure and plaintiffs possession over the
same;

ON THE ALTERNATIVE CAUSE OF ACTION

In the event that manual delivery of the subject motor vehicle cannot be effected for
any reason, to render judgment in favor of plaintiff and against defendant Rolando
Lantan ordering the latter to pay the sum of SIXTY THOUSAND PESOS (P60,000.00)
which is the estimated actual value of the above-described motor vehicle, plus the
accrued monthly rentals thereof with interests at the rate of fourteen percent (14%)
per annum until fully paid;

PRAYER COMMON TO ALL CAUSES OF ACTION

1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount equivalent
to twenty-five percent (25%) of his outstanding obligation, for and as attorneys fees;

2. Ordering defendants to pay the cost or expenses of collection, repossession,


bonding fees and other incidental expenses to be proved during the trial; and

3. Ordering defendants to pay the costs of suit.

Plaintiff also prays for such further reliefs as this Honorable Court may deem just
and equitable under the premises.
Upon petitioners posting a bond in the amount of P120,000, the sheriff took
possession of the car in question and after five (5) days turned it over to petitioner.
[4]

In due time, private respondents filed their answer. They claimed that the agreement
on which the complaint was based had not been signed by petitioners
representative, Jose Ma. S. del Gallego, although it had been signed by private
respondent Rolando Lantan; that their true agreement was to buy and sell and not
lease with option to buy the car in question at a monthly amortization of P1,000; and
that petitioner accepted the installment payments made by them and, in January
1986, agreed that the balance of the purchase price would be paid on or before
December 31, 1986. Private respondents cited the provision of the agreement
making respondent Rolando Lantan liable for the expenses for registration,
insurance, repair and maintenance, gasoline, oil and part replacements, inclusive of
all necessary expenses, as evidence that the transaction was one of sale. Private
respondents further alleged that, in any event, petitioner had waived its rights under
the agreement because of the following circumstances: (a) while the parties agreed
that payment was to be made through salary deduction, petitioner accepted
payments in cash or checks; (b) although they agreed that upon the employees
resignation, the car should be returned to the employer, private respondent Rolando
Lantan was not required to do so when he resigned in September 1982; (c)
petitioner did not lease the vehicle to another employee after private respondent
Rolando Lantan had allegedly failed to pay three monthly rentals; and (d) petitioner
failed to enforce the manner of payment under the agreement by its acceptance of
payments in various amounts and on different dates.

In its reply, petitioner maintained that the contract between the parties was one of
lease with option to purchase and that the promissory note was merely a nominal
security for the agreement. It contended that the mere acceptance of the amounts
paid by private respondents and for indefinite periods of time was not evidence that
the parties agreement was one of purchase and sale. Neither was it guilty of laches
because, under the law, an action based on a written contract can be brought within
ten (10) years from the time the action accrues. On August 31, 1987, the trial
court[5] rendered its decision.

The trial court sustained private respondents claim that the agreement in question
was one of sale and held that the latter had fully paid the price of the car having paid
the total amount of P61,070.94 aside from installing accessories in the car worth
P15,000.00. Said the trial court:

Plaintiff now comes claiming ownership of the car in question and has succeeded in
repossessing the same by virtue of the writ of seizure issued in this case on July 29,
1986. Not content with recovering possession of the said car, plaintiff still asks that
defendants should pay it the sum of P39,054.86, allegedly representing the rentals
due on the car from the time of the last payment made by defendants to its
repossession thereof. This is indeed a classic case of one having his cake and eating
it too! Under the Recto law (Arts. 1484 & 1485, Civil Code), the vendor who
repossesses the goods sold on installments, has no right to sue the vendee for the
unpaid balance thereof.

The Court can take judicial notice of the practice wherein executives enjoy car plans
in progressive companies. The agreement of January 9, 1980 between the parties is
one such car plan. If defendant Rolando Lantan failed to keep up with his
amortizations on the car in question, it was not because of his own liking but rather
he was pushed to it by circumstances when his employer folded up and sent him to
the streets. That plaintiff was giving all the chance to defendants to pay the value of
the car and acquire full ownership thereof is shown by the delay in instituting the
instant case. . . .

