SECOND DIVISION

AYALA LIFE ASSURANCE, INC.,

Petitioner,

- versus -

RAY BURTON DEVELOPMENT CORPORATION,

Respondent.

G.R. No. 163075

Present:

PUNO, J., Chairman,

SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

Promulgated:
January 23, 2006
x-----------------------------------------------------------------------------------------x

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us for resolution is the petition for review on certiorari[1] assailing the Decision[2] dated January
21, 2004 of the Court of Appeals in CA-G.R. CV No. 74635,[3] as well as its Resolution dated April 2,
2004 denying petitioners motion for reconsideration.
The facts are:
On December 22, 1995, Ayala Life Assurance, Inc., petitioner, and Ray Burton Development
Corporation, respondent, entered into a contract denominated as a Contract to Sell, with a Side Agreement
of even date. In these contracts, petitioner agreed to sell to respondent a parcel of land, with an area of
1,691 square meters, situated at Madrigal Business Park, AyalaAlabang Village, Muntinlupa City,
covered by Transfer Certificate of Title No. 186485 of the Registry of Deeds of Makati City. The
purchase price of the land is P55,000.00 per square meter or a total of P93,005,000.00, payable as
follows:
(a) On contract date P24,181,300.00 representing 26 percent of the purchase price,
inclusive of the P1,000,000.00 option money;
(b) Not later than January 6, 1996 P3,720,200.00 representing 4 percent of the
purchase price to complete 30 percent down payment; and
(c) In consecutive quarterly installments for a period of 5 years from December 22,
1995 P65,103,500.00 representing the 70 percent balance of the purchase price.

The contract contains a stipulation in paragraphs 3 and 3.1 for an Event of Default. It provides that in
case the purchaser (respondent) fails to pay any installment for any reason not attributable to the seller
(petitioner), the latter has the right to assess the purchaser a late penalty interest on the unpaid installment
at two (2%) percent per month, computed from the date the amount became due until full payment
thereof. And if such default continues for a period of six (6) months, the seller has the right to cancel the
contract without need of court declaration by giving the purchaser a written notice of cancellation. In
case of such cancellation, the seller shall return to the purchaser the amount he received, less penalties,
unpaid charges and dues on the property.
Respondent paid thirty (30%) down payment and the quarterly amortization, including the one that fell
due on June 22, 1998.
However, on August 12, 1998, respondent notified petitioner in writing that it will no longer continue to
pay due to the adverse effects of the economic crisis to its business. Respondent then asked for the
immediate cancellation of the contract and for a refund of its previous payments as provided in the
contract.
Petitioner refused to cancel the contract to sell. Instead, on November 25, 1999, it filed with the
Regional Trial Court, Branch 66, Makati City, a complaint for specific performance against respondent,
docketed as Civil Case No. 99-2014, demanding from the latter the payment of the remaining unpaid
quarterly installments beginning September 21, 1999 in the total sum of P33,242,382.43, inclusive of
interest and penalties.
Respondent, in its answer, denied any further obligation to petitioner, asserting that on August 12, 1998, it
(respondent) notified the latter of its inability to pay the remaining installments. Respondent invoked the
provisions of paragraphs 3 and 3.1 of the contract to sell providing for the refund to it of the amounts
paid, less interest and the sum of 25% of all sums paid as liquidated damages.
After pre-trial, petitioner moved for a summary judgment on the ground that respondents answer failed to
tender any genuine issue as to any material fact, except as to the amount of damages. The trial court
granted the motion and ordered the parties to submit their memoranda.
On December 10, 2001, the trial court rendered a Decision holding that respondent transgressed the law in
obvious bad faith. The dispositive portion reads:
WHEREFORE, defendant (now respondent) is hereby sentenced and ordered to pay
plaintiff (now petitioner) the sum of P33,242,383.43, representing the unpaid balance
of the principal amount owing under the contract, interest agreed upon, and
penalties. Defendant is further ordered to pay plaintiff the sum of P200,000.00 as
attorneys fees and the costs of suit.
Upon full payment of the aforementioned amounts by defendant, plaintiff shall, as it
is hereby ordered, execute the appropriate deed of absolute sale conveying and
transferring full title and ownership of the parcel of land subject of the sale to and in
favor of defendant.

On appeal, the Court of Appeals rendered a Decision dated January 21, 2004 in CA-G.R. CV No.
74635, reversing the trial courts Decision, thus:
WHEREFORE, the decision appealed from is hereby REVERSED and SET
ASIDE. Ayala Life is hereby ordered to refund all sums paid under the Contract to
Sell, with interest of twelve percent (12%) per annum from 12 August 1998 until fully
paid, less the amount equivalent to 25% of the total amount paid as liquidated
damages.
 SO ORDERED.

The Court of Appeals ruled that the parties transaction in question is in the nature of a contract to sell, as
distinguished from a contract of sale. Under their contract, ownership of the land is retained by petitioner
until respondent shall have fully paid the purchase price. Its failure to pay the price in full is not a breach
of contract but merely an event that prevents petitioner from conveying the title to respondent. Under
such a situation, a cause of action for specific performance does not arise. What should govern the
parties relation are the provisions of their contract on the Event of Default stated earlier.
Hence, the instant petition for review on certiorari.
Petitioner contends that the Court of Appeals committed a reversible error in holding that: (a) the remedy
of specific performance is not available in a contract to sell, such as the one at bar; and (b) petitioner is
liable to refund respondent all the sums the latter paid under the contract to sell, with interest at 12% per
annum from August 12, 1998 until fully paid, less the amount equivalent to 25% of the total amount paid
as liquidated damages.
Petitioner argues that by virtue of the contract to sell, it has the right to choose between fulfillment and
rescission of the contract, with damages in either case. Thus, it is immaterial to determine whether the
parties subject agreement is a contract to sell or a contract of sale.
In its comment, respondent disputed petitioners allegations and prayed that the petition be denied for lack
of merit.
The issues are:
1. Whether respondents non-payment of the balance of the purchase price gave rise
to a cause of action on the part of petitioner to demand full payment of the purchase
price; and
2. Whether petitioner should refund respondent the amount the latter paid under the
contract to sell.

At the outset, it is significant to note that petitioner does not dispute that its December 22,
1995 transaction with respondent is a contract to sell. It bears stressing that the exact nature of the
parties contract determines whether petitioner has the remedy of specific performance.
It is thus imperative that we first determine the nature of the parties contract.
The real nature of a contract may be determined from the express terms of the written agreement and from
the contemporaneous and subsequent acts of the contracting parties.[4] In the construction or
interpretation of an instrument, the intention of the parties is primordial and is to be pursued.[5] If the
terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.[6] If the words appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former.[7] The denomination or title given by the parties in
their contract is not conclusive of the nature of its contents.[8]
Here, the questioned agreement clearly indicates that it is a contract to sell, not a contract of
sale. Paragraph 4 of the contract provides:
4. TITLE AND OWNERSHIP OF THE PROPERTY. The title to the property shall
transfer to the PURCHASER upon payment of the balance of the Purchase Price and
all expenses, penalties and other costs which shall be due and payable hereunder or
which may have accrued thereto. Thereupon, the SELLER shall execute a Deed of
Absolute Sale in favor of the PURCHASER conveying all the SELLERS rights, title
and interest in and to the Property to the PURCHASER.[9]