The court likewise found that the amount of P61,070.94 included a 2% penalty for
late payments for which there was no stipulation in the agreement:

. . . The agreement and defendant Rolando Lantans promissory note of January 9,


1980 do not provide even for interest on the remaining balance of the purchase
price of the car. This privilege extended by corporations to their top executives is
considered additional emolument to them. And so the reason for the lack of
provision for interest, much less penalty charges. Therefore, all payments made by
defendant should be applied to the principal account. Since the principal was only
P60,639.00, the defendants have made an overpayment of P431.94 which should be
returned to defendant by plaintiff.

For this reason, it ordered petitioner to pay private respondents the amount of
P431.94 as excess payment, as well as rentals at the rate of P1,000 a month for
depriving private respondents of the use of their car, and moral damages for the
worry, embarrassment, and mental torture suffered by them on account of the
repossession of the car.

The dispositive portion of the trial courts decision reads as follows:

WHEREFORE, judgment is hereby rendered in favor of defendants and against


plaintiff, dismissing plaintiffs complaint; declaring defendants the lawful owners of
that Colt Lancer 2-door, Model 1979 with Serial No. 3403 under Registration
Certificate No. 0526558; ordering plaintiff to deliver to defendants the aforesaid
motor vehicle complete with all the accessories installed therein by defendants;
should for any reason plaintiff is unable to deliver the said car to defendants,
plaintiff is ordered to pay to defendants the value of said car in the sum of
P60,639.00 plus P15,000.00, the value of the accessories, plus interest of 12% on the
said sums from August 6, 1986; and sentencing plaintiff to pay defendants the
following sums:
a) P12,431.94 as actual damages broken down as follows:

1) P431.94 overpayment made by defendants to plaintiff; and

2) P12,000.00 rental on the car in question from August 6, 1986 to August 5, 1987,
plus the sum of P1,000.00 a month beginning August 6, 1987 until the car is
returned by plaintiff to, and is received by, defendant;

b) the sum of P20,000.00 as moral damages;

c) the sum of P5,000.00 as exemplary damages; and

d) the sum of P5,000.00 as attorneys fees.

Costs against the plaintiff.

SO ORDERED.

Petitioner appealed to the Court of Appeals. On the other hand, private respondents
filed a motion for execution pending appeal. In its resolution of March 9, 1989, the
Court of Appeals granted private respondents motion and, upon the filing of a bond,
in the amount of P70,000.00, it issued a writ of execution, pursuant to which the car
was delivered to private respondents on April 16, 1989.[6]

On August 26, 1992, the Court of Appeals rendered its decision, affirming in toto the
decision of the trial court. Hence, the instant petition for review on certiorari.

Petitioner contends that the Court of Appeals erred -

(a) in disregarding the admission in the pleadings as to what documents contain the
terms of the parties agreement.

(b) in holding that the interest stipulation in respondents Promissory Note was not
valid and binding.

(c) in holding that respondents had fully paid their obligations.

It further argues that -

On the assumption that the Lease Agreement with option to buy in this case may be
treated as a sale on installments, the respondent Court of Appeals nonetheless erred
in not finding that the parties have validly agreed that the petitioner as seller may [i]
cancel the contract upon the respondents default on three or more installments, [ii]
retake possession of the personalty, and [iii] keep the rents already paid.
First. Petitioner does not deny that private respondent Rolando Lantan acquired the
vehicle in question under a car plan for executives of the Elizalde group of
companies. Under a typical car plan, the company advances the purchase price of a
car to be paid back by the employee through monthly deductions from his salary.
The company retains ownership of the motor vehicle until it shall have been fully
paid for.[7] However, retention of registration of the car in the companys name is
only a form of a lien on the vehicle in the event that the employee would abscond
before he has fully paid for it. There are also stipulations in car plan agreements to
the effect that should the employment of the employee concerned be terminated
before all installments are fully paid, the vehicle will be taken by the employer and
all installments paid shall be considered rentals per agreement.[8]

This Court has long been aware of the practice of vendors of personal property of
denominating a contract of sale on installment as one of lease to prevent the
ownership of the object of the sale from passing to the vendee until and unless the
price is fully paid. As this Court noted in Vda. de Jose v. Barrueco:[9]

Sellers desirous of making conditional sales of their goods, but who do not wish
openly to make a bargain in that form, for one reason or another, have frequently
resorted to the device of making contracts in the form of leases either with options
to the buyer to purchase for a small consideration at the end of term, provided the
so-called rent has been duly paid, or with stipulations that if the rent throughout the
term is paid, title shall thereupon vest in the lessee. It is obvious that such
transactions are leases only in name. The so-called rent must necessarily be
regarded as payment of the price in installments since the due payment of the
agreed amount results, by the terms of the bargain, in the transfer of title to the
lessee.

In an earlier case, Manila Gas Corporation v. Calupitan,[10] which involved a lease


agreement of a stove and a water heater, the Court said:

. . . [W]e are of the opinion, and so hold, that when in a so-called contract of lease of
personal property it is stipulated that the alleged lessee shall pay a certain amount
upon signing the contract, and on or before the 5th of every month, another specific
amount, by way of rental, giving the alleged lessee the right of option to buy the said
personal property before the expiration of the period of lease, which is the period
necessary for the payment of the said amount at the rate of so much a month,
deducting the payments made by way of advance and alleged monthly rentals, and
the said alleged lessee makes the advance payment and other monthly installments,
noting in his account and in the receipts issued to him that said payments are on
account of the price of the personal property allegedly leased, said contract is one of
sale on installment and not of lease.[11]

In U.S. Commercial v. Halili,[12] a lease agreement was declared to be in fact a sale of


personal property by installment. Said the Court:[13]
. . . There can hardly be any question that the so-called contracts of lease on which
the present action is based were veritable leases of personal property with option to
purchase, and as such come within the purview of the above article [Art. 1454-A of
the old Civil Code on sale of personal property by installment]. In fact the
instruments (exhibits `A and `B) embodying the contracts bear the heading or title
`Lease-Sale (Lease-Sale of Transportation and/or Mechanical Equipment). The
contracts fix the value of the vehicles conveyed to the lessee and expressly refer to
the remainder of said value after deduction of the down payment made by the lessee
as `the unpaid balance of the purchase price of the leased equipment. The contracts
also provide that upon the full value (plus stipulated interest) being paid, the lease
would terminate and title to the leased property would be transferred to the lessee.
Indeed, as the defendant-appellant points out, the inclusion of a clause waiving
benefit of article 1454-A of the old Civil Code is conclusive proof of the parties
understanding that they were entering into a lease contract with option to purchase
which come within the purview of said article.

Being leases of personal property with option to purchase as contemplated in the


above article, the contracts in question are subject to the provision that when the
lessor in such case has chosen to deprive the lessee of the enjoyment of such
personal property, he shall have no further action against the lessee for the recovery
of any unpaid balance owing by the latter, agreement to the contrary being null and
void.

It was held that in choosing to deprive the defendant of possession of the leased
vehicles, the plaintiff waived its right to bring an action to recover unpaid rentals on
the said vehicles.

In the case at bar, although the agreement provides for the payment by private
respondents of monthly rentals, the fifth paragraph thereof gives them the option to
purchase the motor vehicle at the end of the 5th year or upon payment of the 60th
monthly rental when all monthly rentals shall be applied to the payment of the full
purchase price of the car. It is clear that the transaction in this case is a lease in name
only. The so-called monthly rentals are in truth monthly amortizations on the price
of the car.

Second. The contract being one of sale on installment, the Court of Appeals correctly
applied to it the following provisions of the Civil Code:

ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendees failure to pay cover two or more
installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendees failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.

ART. 1485. The preceding article shall be applied to contracts purporting to be


leases of personal property with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.

The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise
of one bars the exercise of the others.[14] This limitation applies to contracts
purporting to be leases of personal property with option to buy by virtue of Art.
1485.[15] The condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in this case
by the filing by petitioner of the complaint for replevin to recover possession of
movable property. By virtue of the writ of seizure issued by the trial court, the
deputy sheriff seized the vehicle on August 6, 1986 and thereby deprived private
respondents of its use.[16] The car was not returned to private respondent until
April 16, 1989, after two (2) years and eight (8) months, upon issuance by the Court
of Appeals of a writ of execution.[17]

Petitioner prayed that private respondents be made to pay the sum of P39,054.86,
the amount that they were supposed to pay as of May 1986, plus interest at the legal
rate.[18] At the same time, it prayed for the issuance of a writ of replevin or the
delivery to it of the motor vehicle complete with accessories and equipment.[19] In
the event the car could not be delivered to petitioner, it was prayed that private
respondent Rolando Lantan be made to pay petitioner the amount of P60,000.00,
the estimated actual value of the car, plus accrued monthly rentals thereof with
interests at the rate of fourteen percent (14%) per annum until fully paid.[20] This
prayer of course cannot be granted, even assuming that private respondents have
defaulted in the payment of their obligation. This led the trial court to say that
petitioner wanted to eat its cake and have it too.