As correctly stated by the Court of Appeals in its assailed Decision, The ruling of the Supreme
Court in Lim v. Court of Appeals (182 SCRA 564 [1990]) is most illuminating. In the said case, a
contract to sell and a contract of sale were clearly and thoroughly distinguished from each other, with the
High Tribunal stressing that in a contract of sale, the title passes to the buyer upon the delivery of the
thing sold. In a contract to sell, the ownership is reserved in the seller and is not to pass until the full
payment of the purchase price is made. In the first case, non-payment of the price is a
negative resolutory condition; in the second case, full payment is a positive suspensive condition. In the
first case, the vendor has lost and cannot recover the ownership of the property until and unless the
contract of sale is itself resolved and set aside. In the second case, the title remains in the vendor if the
vendee does not comply with the condition precedent of making payment at the time specified in the
contract.[10]
Considering that the parties transaction is a contract to sell, can petitioner, as seller, demand specific
performance from respondent, as buyer?
Blacks Law Dictionary defined specific performance as (t)he remedy of requiring exact performance of a
contract in the specific form in which it was made, or according to the precise terms agreed upon. The
actual accomplishment of a contract by a party bound to fulfill it.[11]
Evidently, before the remedy of specific performance may be availed of, there must be a breach of the
contract.
Under a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser makes
full payment of the agreed purchase price. Such payment is a positive suspensive condition, the non-
fulfillment of which is not a breach of contract but merely an event that prevents the seller from
conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell
ineffective and without force and effect. Thus, a cause of action for specific performance does not arise.
In Rayos v. Court of Appeals,[12] we held:
x x x. Under the two contracts, the petitioners bound and obliged themselves to
execute a deed of absolute sale over the property and transfer title thereon to the
respondents after the payment of the full purchase price of the property, inclusive of
the quarterly installments due on the petitioners loan with the PSB:
xxx
 Construing the contracts together, it is evident that the parties executed
a contract to sell and not a contract of sale. The petitioners retained ownership
without further remedies by the respondents until the payment of the purchase price of
the property in full. Such payment is a positive suspensive condition, failure of
which is not really a breach, serious or otherwise, but an event that prevents the
obligation of the petitioners to convey title from arising, in accordance with
Article 1184 of the Civil Code (Leano v. Court of Appeals, 369 SCRA 36
[2001]; Lacanilao v. Court of Appeals, 262 SCRA 486 [1996]).
The non-fulfillment by the respondent of his obligation to pay, which is
a suspensive condition to the obligation of the petitioners to sell and deliver the
title to the property, rendered the contract to sell ineffective and without force
and effect (Agustin v. Court of Appeals, 186 SCRA 375 [1990]). The parties stand
as if the conditional obligation had never existed. Article 1191[13] of the New
Civil Code will not apply because it presupposes an obligation already
extant (Padilla v. Posadas, 328 SCRA 434 [2001]. There can be no rescission of an
obligation that is still non-existing, the suspensive condition not having happened
(Rillo v. Court of Appeals, 274 SCRA 461 [1997]). (Underscoring supplied)

Here, the provisions of the contract to sell categorically indicate that respondents default in the payment
of the purchase price is considered merely as an event, the happening of which gives rise to the respective
obligations of the parties mentioned therein, thus:
3. EVENT OF DEFAULT. The following event shall constitute an Event of Default
under this contract: the PURCHASER fails to pay any installment on the balance, for
any reason not attributable to the SELLER, on the date it is due, provided, however,
that the SELLER shall have the right to charge the PURCHASER a late penalty
interest on the said unpaid interest at the rate of 2% per month computed from the
date the amount became due and payable until full payment thereof.
3.1. If the Event of Default shall have occurred, then at any time thereafter, if any
such event shall then be continuing for a period of six (6) months, the SELLER shall
have the right to cancel this Contract without need of court declaration to that effect
by giving the PURCHASER a written notice of cancellation sent to the address of the
PURCHASER as specified herein by registered mail or personal delivery. Thereafter,
the SELLER shall return to the PURCHASER the aggregate amount that the
SELLER shall have received as of the cancellation of this Contract, less: (i) penalties
accrued as of the date of such cancellation, (ii) an amount equivalent to twenty five
percent (25%) of the total amount paid as liquidated damages, and (iii) any unpaid
charges and dues on the Property. Any amount to be refunded to the PURCHASER
shall be collected by the PURCHASER at the office of the SELLER. Upon notice to
the PURCHASER of such cancellation, the SELLER shall be free to dispose of the
Property covered hereby as if this Contract had not been executed. Notice to the
PURCHASER sent by registered mail or by personal delivery to its address stated in
 this Contract shall be considered as sufficient compliance with all requirements of
notice for purposes of this Contract.[14]

Therefore, in the event of respondents default in payment, petitioner, under the above provisions of the
contract, has the right to retain an amount equivalent to 25% of the total payments. As stated by the Court
of Appeals, petitioner having been informed in writing by respondent of its intention not to proceed with
the contract on August 12, 1998, or prior to incurring delay in payment of succeeding installments, [15] the
provisions in the contract relative to penalties and interest find no application.
The Court of Appeals further held that with respect to the award of interest, petitioner is liable to pay
interest of 12% per annum upon the net refundable amount due from the time respondent made the
extrajudicial demand upon it on August 12, 1998 to refund payment under the Contract to
Sell,[16] pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.[17]
In sum, we find that the Court of Appeals, in rendering the assailed Decision and Resolution, did not
commit any reversible error.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED. Costs against petitioner.
SO ORDERED.

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 quarter, 1950

58.52

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.

Separate Opinions

CONCEPCION, J., concurring:

I concur in the result. I do not share the view that documents and papers illegally obtained are admissible
in evidence, if competent and relevant to the case. In this connection, I believe in the soundness of the
following observations of the Supreme Court of the United States in Weeks v. United States (232 US 383,
58 L. ed. 652, 34 S. Ct. 341):1

The effect of the Fourth Amendment is to put the courts of the United States and Federal officials, in the
exercise of their power and authority, under limitations and restraints as to the exercise of such power and
authority, an to forever secure the people, their persons, houses, papers, and effects against all
unreasonable searches and seizures under the guise of law. This protection reaches all alike, whether
accused of crime or not, and the duty of giving to it force and effect is obligatory upon all entrusted under
our Federal system with the enforcement of the laws. The tendency of those who execute the criminal
laws of the country to obtain conviction by means of unlawful seizures and enforced confessions, the
latter often obtained after subjecting accused persons to unwarranted practices destructive of rights
secured by the Federal Constitution, should find no sanction in the judgments of the courts which are
charged at all times with the support of the Constitution and to which people of all conditions have a right
to appeal for the maintenance of such fundamental rights.

xxx xxx xxx

If letters and private documents can thus be seized and held and used in evidence, against a citizen
accused of an offense, the protection of the Fourth. Amendment declaring his right to be secured against
such searches and seizures is of no value, and, so far as those thus placed are concerned well be stricken
from the Constitution. The efforts of the courts and their officials to bring the guilty to punishment,
praiseworthy as they are, are not to be aided by the sacrifice of those great principles established by years
of endeavor and suffering which have resulted in their embodiment in the fundamental law of the land."
as applied and amplified in Elkins v. United States (June 27, 1960), 4 L. ed. 1669.

G.R. No. L-2886 August 22, 1952

GREGORIO ARANETA, INC., plaintiff-appellant,

vs.
PAZ TUASON DE PATERNO and JOSE VIDAL, defendants-appellants.

Araneta and Araneta for appellant.

Ramirez and Ortigas for defendants-appellants.
Perkins, Ponce Enrile and Contreras And La O and Feria for appellee.

TUASON, J.:

This is a three-cornered contest between the purchasers, the seller, and the mortgagee of certain portions
(approximately 40,703 square meters) of a big block of residential land in the district of Santa Mesa,
Manila. The plaintiff, which is the purchaser, and the mortgagee elevated this appeal. Though not an
appellant, the seller and mortgagor has made assignments of error in her brief, some to strengthen the
judgment and others for the purpose of new trial.

The case is extremely complicated and multiple issues were raised.

The salient facts in so far as they are not controverted are these. Paz Tuason de Paterno is the registered
owner of the aforesaid land, which was subdivided into city lots. Most of these lots were occupied by
lessees who had contracts of lease which were to expire on December 31,1952, and carried a stipulation to
the effect that in the event the owner and lessor should decide to sell the property the lessees were to be
given priority over other buyers if they should desire to buy their leaseholds, all things being equal.
Smaller lots were occupied by tenants without formal contract.
In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans totalling P90,098 and constituted a
first mortgage on the aforesaid property to secure the debt. In January and April, 1943, she obtained
additional loans of P30,000 and P20,000 upon the same security. On each of the last-mentioned occasions
the previous contract of mortgage was renewed and the amounts received were consolidated. In the first
novated contract the time of payment was fixed at two years and in the second and last at four years. New
conditions not relevant here were also incorporated into the new contracts.

There was, besides, a separate written agreement entitled "Penalidad del Documento de Novacion de Esta
Fecha" which, unlike the principal contracts, was not registered. The tenor of this separate agreement, all
copies, of which were alleged to have been destroyed or lost, was in dispute and became the subject of
conflicting evidence. The lower court did not make categorical findings on this point, however, and it will
be our task to do so at the appropriate place in this decision.