Notwithstanding this impossibility in petitioners choice of remedy, this case should


be considered as one for specific performance, pursuant to Art. 1484(1), consistent
with its prayer with respect to the unpaid installments as of May 1986. In this view,
the prayer for the issuance of a writ of replevin is only for the purpose of insuring
specific performance by private respondents.

Both the trial court and the Court of Appeals correctly ruled that private
respondents could no longer be held liable for the amounts of P39,054.86 or
P60,000.00 because private respondents had fulfilled their part of the obligation.
The agreement does not provide for the payment of interest on unpaid monthly
rentals or installments because it was entered into in pursuance of a car plan
adopted by the company for the benefit of its deserving employees. As the trial court
correctly noted, the car plan was intended to give additional benefits to executives of
the Elizalde group of companies.

Petitioner contends that the promissory note provides for such interest payment.
However, as the Court of Appeals held:

The promissory note in which the 2% monthly interest on delayed payments


appears does not form part of the contract. There is no consideration for the
promissory note. There is nothing to show that plaintiff advanced the purchase price
of the vehicle for Lantan so as to make the latter indebted to the former for the
amount stated in the promissory note. Thus, as stated in the complaint: That
sometime in January, 1980, defendant Rolando Lantan entered into an agreement
with the plaintiff for the lease of a motor vehicle supplied by the latter, with the
option to purchase at the end of the period of lease . . . . In other words, plaintiff did
not buy the vehicle for Rolando Lantan, advancing the purchase price for that
purpose. There is nothing in the complaint or in the evidence to show such
arrangement. Therefore, there was no indebtedness secured by a promissory note to
speak of. There being no consideration for the promissory note, the same, including
the penalty clause contained thereon, has no binding effect.[21]

There is no evidence that private respondents received the amount of P60,639.00


indicated in the promissory note as its value. What was proven below is the fact that
private respondents received from petitioner the 2-door Colt Lancer car which was
valued at P60,000 and for which private respondent Rolando Lantan paid monthly
amortizations of P1,010.65 through salary deductions.

Indeed, as already stated, private respondents default in paying installments was


due to the cessation of operations of Elizalde Steel Corporation, petitioners sister
company. Petitioners acceptance of payments made by private respondents through
cash and checks could have been impelled solely by petitioners inability to deduct
the amortizations from private respondent Rolando Lantans salary which he
stopped receiving when his employment was terminated in September 1982.
Apparently, to minimize the adverse consequences of the termination of private
respondents employment, petitioner accepted even late payments. That petitioner
accepted payments from private respondent Rolando Lantan more than two (2)
years after the latters employment had been terminated constitutes a waiver of
petitioners right to collect interest upon the delayed payments. The 2% surcharge is
not provided for in the agreement. Its collection by the company would in fact run
counter to the purpose of providing added emoluments to its deserving employees.
Consequently, the total amount of P61,070.94 already paid to petitioner should be
considered payment of the full purchase price of the car or the total installments
paid.
Third. Private respondents presented evidence that they felt bad, were worried,
embarrassed and mentally tortured by the repossession of the car.[22] This has not
been rebutted by petitioner. There is thus a factual basis for the award of moral
damages. In addition, petitioner acted in a wanton, fraudulent, reckless and
oppressive manner in filing the instant case, hence, the award of exemplary damages
is justified.[23] The award of attorneys fees is likewise proper considering that
private respondents were compelled to incur expenses to protect their rights.[24]

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with costs against
petitioner.

SO ORDERED.

Bellosillo (Chairman), Puno, Quisumbing and Buena, JJ., concur.

G.R. No. L-24732 April 30, 1968


PIO SIAN MELLIZA, petitioner,
vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE
COURT APPEALS, respondents.
Cornelio P. Ravena for petitioner.Office of the Solicitor General for
respondents.
BENGZON, J.P., J.:
Juliana Melliza during her lifetime owned, among other properties,
three parcels of residential land in Iloilo City registered in her name
under Original Certificate of Title No. 3462. Said parcels of land were
known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214
was 29,073 square meters.
On November 27, 1931 she donated to the then Municipality of Iloilo,
9,000 square meters of Lot 1214, to serve as site for the municipal
hall. 1 The donation was however revoked by the parties for the
reason that the area donated was found inadequate to meet the
requirements of the development plan of the municipality, the so-
called "Arellano Plan". 2
Subsequently, Lot No. 1214 was divided by Certeza Surveying Co.,
Inc. into Lots 1214-A and 1214-B. And still later, Lot 1214-B was
further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As
approved by the Bureau of Lands, Lot 1214-B-1 with 4,562 square
meters, became known as Lot 1214-B; Lot 1214-B-2, with 6,653
square meters, was designated as Lot 1214-C; and Lot 1214-B-13,
with 4,135 square meters, became Lot 1214-D.
On November 15, 1932 Juliana Melliza executed an instrument
without any caption containing the following:
Que en consideracion a la suma total de SEIS MIL CUATRO
CIENTOS VEINTIDOS PESOS (P6,422.00), moneda filipina que por
la presente declaro haber recibido a mi entera satisfaccion del
Gobierno Municipal de Iloilo, cedo y traspaso en venta real y difinitiva
a dicho Gobierno Municipal de Iloilo los lotes y porciones de los
mismos que a continuacion se especifican a saber: el lote No. 5 en
toda su extension; una porcion de 7669 metros cuadrados del lote
No. 2, cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C
del piano de subdivision de dichos lotes preparado por la Certeza
Surveying Co., Inc., y una porcion de 10,788 metros cuadrados del
lote No. 1214 cuya porcion esta designada como sub-lotes Nos.
1214-B-2 y 1214-B-3 del mismo plano de subdivision.
Asimismo nago constar que la cesion y traspaso que ariba se
mencionan es de venta difinitiva, y que para la mejor identificacion de
los lotes y porciones de los mismos que son objeto de la presente,
hago constar que dichos lotes y porciones son los que necesita el
Gobierno Municipal de Iloilo para la construccion de avenidas,
parques y City Hall site del Municipal Government Center de iloilo,
segun el plano Arellano.
On January 14, 1938 Juliana Melliza sold her remaining interest in
Lot 1214 to Remedios Sian Villanueva who thereafter obtained her
own registered title thereto, under Transfer Certificate of Title No.
18178. Remedios in turn on November 4, 1946 transferred her rights
to said portion of land to Pio Sian Melliza, who obtained Transfer
Certificate of Title No. 2492 thereover in his name. Annotated at the
back of Pio Sian Melliza's title certificate was the following:
... (a) that a portion of 10,788 square meters of Lot 1214 now
designated as Lots Nos. 1214-B-2 and 1214-B-3 of the subdivision
plan belongs to the Municipality of Iloilo as per instrument dated
November 15, 1932....
On August 24, 1949 the City of Iloilo, which succeeded to the
Municipality of Iloilo, donated the city hall site together with the
building thereon, to the University of the Philippines (Iloilo branch).
The site donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D,
with a total area of 15,350 square meters, more or less.
Sometime in 1952, the University of the Philippines enclosed the site
donated with a wire fence. Pio Sian Melliza thereupon made
representations, thru his lawyer, with the city authorities for payment
of the value of the lot (Lot 1214-B). No recovery was obtained,
because as alleged by plaintiff, the City did not have funds (p. 9,
Appellant's Brief.)
The University of the Philippines, meanwhile, obtained Transfer
Certificate of Title No. 7152 covering the three lots, Nos. 1214-B,
1214-C and 1214-D.
On December 10, 1955 Pio Sian Melliza filed an action in the Court of
First Instance of Iloilo against Iloilo City and the University of the
Philippines for recovery of Lot 1214-B or of its value.
The defendants answered, contending that Lot 1214-B was included
in the public instrument executed by Juliana Melliza in favor of Iloilo
municipality in 1932. After stipulation of facts and trial, the Court of
First Instance rendered its decision on August 15, 1957, dismissing
the complaint. Said court ruled that the instrument executed by
Juliana Melliza in favor of Iloilo municipality included in the
conveyance Lot 1214-B. In support of this conclusion, it referred to
the portion of the instrument stating:
Asimismo hago constar que la cesion y traspaso que arriba se