In 1943 Paz Tuason decided to sell the entire property for the net amount of P400,000 and entered into
negotiations with Gregorio Araneta, Inc. for this purpose. The result of the negotiations was the execution
on October 19, 1943, of a contract called "Promesa de Compra y Venta" and identified as Exhibit "1."
This contract provided that subject to the preferred right of the lessees and that of Jose Vidal as
mortgagee, Paz Tuason would sell to Gregorio Araneta, Inc. and the latter would buy for the said amount
of P400,000 the entire estate under these terms.

El precio sera pagado como sigue: un 40 por ciento juntamente con la carta de aceptacion del arrendatario,
un 20 por ciento delprecio al otorgarse la escritura de compromiso de venta, y el remanente 40 por ciento
al otorgarse la escritura de venta definitiva, la cual sera otorgada despues de que se habiese canceladola
hipoteca a favor de Jose Vidal que pesa sobre dichos lotes. Lacomision del 5 por ciento que corresponde a
Jose Araneta serapagada al otorgarse la escritura de compromiso de venta.

Paz Tuason se obliga a entregar mediante un propio las cartasque dirigira a este efecto a los arrendatarios,
de conformidad con el formulario adjunto, que se marca como Apendice A.

Expirado el plazo arriba mencionado, Paz Tuason otorgara las escrituras correspondientes de venta a los
arrendatarios que hayan decidido comprar sus respectivos lotes.

9. Los alquieres correspondientes a este ao se prorratearan entre la vendedora y el comprador,

correspondiendo al comprador los alquileres correspondientes a Noviembre y Diciembre de este ao y
asimismo sera por cuenta del comprador el amillaramiento correspondiente a dichos meses.

10. Paz Tuason, reconoce haver recibido en este acto de Gregorio Araneta, Inc., la suma de Ciento
Noventa Mil Pesos (P190,000)como adelanto del precio de venta que Gregorio Araneta, Inc., tuviere que
pagar a Paz Tuason.

La cantidad que Paz Tuason recibe en este acto sera aplicadapor ella a saldar su deuda con Jose Vidal, los
amillaramientos, sobre el utilizado por Paz Tuason para otros fines.

11. Una vez determinados los lotes que Paz Tuason podra vendera Gregorio Araneta, Inc., Paz Tuason
otorgara una escritura deventa definitiva sobre dichos lotes a favor de Gregorio Araneta, Inc.
Gregorio Araneta, Inc., pagara el precio de venta como sigue: 90 por ciento del mismo al otorgarse la
escritura de venta definitiva descontandose de la cantidad que entonces se tenga que pagar de adelanto de
P190,000 que se entrega en virtud de esta escritura. El 10 por ciento remanente se pagara a Paz Tuazon,
una vez se haya cancelado la hipoteca que pesa actualmente sobre el terreno.

No obstante la dispuesto en el parrafo 8, cualquier arrendatario que decida comprar el lote que occupa con
contrato de arrendamiento podra optar por pedir el otorgamiento inmediato a su favor el acto de la
escritura de venta definitiva pagando en el acto el 50 por ciento del precio (ademas del 40 por ciento que
debio incluir en su carta de aceptacion) y el remanente de 10 por ciento inmediatemente despues de
cancelarse la hipoteca que pesa sobre el terreno.

12. Si la mencionada cantidad de P190,000 excediere del 90 por ciento de la cantidad que Gregorio
Araneta, Inc., tuviere que vender a dicho comprador, el saldo sera pagado inmediatamente por Paz
Tuazon, tomandolo de las cantidades que reciba de los arrendatarios como precio de venta.

In furtherance of this promise to buy and sell, letters were sent the lessees giving them until August 31,
1943, an option to buy the lots they occupied at the price and terms stated in said letters. Most of the
tenants who held contracts of lease took advantage of the opportunity thus extended and after making the
stipulated payments were giving their deeds of conveyance. These sales, as far as the record would show,
have been respected by the seller.

With the elimination of the lots sold or be sold to the tenants there remained unencumbered, except for the
mortgage to Jose Vidal, Lots 1, 8-16 and 18 which have an aggregate area of 14,810.20 square meters;
and on December 2, 1943, Paz Tuason and Gregorio Araneta, Inc. executed with regard to these lots an
absolute deed of sale, the terms of which, except in two respects, were similar to those of the sale to the
lessees. This deed, copy of which is attached to the plaintiff's complaint as Exhibit A, provided, among
other things, as follows:

The aforesaid lots are being sold by he Vendor to the Vendee separately at the prices mentioned in
paragraph (6) of the aforesaid contract entitled "Promesa de Compra y Venta," making a total sum of One
Hundred Thirty-Nine Thousand Eighty-three pesos and Thirty-two centavos (P139,083.32), ninety (90%)
per cent of which amount, i.e., the sum of One Hundred Twenty-five Thousand One Hundred Seventy-
four Pesos and Ninety-nine centavos (P125,174.99), the Vendor acknowledges to have received by virtue
of the advance of One Hundred Ninety Thousand (P190,000) Pesos made by the Vendee to the Vendor
upon the execution of the aforesaid contract entitled "Promesa de Compra y Venta". The balance of Sixty-
Four Thousand Eight Hundred Twenty-five Pesos and One centavo (P64,825.01) between the sum of
P125,174.99, has been returned by the Vendor to the Vendee, which amount the Vendee acknowledges to
have received by these presents;

The aforesaid sum of P190,000 was delivered by the Vendee to the Vendor by virtue of four checks
issued by the Vendee against the Bank of the Philippine Islands, as follows:

No. C-286445 in favor of Paz Tuason de Paterno

P13,476.62
No. C-286444 in favor of the City Treasurer, Manila

3,373.38

No. C-286443 in favor of Jose Vidal

30,000.00

No. C-286442 in favor of Jose Vidal

143,150.00

Total

P190,000.00

The return of the sum of P64,825.01 was made by the Vendor to the Vendee in a liquidation which reads
as follows:

Hemos recibido de Da. Paz Tuason de Paterno la cantidad de Sesenta y Cuatro mil Ochocientos
Veinticinco Pesos y un centimo (P64,825.01) enconcepto de devolucion que nos hace del excesode lo
pagadoa ella de

P190,000.00

Menos el 90% de P139,083.32, importe de los lotes que vamos a comprar

125,174.99

Exceso

64,825.01

Cheque BIF No. D-442988 de Simplicio del Rosario

21,984.20

Cheque PNB No. 177863-K de L.E. Dumas

21,688.60

Cheque PNB No. 267682-K de Alfonso Sycip

 20,000.00

Cheque PNB No. 83940 de Josefina de Pabalan

4,847.96

Billetes recibidos de Alfonso Sycip

42.96

P68,563.21

Menos las comisiones de 5 % recibidas de Josefina de Pabalan

P538.60

L.E. Dumas

1,084.43

Angela S. Tuason

1,621.94

3,244.97

P65,318.24

Menos cheque BIF No. C-288642 a favor de Da. Paz Tuason de Paterno que le entregamos como exceso

493.23
 P64,825.01

Manila, Noviembre 2, 1943

GREGORIO ARANETA, INCORPORATED

Por;
(Fdo.) "JOSE ARANETA
Presidente

Recibido cheque No. C-288642 BIF-P493.23

Por:
(Fdo.) "M.J. GONZALEZ

In view of the foregoing liquidation, the vendor acknowledges fully and unconditionally, having received
the sum of P125,174.99 of the present legal currency and hereby expressly declares that she will not hold
the Vendee responsible for any loss that she might suffer due to the fact that two of the checks paid to her
by the Vendee were issued in favor of Jose Vidal and the latter has, up to the present time, not yet
collected the same.

The ten (10%) per cent balance of the purchase price not yet paid in the total sum of P13,908.33 will be
paid by the Vendee to the Vendor when the existing mortgage over the property sold by the Vendor to the
Vendee is duly cancelled in the office of the Register of Deeds, or sooner at the option of the Vendee.