mencionan es de venta difinitiva, y que para la major identificacion de
los lotes y porciones de los mismos que son objeto de la presente,
hago constar que dichos lotes y porciones son los que necesita el
Gobierno municipal de Iloilo para la construccion de avenidas,
parques y City Hall site del Municipal Government Center de Iloilo,
segun el plano Arellano.
and ruled that this meant that Juliana Melliza not only sold Lots 1214-
C and 1214-D but also such other portions of lots as were necessary
for the municipal hall site, such as Lot 1214-B. And thus it held that
Iloilo City had the right to donate Lot 1214-B to the U.P.
Pio Sian Melliza appealed to the Court of Appeals. In its decision on
May 19, 1965, the Court of Appeals affirmed the interpretation of the
Court of First Instance, that the portion of Lot 1214 sold by Juliana
Melliza was not limited to the 10,788 square meters specifically
mentioned but included whatever was needed for the construction of
avenues, parks and the city hall site. Nonetheless, it ordered the
remand of the case for reception of evidence to determine the area
actually taken by Iloilo City for the construction of avenues, parks and
for city hall site.
The present appeal therefrom was then taken to Us by Pio Sian
Melliza. Appellant maintains that the public instrument is clear that
only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square
meters were the portions of Lot 1214 included in the sale; that the
purpose of the second paragraph, relied upon for a contrary
interpretation, was only to better identify the lots sold and none other;
and that to follow the interpretation accorded the deed of sale by the
Court of Appeals and the Court of First Instance would render the
contract invalid because the law requires as an essential element of
sale, a "determinate" object (Art. 1445, now 1448, Civil Code).
Appellees, on the other hand, contend that the present appeal
improperly raises only questions of fact. And, further, they argue that
the parties to the document in question really intended to include Lot
1214-B therein, as shown by the silence of the vendor after Iloilo City
exercised ownership thereover; that not to include it would have been
absurd, because said lot is contiguous to the others admittedly
included in the conveyance, lying directly in front of the city hall,
separating that building from Lots 1214-C and 1214-D, which were
included therein. And, finally, appellees argue that the sale's object
was determinate, because it could be ascertained, at the time of the
execution of the contract, what lots were needed by Iloilo municipality
for avenues, parks and city hall site "according to the Arellano Plan",
since the Arellano plan was then already in existence.
The appeal before Us calls for the interpretation of the public
instrument dated November 15, 1932. And interpretation of such
contract involves a question of law, since the contract is in the nature
of law as between the parties and their successors-in-interest.
At the outset, it is well to mark that the issue is whether or not the
conveyance by Juliana Melliza to Iloilo municipality included that
portion of Lot 1214 known as Lot 1214-B. If not, then the same was
included, in the instrument subsequently executed by Juliana Melliza
of her remaining interest in Lot 1214 to Remedios Sian Villanueva,
who in turn sold what she thereunder had acquired, to Pio Sian
Melliza. It should be stressed, also, that the sale to Remedios Sian
Villanueva from which Pio Sian Melliza derived title did not
specifically designate Lot 1214-B, but only such portions of Lot 1214
as were not included in the previous sale to Iloilo municipality
(Stipulation of Facts, par. 5, Record on Appeal, p. 23). And thus, if
said Lot 1214-B had been included in the prior conveyance to Iloilo
municipality, then it was excluded from the sale to Remedios Sian
Villanueva and, later, to Pio Sian Melliza.
The point at issue here is then the true intention of the parties as to
the object of the public instrument Exhibit "D". Said issue revolves on
the paragraph of the public instrument aforequoted and its purpose,
i.e., whether it was intended merely to further describe the lots
already specifically mentioned, or whether it was intended to cover
other lots not yet specifically mentioned.
First of all, there is no question that the paramount intention of the
parties was to provide Iloilo municipality with lots sufficient or
adequate in area for the construction of the Iloilo City hall site, with its
avenues and parks. For this matter, a previous donation for this
purpose between the same parties was revoked by them, because of
inadequacy of the area of the lot donated.
Secondly, reading the public instrument in toto, with special reference
to the paragraphs describing the lots included in the sale, shows that
said instrument describes four parcels of land by their lot numbers