This Deed of Sale is executed by the Vendor free from all liens and encumbrances, with the only
exception of the existing lease contracts on parcels Nos. 1, 10, 11, and 16, which lease contracts will
expire on December 31, 1953, with the understanding, however, that this sale is being executed free from
any option or right on the part of the lessees to purchase the lots respectively leased by them.

It is therefore clearly understood that the Vendor will pay the existing mortgage on her property in favor
of Jose Vidal.

The liquidation of the amounts respectively due between the Vendor and the Vendee in connection with
the rents and real estate taxes as stipulated in paragraph (9) of the contract entitled "Promesa de Compara
y Venta" will be adjusted between the parties in a separate document.

Should any of the aforesaid lessees of lots Nos. 2, 3, 4, 5, 6, 7, 9 and 17 fail to carry out their respective
obligations under the option to purchase exercised by them so that the rights of the lessee to purchase the
respective property leased by him is cancelled, the Vendor shall be bound to sell the same to the herein
Vendee, Gregorio Araneta, Incorporated, in conformity with the terms and conditions provided in the
aforesaid contract of "Promesa de Compra y Venta";
The documentary stamps to be affixed to this deed will be for the account of the Vendor while the
expenses for the registration of this document will be for the account of the Vendee.

The remaining area of the property of the Vendor subject to Transfer Certificates of Title Nos. 60471 and
60472, are lots Nos. 2, 3, 4, 5, 6, 7, 9, and 17, all of the Consolidation of lots Nos. 20 and 117 of plan II-
4755, G.L.R.O. Record No. 7680.

Before the execution of the above deed, that is, on October 20, 1943, the day immediately following the
signing of the agreement to buy and sell, Paz Tuason had offered to Vidal the check for P143,150
mentioned in Exhibit A, in full settlement of her mortgage obligation, but the mortgagee had refused to
receive that check or to cancel the mortgage, contending that by the separate agreement before mentioned
payment of the mortgage was not to be effected totally or partially before the end of four years from
April, 1943.

Because of this refusal of Vidal's Paz Tuason, through Atty. Alfonso Ponce Enrile, commenced an action
against the mortgagee in October or the early paret of November 1943. the record of that case was
destroyed and no copy of the complaint was presented in evidence. Attached to the complaint or deposited
with the clerk of court by Attorney Ponce Enrile simultaneously with the docketing of the suit were the
check for P143,150 previously turned down by Vidal, another certified check for P12,932.61, also drawn
by Gregorio Araneta, Inc., in favor of Vidal, and one ordinary check for P30,000 issued by Paz Tuazon.
These three checks were supposed to cover the whole indebtedness to Vidal including the principal and
interest up to that time and the penalty provided in the separate agreement.

But the action against Vidal never came on for trial and the record and the checks were destroyed during
the war operations in January or February, 1945; and neither was the case reconstituted afterward. This
failure of the suit for the cancellation of Vidal's mortgage, coupled with the destruction of the checks
tendered to the mortgagee, the nullification of the bank deposit on which those checks had been drawn,
and the tremendous rise of real estate value following the termination of the war, gave occasion to the
breaking off the schemes outlined in Exhibits 1 and A; Paz Tuason after liberation repudiated them for the
reasons to be hereafter set forth. The instant action was the offshoot, begun by Gregorio Araneta, Inc. to
compel Paz Tuason to deliver to the plaintiff a clear title to the lots described in Exhibit A free from all
liens and encumbrances, and a deed of cancellation of the mortgage to Vidal. Vidal came into the case in
virtue of a summon issued by order of the court, and filed a cross-claim against Paz Tuazon to foreclose
his mortgage.

It should be stated that the outset that all the parties are in agreement that Vidal's loans are still
outstanding. Paz Tuason's counsel concede that the tender of payment to Vidal was legally defective and
did not operate to discharge the mortgage, while the plaintiff is apparently uninterested in this feature of
the case considering the matter one largely between the mortgagor and the mortgagee, although to a
certain degree this notion is incorrect. At any rate, the points of discord between Paz Tuason and Vidal
concern only the accrual of interest on the loans, Vidal's claim to attorney's fees, and the application of the
debt moratorium law which the debtor now invokes. These matters will be taken up in the discussion of
the controversy between Paz Tuason and Jose Vidal.
The principal bone of contention between Gregorio Araneta, Inc., and Paz Tuason was the validity of the
deed of sale of Exhibit A on which the suit was predicated. The lower court's judgment was that this
contract was invalid and was so declared, "sin per juicio de que la demandada Paz Tuason de Paterno
pague a la entidad demandante todas las cantidades que habia estado recibiendo de lareferida entidad
demandante, en concepto de pago de losterrenos, en moneda corriente, segun el cambio que debiaregir al
tiempo de otorgarse la escritura segun la escalade "Ballentine", descontando, sin embargo, de dichas
cantidades cualesquiera que la demandante haya estadorecibiendo como alquileres de los terrenos
supuestamentevendidos a ella." The court based its opinion that Exhibit 1. His Honor, Judge Sotero
Rodas, agreedwith the defendant that under paragraph 8 of Exhibit 1 there was to be no absolute sale to
Gregorio Araneta, Inc., unless Vidal's mortgage was cancelled.

In our opinion the trial court was in error in its interpretation of Exhibit 1. The contemplated execution of
an absolute deed of sale was not contingent on the cancellation of Vidal's mortgage. What Exhibit 1 did
provide (eleventh paragraph) was that such deed of absolute sale should be executed "una vez
determinado los lotes que Paz Tuason podra vender a Gregorio Araneta, Inc." The lots which could be
sold to Gregorio Araneta, Inc. were definitely known by October 31, 1943, which was the expiry of the
tenants' option to buy, and the lots included in the absolute of which the occupants' option to buy lapsed
unconditionally. Such deed as Exhibit A was then in a condition to be made.

Vidal's mortgage was not an obstacle to the sale. An amount had been set aside to take care of it, and the
parties, it would appear, were confident that the suit against the mortgagee would succeed. The only doubt
in their minds was in the amount to which Vidal was entitled. The failure of the court to try and decide
that the case was not foreseen either.

This refutes, were think, the charge that there was undue rush on the part of the plaintiff to push across the
sale. The fact that simultaneously with Exhibit A similar deeds were given the lessees who had elected to
buy their leaseholds, which comprise an area about twice as big as the lots described in Exhibit A, and the
further fact that the sale to the lessees have never been questioned and the proceeds thereof have been
received by the defendant, should add to dispel any suspicion of bad faith on the part of the plaintiff. If
anyone was in a hurry it could have been the defendant. The clear preponderance of the evidence that Paz
Tuason was pressed for cash and that the payment of the mortgage was only an incident, or a necessary
means to effectuate the sale. Otherwise she could have settled her mortgage obligation merely by selling a
portion of her estate, say, some of the lots leased to tenants who, except two who were in concentration
camps, were only too anxious to buy and own the lots on which their houses were built.

Whatever the terms of Exhibit 1, the plaintiff and the defendant were at perfect liberty to make a new
agreement different from or even contrary to the provisions of that document. The validity of the
subsequent sale must of necessity depend on what it said and not on the provisions of the promise to buy
and sell.

It is as possible proof or fraud that the discrepancies between the two documents bear some attention. It
was alleged that Attorneys Salvador Araneta and J. Antonio Araneta who the defendant said had been her
attorneys and had drawn Exhibit A, and not informed or had misinformed her about its contents; that
being English, she had not read the deed of sale; that if she had not trusted the said attorneys she would
not have been so foolish as to affix her signature to a contract so one-sided.
The evidence does not support the defendant. Except in two particulars, Exhibit A was a substantial
compliance with Exhibit 1 in furtherance of which Exhibit A was made. One departure was the proviso
that 10 per cent of the purchase price should be paid only after Vidal's mortgage should have been
cancelled. This provisional deduction was not onerous or unusual. It was not onerous or unusual that the
vendee should withhold a relatively small portion of the purchase price before all the impediments to the
final consummation of the sale had been removed. The tenants who had bought their lots had been granted
the privilege to deduct as much as 40 per cent of the stipulated price pending discharge of the mortgage,
although his percentage was later reduced to 10 as in the case of Gregorio Araneta, Inc. It has also been
that the validity of the sales to the tenants has not been contested; that these sales embraced in the
aggregate 24,245.40 square meters for P260,916.68 as compared to 14,811.20 square meters sold to
Gregorio Araneta, Inc. for P139,083.32; that the seller has already received from the tenant purchasers 90
per cent of the purchase money.