and area; and then it goes on to further describe, not only those lots
already mentioned, but the lots object of the sale, by stating that said
lots are the ones needed for the construction of the city hall site,
avenues and parks according to the Arellano plan. If the parties
intended merely to cover the specified lots Lots 2, 5, 1214-C and
1214-D, there would scarcely have been any need for the next
paragraph, since these lots are already plainly and very clearly
described by their respective lot number and area. Said next
paragraph does not really add to the clear description that was
already given to them in the previous one.
It is therefore the more reasonable interpretation, to view it as
describing those other portions of land contiguous to the lots
aforementioned that, by reference to the Arellano plan, will be found
needed for the purpose at hand, the construction of the city hall site.
Appellant however challenges this view on the ground that the
description of said other lots in the aforequoted second paragraph of
the public instrument would thereby be legally insufficient, because
the object would allegedly not be determinate as required by law.
Such contention fails on several counts. The requirement of the law
that a sale must have for its object a determinate thing, is fulfilled as
long as, at the time the contract is entered into, the object of the sale
is capable of being made determinate without the necessity of a new
or further agreement between the parties (Art. 1273, old Civil Code;
Art. 1460, New Civil Code). The specific mention of some of the lots
plus the statement that the lots object of the sale are the ones
needed for city hall site, avenues and parks, according to the
Arellano plan, sufficiently provides a basis, as of the time of the
execution of the contract, for rendering determinate said lots without
the need of a new and further agreement of the parties.
The Arellano plan was in existence as early as 1928. As stated, the
previous donation of land for city hall site on November 27, 1931 was
revoked on March 6, 1932 for being inadequate in area under said
Arellano plan. Appellant claims that although said plan existed, its
metes and bounds were not fixed until 1935, and thus it could not be
a basis for determining the lots sold on November 15, 1932. Appellant
however fails to consider that the area needed under that plan for city
hall site was then already known; that the specific mention of some of
the lots covered by the sale in effect fixed the corresponding location
of the city hall site under the plan; that, therefore, considering the said
lots specifically mentioned in the public instrument Exhibit "D", and
the projected city hall site, with its area, as then shown in the Arellano
plan (Exhibit 2), it could be determined which, and how much of the
portions of land contiguous to those specifically named, were needed
for the construction of the city hall site.
And, moreover, there is no question either that Lot 1214-B is
contiguous to Lots 1214-C and 1214-D, admittedly covered by the
public instrument. It is stipulated that, after execution of the contract
Exhibit "D", the Municipality of Iloilo possessed it together with the
other lots sold. It sits practically in the heart of the city hall site.
Furthermore, Pio Sian Melliza, from the stipulation of facts, was the
notary public of the public instrument. As such, he was aware of its
terms. Said instrument was also registered with the Register of
Deeds and such registration was annotated at the back of the
corresponding title certificate of Juliana Melliza. From these stipulated
facts, it can be inferred that Pio Sian Melliza knew of the aforesaid
terms of the instrument or is chargeable with knowledge of them; that
knowing so, he should have examined the Arellano plan in relation to
the public instrument Exhibit "D"; that, furthermore, he should have
taken notice of the possession first by the Municipality of Iloilo, then
by the City of Iloilo and later by the University of the Philippines of Lot
1214-B as part of the city hall site conveyed under that public
instrument, and raised proper objections thereto if it was his position
that the same was not included in the same. The fact remains that,
instead, for twenty long years, Pio Sian Melliza and his predecessors-
in-interest, did not object to said possession, nor exercise any act of
possession over Lot 1214-B. Applying, therefore, principles of civil
law, as well as laches, estoppel, and equity, said lot must necessarily
be deemed included in the conveyance in favor of Iloilo municipality,
now Iloilo City.
WHEREFORE, the decision appealed from is affirmed insofar as it
affirms that of the Court of First Instance, and the complaint in this
case is dismissed. No costs. So ordered.
Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez,
Castro, Angeles and Fernando, JJ., concur.Concepcion , C.J., is on
leave.