There is good reason to believe that had Gregorio Araneta, Inc. not insisted on charging to the defendant
the loss of the checks deposited with the court, the sale in question would have gone the smooth way of
the sales to the tenants. Thus Dindo Gonzales, defendant's son, declared:

P. Despues de haberse presentado esta demanda, recuerda usted haber tenido conversacion con Salvador
Araneta acerca de este asunto?

R. Si Seor.

P. Usted fue quien se acerco al seor Salvador Araneta?

R. Si, seor.

P. Quiero usted decir al Honorable Juzgado que era lo que usted dijo al seor Salvador Araneta?

R. No creo que es propio que yo diga, por tratarse de mi madre.

P. En otras palabras, usted quiere decir que no quiere usted que se vuelva decir o repetir ante este
Honorable Juzgado lo que usted dijo al seor Salvador Araneta, pues, se trata de su madre?

R. No, seor.

P. Puede usted decirnos que quiso usted decir cuando que no quisiera decir?

R. Voy a decir lo que Salvador Araneta, yo me acerque a Don Salvador Araneta, y yo le dije que es una
verguenza de que nosotros, en la familia tengamos que ir a la Corte por este, y tambien dije que mi madre
de por si quiere vender el terreno a ellos, porque mi madre quiere pagar al seor Vidal, y que es una
verguenza, siendo entre parientes, tener que venir por este; era lo que yo dije al seor Salvador Araneta.

xxx xxx xxx

P. No recuerda usted tambien dijo al seor Salvador Araneta que usted no comulgaba con ella (su madre)
en este asunto?

R. Si, Seor; porque yo creia que mi madre solamente queria anular esta venta, pero cuando me dijo el
seor La O y sus abogados que, encima de quitar la propiedad, todavia tendria ella que pagar al seor
Vidal, este no veso claro.

xxx xxx xxx

P. Ahora bien; de tal suerte que, tal como nosotros desperendemos de su testimonio, tanto, usted como, su
madre, esteban muy conformes en la venta, es asi?

R. Si, seor.

The other stipulation embodied in Exhibit A which had no counterpart in Exhibit 1 was that by which
Gregorio Araneta Inc. would hold Paz Tuason liable for the lost checks and which, as stated, appeared to
be at the root of the whole trouble between the plaintiff and the defendant.

The stipulation reads:

In view of the foregoing liquidation, the Vendor acknowledges fully and unconditionally, having received
the sum of P125,174.99 of the present legal currency and hereby expressly declares that she will not hold
the Vendee responsible for any loss that she might suffer due to the fact that two of the checks paid to her
by the Vendee were used in favor of Jose Vidal and the latter has, up to the present time, not yet collected
the same.

It was argued that no person in his or her right senses would knowingly have agreed to a covenant so
iniquitous and unreasonable.

In the light of all the circumstances, it is difficult to believe that the defendant was deceived into signing
Exhibit A, in spite of the provision of which she and her son complaint. Intelligent and well educated who
had been managing her affairs, she had an able attorney who was assisting her in the suit against Vidal, a
case which was instituted precisely to carry into effect Exhibit A or Exhibit 1, and a son who is leading
citizen and a business-man and knew the English language very well if she did not. Dindo Gonzalez took
active part in, if he was not the initiator of the negotiations that led to the execution of Exhibit 1, of which
he was an attesting witness besides. If the defendant signed Exhibit A without being apprised of its
import, it can hardly be conceived that she did not have her attorney or her son read it to her afterward.
The transaction involved the alienation of property then already worth a fortune and now assessed by the
defendant at several times higher. Doubts in defendant's veracity are enhanced by the fact that she denied
or at least pretended in her answer to be ignorant of the existence of Exhibit A, and that only after she was
confronted with the signed copy of the document on the witness did she spring up the defense of fraud. It
would look as if she gambled on the chance that no signed copy of the deed had been saved from the war.
She could not have forgotten having signed so important a document even if she had not understood some
of its provisions.
From the unreasonableness and inequity of the aforequoted Exhibit A it is not to be presumed that the
defendant did not understand it. It was highly possible that she did not attach much importance to it,
convinced that Vidal could be forced to accept the checks and not foreseeing the fate that lay in store for
the case against the mortgagee.

Technical objections are made against the deed of sale.

First of these is that Jose Araneta, since deceased, was defendant's agent and at the same time the
president of Gregorio Araneta, Inc.

The trial court found that Jose Araneta was not Paz Tuason's agent or broker. This finding is contrary to
the clear weight of the evidence, although the point would be irrelevant, if the court were right in its
holding that Exhibit A was void on another ground, i.e., it was inconsistent with Exhibit 1.

Without taking into account defendant's Exhibit 7 and 8, which the court rejected and which, in our
opinion, should have been admitted, Exhibit 1 is decisive of the defendant's assertion. In paragraph 8 of
Exhibit 1 Jose Araneta was referred to as defendant's agent or broker "who acts in this transaction" and
who as such was to receive a commission of 5 per cent, although the commission was to be charged to the
purchasers, while in paragraph 13 the defendant promised, in consideration of Jose Araneta's services
rendered to her, to assign to him all her right, title and interest to and in certain lots not embraced in the
sales to Gregorio Araneta, Inc. or the tenants.

However, the trial court hypothetically admitting the existence of the relation of principal and agent
between Paz Tuason and Jose Araneta, pointed out that not Jose Araneta but Gregorio Araneta, Inc. was
the purchaser, and cited the well-known distinction between the corporation and its stockholders. In other
words, the court opined that the sale to Gregorio Araneta, Inc. was not a sale to Jose Araneta the agent or
broker.

The defendant would have the court ignore this distinction and apply to this case the other well-known
principle which is thus stated in 18 C.J.S. 380: "The courts, at law and in equity, will disregard the fiction
of corporate entity apart from the members of the corporation when it is attempted to be used as a means
of accomplishing a fraud or an illegal act.".

It will at once be noted that this principle does not fit in with the facts of the case at bar. Gregorio
Araneta, Inc. had long been organized and engaged in real estate business. The corporate entity was not
used to circumvent the law or perpetrate deception. There is no denying that Gregorio Araneta, Inc.
entered into the contract for itself and for its benefit as a corporation. The contract and the roles of the
parties who participated therein were exactly as they purported to be and were fully revealed to the seller.
There is no pretense, nor is there reason to suppose, that if Paz Tuason had known Jose Araneta to
Gregorio Araneta, Inc's president, which she knew, she would not have gone ahead with the deal. From
her point of view and from the point of view of public interest, it would have made no difference, except
for the brokerage fee, whether Gregorio Araneta, Inc. or Jose Araneta was the purchaser. Under these
circumstances the result of the suggested disregard of a technicality would be, not to stop the commission
of deceit by the purchaser but to pave the way for the evasion of a legitimate and binding commitment
buy the seller. The principle invoked by the defendant is resorted to by the courts as a measure or
protection against deceit and not to open the door to deceit. "The courts," it has been said, "will not ignore
the corporate entity in order to further the perpetration of a fraud." (18 C.J.S. 381.)

The corporate theory aside, and granting for the nonce that Jose Araneta and Gregorio Araneta, Inc. were
identical and that the acts of one where the acts of the other, the relation between the defendant and Jose
Araneta did not fall within the purview of article 1459 of the Spanish Civil Code.1

Agency is defined in article 1709 in broad term, and we have not come across any commentary or
decision dealing directly with the precise meaning of agency as employed in article 1459. But in the
opinion of Manresa(10 Manresa 4th ed. 100), agent in the sense there used is one who accepts another's
representation to perform in his name certain acts of more or less transcendency, while Scaevola (Vol. 23,
p. 403) says that the agent's in capacity to buy his principal's property rests in the fact that the agent and
the principal form one juridicial person. In this connection Scaevola observes that the fear that greed
might get the better of the sentiments of loyalty and disinterestedness which should animate an
administrator or agent, is the reason underlying various classes of incapacity enumerated in article 1459.
And as American courts commenting on similar prohibition at common law put it, the law does not trust
human nature to resist the temptations likely to arise of antogonism between the interest of the seller and
the buyer.

So the ban of paragraph 2 of article 1459 connotes the idea of trust and confidence; and so where the
relationship does not involve considerations of good faith and integrity the prohibition should not and
does not apply. To come under the prohibition, the agent must be in a fiduciary with his principal.

Tested by this standard, Jose Araneta was not an agent within the meaning of article 1459. By Exhibits 7
and 8 he was to be nothing more than a go-between or middleman between the defendant and the
purchaser, bringing them together to make the contract themselves. There was no confidence to be
betrayed. Jose Araneta was not authorize to make a binding contract for the defendant. He was not to sell
and he did not sell the defendant's property. He was to look for a buyer and the owner herself was to
make, and did make, the sale. He was not to fix the price of the sale because the price had been already
fixed in his commission. He was not to make the terms of payment because these, too, were clearly
specified in his commission. In fine, Jose Araneta was left no power or discretion whatsoever, which he
could abuse to his advantage and to the owner's prejudice.

Defendant's other ground for repudiating Exhibit A is that the law firm of Araneta & Araneta who
handled the preparation of that deed and represented by Gregorio Araneta, Inc. were her attorneys also.
On this point the trial court's opinion is likewise against the defendant.

Since attorney Ponce Enrile was the defendant's lawyer in the suit against Vidal, it was not likely that she
employed Atty. Salvador Araneta and J. Antonio Araneta as her attorneys in her dealings with Gregorio
Araneta, Inc., knowing, as she did, their identity with the buyer. If she had needed legal counsels, in this
transaction it seems certain that she would have availed herself of the services of Mr. Ponce Enrile who
was allegedly representing her in another case to pave the way for the sale.

The fact that Attys. Salvador and Araneta and J. Antonio Araneta drew Exhibits 1 and A, undertook to
write the letters to the tenants and the deeds of sale to the latter, and charged the defendant the
corresponding fees for all this work, did not themselves prove that they were the seller's attorneys. These
letters and documents were wrapped up with the contemplated sale in which Gregorio Araneta, Inc. was
interested, and could very well have been written by Attorneys Araneta and Araneta in furtherance of
Gregorio Araneta's own interest. In collecting the fees from the defendant they did what any other buyer
could have appropriately done since all such expenses normally were to be defrayed by the seller.

Granting that Attorney Araneta and Araneta were attorneys for the defendant, yet they were not forbidden
to buy the property in question. Attorneys are only prohibited from buying their client's property which is
the subject of litigation. (Art. 1459, No. 5, Spanish Civil Code.) The questioned sale was effected before
the subject thereof became involved in the present action. There was already at the time of the sale a
litigation over this property between the defendant and Vidal, but Attys. Salvador Araneta and J. Antonio
Araneta were not her attorneys in that case.

From the pronouncement that Exhibit A is valid, however, it does not follow that the defendant should be
held liable for the loss of the certified checks attached to the complaint against Vidal or deposited with the
court, or of the funds against which they had been issued. The matter of who should bear this loss does
not depend upon the validity of the sale but on the extent and scope of the clause hereinbefore quoted as
applied to the facts of the present case.

The law and the evidence on this branch of the case revealed these facts, of some of which passing
mention has already been made.

The aforesaid checks, one for P143,150 and one for P12,932.61, were issued by Gregorio Araneta, Inc.
and payable to Vidal, and were drawn against the Bank of the Philippines with which Gregorio Araneta,
Inc. had a deposit in the certification stated that they were to be "void if not presented for payment date of
acceptance" office (Bank) within 90 days from date of acceptance."

Under banking laws and practice, by the clarification" the funds represented by the check were transferred
from the credit of the maker to that of the payee or holder, and, for all intents and purposes, the latter
became the depositor of the drawee bank, with rights and duties of one such relation." But the transfer of
the corresponding funds from the credit of the depositor to that of that of the payee had to be co-extensive
with the life of the checks, which in the case was 90 days. If the checks were not presented for payment
within that period they became invalid and the funds were automatically restored to the credit of the
drawer though not as a current deposit but as special deposit. This is the consensus of the evidence for
both parties which does not materially differ on this proposition.

The checks were never collected and the account against which they were drawn was not used or claimed
by Gregorio Araneta, Inc.; and since that account "was opened during the Japanese occupation and in
Japanese currency," the checks "became obsolete as the account subject thereto is considered null and
void in accordance with Executive Order No. 49 of the President of the Philippines", according to the
Bank.

Whether the Bank of the Philippines could lawfully limit the negotiability of certified checks to a period
less than the period provided by the Statute of Limitations does not seem material. The limitation imposed
by the Bank as to time would adversely affect the payee, Jose Vidal, who is not trying to recover on the
instruments but on the contrary rejected them from the outset, insisting that the payment was premature.
As far as Vidal was concerned, it was of no importance whether the certification was or was not restricted.
On the other hand, neither the plaintiff nor the defendant now insists that Vidal should present, or should
have presented, the checks for collection. They in fact agree that the offer of those checks to Vidal did
not, for technical reason, work to wipe out the mortgage.

But as to Gregorio Araneta and Paz Tuason, the conditions specified in the certification and the prevailing
regulations of the Bank were the law of the case. Not only this, but they were aware of and abided by
those regulations and practice, as instanced by the fact that the parties presented testimony to prove those
regulations and practice. And that Gregorio Araneta, Inc. knew that Vidal had not cashed the checks
within 90 days is not, and could not successfully be denied.

In these circumstances, the stipulation in Exhibit A that the defendant or seller "shall not hold the vendee
responsible for any loss of these checks" was unconscionable, void and unenforceable in so far as the said
stipulation would stretch the defendant's liability for this checks beyond 90 days. It was not in accord with
law, equity or good conscience to hold a party responsible for something he or she had no access to and
could not make use of but which was under the absolute control and disposition of the other party. To
make Paz Tuason responsible for those checks after they expired and when they were absolutely useless
would be like holding an obligor to answer for the loss or destruction of something which the obligee kept
in its safe with no power given the obligor to protect it or interfere with the obligee's possession.

To the extent that the contract Exhibit A would hold the vendor responsible for those checks after they
had lapsed, the said contract was without consideration. The checks having become obsolete, the benefit
in exchange for which the defendant had consented to be responsible for them had vanished. The sole
motivation on her part for the stipulation was the fact that by the checks the mortgage might or was to be
released. After 90 days the defendant stood to gain absolutely nothing by them, which had become
veritable scraps of paper, while the ownership of the deposit had reverted to the plaintiff which alone
could withdraw and make use of it.

What the plaintiff could and should have done if the disputed stipulation was to be kept alive was to keep
the funds accessible for the purpose of paying the mortgage, by writing new checks either to Vidal or to
the defendant, as was done with the check for P30,000, or placing the deposit at the defendant's disposal.
The check for P30,000 intended for the penalty previously had been issued in the name of Vidal and
certified, too, but by mutual agreement it was changed to an ordinary check payable to Paz Tuason.
Although that check was also deposited with the court and lost, its loss undoubtedly was imputable to the
defendant's account, and she did not seem to disown her liability for it.

Let it be remembered that the idea of certifying the lost checks was all the plaintiff's. The plaintiff would
not trust the defendant and studiously so arranged matters that she could not by any possibility put a
finger on the money. For all the practical intents and purposes the plaintiff dealt directly with the
mortgagee and excluded the defendant from meddling in the manner of payment to Vidal. And let it also
be kept in mind that Gregorio Araneta, Inc. was not a mere accommodator in writing these checks. It was
as much interested in the cancellation of the mortgage as Paz Tuason.
Coming down to Vidal's cross-claim Judge Rodas rendered no judgment other than declaring that the
mortgage remained intact and subsisting. The amount to be paid Vidal was not named and the question
whether interest and attorney's fees were due was not passed upon. The motion for reconsideration of the
decision by Vidal's attorney's praying that Paz Tuason be sentenced to pay the creditor P244,917.90 plus
interest at the rate of 1 percent monthly from September 10, 1948 and that the mortgaged property be
ordered sold in case of default within 90 days, and another motion by the defendant seeking specification
of the amount she had to pay the mortgagee were summarily denied by Judge Potenciano Pecson, to
whom the motions were submitted, Judge Rodas by that time having been appointed to the Court of
Appeals.

All the facts and evidence on this subject are on the record, however, and we may just as well determine
from these facts and evidence the amount to which the mortgagee is entitled, instead of remanding the
case for new trial, if only to avoid further delay if the disposition of this case.

It is obvious that Vidal had a right to judgment for his credit and to foreclose the mortgage if the credit
was not paid.

There is no dispute as to the amount of the principal and there is agreement that the loans made in 1943,
in Japanese war notes, should be computed under the Ballantyne conversion table. As has been said,
where the parties do not see eye-to-eye was in regard to the mortgagee's claim to attorney's fees and
interest from October, 1943, which was reached a considerable amount. It was contended that, having
offered to pay Vidal her debt in that month, the defendant was relieved thereafter from paying such
interest.

It is to be recalled that Paz Tuason deposited with the court three checks which were intended to cover the
principal and interest up to October, 1943, plus the penalty provided in the instrument "Penalidad del
Documento de Novacion de Esta Fecha." The mortgagor maintains that although these checks may not
have constituted a valid payment for the purpose of discharging the debt, yet they did for the purpose of
stopping the running of interest. The defendant draws attention to the following citations:

An offer in writing to pay a particular sum of money or to deliver a written instrument or specific personal
property is, if rejected, equivalent to the actual production and tender of the money, instrument or
property. (Sec. 24, Rule 123.)

It is not accord with either the letter or the spirit of the law to impose upon the person affecting a
redemption of property, in addition to 12 per cent interest per annum up to the time of the offer to redeem,
a further payment of 6 per cent per annum from the date of the officer to redeem. (Fabros vs. Villa
Agustin, 18 Phil., 336.)

A tender by the debtor of the amount of this debt, if made in the proper manner, will suspend the running
of interest on the debt for the time of such tender. (30 Am. Jur., 42.)

In the case of Fabrosa vs. Villa Agustin, supra, a parcel of land had been sold on execution to one
Tabliga. Within the period of redemption Fabros, to whom the land had been mortgaged by the execution
debtor, had offered to redeem the land from the execution creditor and purchaser at public auction. The
trial court ruled that the redemptioner was not obliged to pay the stipulated interest of 12 per cent after he
offered to redeem the property; nevertheless he was sentenced to pay 6 per cent interest from the date of
the offer.

This court on appeal held that "there is no reason for this other (6 per cent) interest, which appears to be a
penalty for delinquency while there was no delinquency." The court cited an earlier decision, Martinez vs.
Campbell, 10 Phil., 626, where this doctrine was laid down: "When the right of redemption is exercised
within the term fixed by section 465 of the Code of Civil Procedure, and an offer is made of the amount
due for the repurchase of the property to which said right refers, it is neither reasonable nor just that the
repurchaser should pay interest on the redemption money after the time when he offered to repurchase and
tendered the money therefor."

In the light of these decisions and law, the next query is; Did the mortgagor have the right under the
contract to pay the mortgage on October 20, 1943? The answer to this question requires an inquiry into
the provision of the "Penalidad del Documento de Novacion de Esta Fecha."

Vidal introduced oral evidence to the effect that he reserved unto himself in that agreement the right "to
accept or refuse the total payment of the loan outstanding . . ., if at the time of such offer of payment he
considered it advantageous to his interest." This was gist of Vidal's testimony and that of Lucio M.
Tiangco, one of Vidal's former attorneys who, as notary public, had authenticated the document. Vidal's
above testimony was ordered stricken out as hearsay, for Vidal was blind and, according to him, only had
his other lawyer read the document to him.

We are of the opinion that the court erred in excluding Vidal's statement. There is no reason to suspect
that Vidal's attorney did not correctly read the paper to him. The reading was a contemporaneous incident
of the writing and the circumstances under which the document was read precluded every possibility of
design, premeditation, or fabrication.

Nevertheless, Vidal's testimony, like the testimony of Lucio M. Tiangco's, was based on recollection
which, with the lapse of time, was for from infallible. By contrast, the testimony of Attorneys Ponce
Enrile, Salvador Araneta, and J. Antonio Araneta does not suffer from such weakness and is entitled to
full faith and credit. The document was the subject of a close and concerted study on their part with the
object of finding the rights and obligations of the mortgagee and the mortgagor in the premises and
mapping out the course to be pursued. And the results of their study and deliberation were translated into
concrete action and embodied in a letter which has been preserved. In line with the results of their study,
action was instituted in court to compel acceptance by Vidal of the checks consigned with the complaint,
and before the suit was commenced, and with the document before him, Atty. Ponce Enrile, in behalf of
his client, wrote Vidal demanding that he accept the payment and execute a deed of cancellation of the
mortgage. In his letter Atty. Ponce Enrile reminded Vidal that the recital in the "Penalidad del Documento
de Novacion de Esta Fecha" was "to the effect that should the debtor wish to pay the debt before the
expiration of the period the reinstated (two years) such debtor would have to pay, in addition to interest
due, the penalty of P30,000 this is in addition to the penalty clause of 10 per cent of the total amount
due inserted in the document of mortgage of January 20, 1943."
Atty. Ponce Enrile's concept of the agreement, formed after mature and careful reading of it, jibes with the
only possible reason for the insertion of the penalty provision. There was no reason for the penalty unless
it was for defendant's paying her debt before the end of the agreed period. It was to Vidal's interest that
the mortgage be not settled in the near future, first, because his money was earning good interest and was
guaranteed by a solid security, and second, which was more important, he, in all probability, shared the
common belief that Japanese war notes were headed for a crash and that four years thence, judging by the
trends of the war, the hostilities would be over.

To say, as Vidal says, that the debtor could not pay the mortgage within four years and, at the same time,
that there would be penalty if she paid after that period, would be a contradiction. Moreover, adequate
remedy was provided for failure to pay or after the expiration of the mortgage: increased rate or interest,
foreclosure of the mortgage, and attorney's fees.

It is therefore to be concluded that the defendant's offer to pay Vidal in October, 1943, was in accordance
with the parties' contract and terminated the debtor's obligation to pay interest. The technical defects of
the consignation had to do with the discharge of the mortgage, which is conceded on all sides to be still in
force because of the defects. But the matter of the suspension of the running of interest on the loan stands
of a different footing and is governed by different principles. These principles regard reality rather than
technicality, substance rather than form. Good faith of the offer or and ability to make good the offer
should in simple justice excuse the debtor from paying interest after the offer was rejected. A debtor can
not be considered delinquent who offered checks backed by sufficient deposit or ready to pay cash if the
creditor chose that means of payment. Technical defects of the offer cannot be adduced to destroy its
effects when the objection to accept the payment was based on entirely different grounds. If the creditor
had told the debtor that he wanted cash or an ordinary check, which Vidal now seems to think Paz Tuason
should have tendered, certainly Vidal's wishes would have been fulfilled, gladly.

The plain truth was that the mortgagee bent all his efforts to put off the payment, and thanks to the defects
which he now, with obvious inconsistency, points out, the mortgage has not perished with the checks.

Falling within the reasons for the stoppage of interest are attorney's fees. In fact there is less merit in the
claim for attorney's fees than in the claim for interest; for the creditor it was who by his refusal brought
upon himself this litigation, refusal which, as just shown, resulted greatly to his benefit.

Vidal, however, is entitled to the penalty, a point which the debtor seems to a grant. The suspension of the
running of the interest is premised on the thesis that the debt was considered paid as of the date the offer
to pay the principal was made. It is precisely the mortgagor's contention that he was to pay said penalty if
and when she paid the mortgage before the expiration of the four-year period provided in the mortgage
contract. This penalty was designed to take the place of the interest which the creditor would be entitled to
collect if the duration of the mortgage had not been cut short and from which interest the debtor has been
relieved. "In obligations with a penalty clause the penalty shall substitute indemnity for damages and the
payment of interest. . ." (Art. 1152, Civil Code of Spain.).

To summarize, the following are our findings and decision:

The contract of sale Exhibit A was valid and enforceable, but the loss of the checks for P143,150 and
P12,932.61 and invalidation of the corresponding deposit is to be borne by the buyer. Gregorio Araneta,
Inc. the value of these checks as well as the several payments made by Paz Tuason to Gregorio Araneta,
Inc. shall be deducted from the sum of P190,000 which the buyer advanced to the seller on the execution
of Exhibit 1.

The buyer shall be entitled to the rents on the land which was the subject of the sale, rents which may
have been collected by Paz Tuason after the date of the sale.

Paz Tuason shall pay Jose Vidal the amount of the mortgage and the stipulated interest up to October
20,1943, plus the penalty of P30,000, provided that the loans obtained during the Japanese occupation
shall be reduced according to the Ballantyne scale of payment, and provided that the date basis of the
computation as to the penalty is the date of the filing of the suit against Vidal.

Paz Tuason shall pay the amount that shall have been found due under the contracts of mortgage within
90 days from the time the court's judgment upon the liquidation shall have become final, otherwise the
property mortgaged shall be ordered sold provided by law.

Vidal's mortgage is superior to the purchaser's right under Exhibit A, which is hereby declared subject to
said mortgage. Should Gregorio Araneta, Inc. be forced to pay the mortgage, it will be subrogated to the
right of the mortgagee.

This case will be remanded to the court of origin with instruction to hold a rehearing for the purpose of
liquidation as herein provided. The court also shall hear and decide all other controversies relative to the
liquidation which may have been overlooked at this decision, in a manner not inconsistent with the above
findings and judgment.

The mortgagor is not entitled to suspension of payment under the debt moratorium law or orders. Among
other reasons: the bulk of the debt was a pre-war obligation and the moratorium as to such obligations has
been abrogated unless the debtor has suffered war damages and has filed claim for them; there is no
allegation or proof that she has. In the second place, the debtor herself caused her creditor to be brought
into the case which resulted in the filing of the cross-claim to foreclose the mortgage. In the third place,
prompt settlement of the mortgage is necessary to the settlement of the dispute and liquidation between
Gregorio Araneta, Inc. and Paz Tuason. If for no other reason, Paz Tuason would do well to forego the
benefits of the moratorium law.

There shall be no special judgments as to costs of either instance.

Paras, C.J., Pablo, Bengzon, Padilla, Bautista Angelo and Labrador, JJ., concur.

RESOLUTION

December 22, 1952

TUASON, J.:

The motion for reconsideration of the plaintiff, Gregorio Araneta, Inc., and the defendant, Paz Tuason de
Paterno, are in large part devoted to the question, extensively discussed in the decision, of the validity of
the contract of sale Exhibit A. The arguments are not new and at least were given due consideration in the
deliberation and study of the case. We find no reason for disturbing our decision on this phase of the case.

The plaintiff-appellant's alternative proposition to wit: "Should this Honorable Court declare that the
purchase price was not paid and that plaintiff has to bear the loss due to the invalidation of the occupation
currency, its loss should be limited to: (a) the purchase price of P139,083.32 less P47,825.70 which
plaintiff paid and the defendant actually collected during the occupation, or the sum of P92,233.32, or at
most, (b) the purchase price of the lot in the sum of P139,083.32," as well as the alleged over-payment
by the defendant-appellee, may be taken up in the liquidation under the reservation in the judgment that
"the court (below) shall hold a rehearing for the purpose of liquidation as herein provided" and "shall also
hear and decide all other controversies relative to the liquidation which may have been overlooked in this
decision, in the manner not inconsistent with the above findings and judgment."

These payments and disbursement are matters of accounting which, not having been put directly in issue
or given due attention at the trial and in the appealed decision, can better be treshed out in the proposed
rehearing where each party will have an opportunity to put forward his views and reasons, with
supporting evidence if necessary, on how the various items in question should be regarded and credited, in
the light of our decision.

As to Jose Vidal's motion: There is nothing to add to or detract from what has been said in the decision
relative to the interest on the loans and attorney's fees. There are no substantial features of the case that
have not been weighed carefully in arriving at our conclusions. It is our considered opinion that the
decision is in accord with law, reason and equity.

The vehement protest that this court should not modify the conclusion of the lower court on interest and
attorney's fees is actually and entirely contrary to the cross-claimant's own suggestion in his brief. From
page 20 of his brief, we copy these passages:

We submit that this Honorable Court is in a position now to render judgment in the foreclosure of
mortgage suit as no further issue of fact need be acted upon by the trial court. Defendant Paz Tuason has
admitted the amount of capital due. That is a fact. She only requests that interest be granted up to October
20,1943, and that the moratorium law be applied. Whether this is possible or not is a legal question,
which can be decided by this court. Unnecessary loss of time and expenses to the parties herein will be
avoided by this Honorable Court by rendering judgment in the foreclosure of mortgage suit as follows:

xxx xxx xxx

In reality, the judgment did not adjudicate the foreclosure of the mortgage nor did it fix the amount due on
the mortgage. The pronouncement that the mortgage was in full force and effect was a conclusion which
the mortgagor did not and does not now question. There was therefore virtually no decision that could be
executed.
Vidal himself moved in the Court of First Instance for amendment of the decision alleging, correctly, that
"the court failed to act on the cross-claim of Jose Vidal dated April 22, 1947, where he demanded
foreclosure of the mortgage . . . ." That motion like Paz Tuason's motion to complete the judgment, was
summarily denied.

In strict accordance with the procedure, the case should have been remanded to the court of origin for
further proceedings in the form stated by Paz Tuason's counsel. Both the mortgagor and the mortgagee
agree on this. We did not follow the above course believing it best, in the interest of the parties
themselves and following Vidal's attorney's own suggestion, to decide the controversies between Vidal
and Paz Tuason upon the records and the briefs already submitted.

The three motions for reconsideration are denied.

Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Jugo, Bautista Angelo and Labrador, JJ., concur.

RESOLUTION

January 26, 1953

TUASON, J.:

In the second motion for reconsideration by defendant-appellee it is urged that the sale be resolved for
failure of plaintiff-appellant to pay the entire purchase price of the property sold.

Rescission of the contract, it is true, was alternative prayer in the cross-complaint, but the trial court
declared the sale void in accordance with the main contention of the defendant, and passed no judgment
on the matter of rescission. For this reason, and because rescission was not pressed on appeal, we deemed
unnecessary, if not uncalled for, any pronouncement touching this point.

In the second place, the nonpayment of a portion, albeit big portion, of the price was not, in our opinion,
such failure as would justify recission under Articles 1124 and 1505 et seq. of the Civil Code of Spain,
which was still in force when this case was tried. "The general rule is that recission will not be permitted
for a slight or casual breach of the contract, but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties." (Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil.,
821, 827.)

In the present case, the vendee did not fail or refuse to pay by plan or design, granting there was failure or
refusal to pay. As a matter of fact, the portion of the purchase price which is said not to have been
satisfied until now was actually received by checks by the vendor and deposited by her with the court in
the suit against Vidal, in accordance with the understanding if not express agreement between vendor and
vendee. The question of who should bear the loss of this amount, the checks having been destroyed and
the funds against which they were drawn having become of no value, was one of the most bitterly debated
issues, and in adjudging the vendee to be the party to shoulder the said loss and ordering the said vendee
to pay the amount to the vendor, this Court's judgment was not, and was not intended to be, in the nature
of an extension of time of payment. In contemplation of the Civil Code there was no default, except
possibly in connection with the alleged overcharges by the vendee arising from honest mistakes of
accounting, mistakes which, by our decision, are to be corrected in a new trial thereby ordered.

The second motion for reconsideration is, therefore, denied.

Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo, Bautista Angelo and Labrador,
JJ., concur.

Footnotes

1
Art. 1459. The following persons cannot take by purchase, even at a public or judicial auction, either in
person or through the mediation of another:

xxx xxx xxx

2
An agent, any property of which the management or sale may have been intrusted to him;

[A.C. No. 3046. October 26, 1998]

REGALADO DAROY, complainant, vs. ATTY. ESTEBAN ABECIA, respondent.

DECISION

MENDOZA, J.:

This refers to the complaint for malpractice filed by Regalado Daroy (now deceased) against Esteban
Abecia, a member of the Bar. Complainant Daroy accused respondent Abecia of having forged his
signature in a deed of absolute sale by means of which the latter was able to transfer a parcel of land in
Opol, Misamis Oriental, first to Jose Gangay and eventually to his (respondents) wife Nena Abecia.
The facts of the instant case are as follows:

Respondent Abecia was counsel of complainant Daroy in a case for forcible entry before the Municipal
Trial Court of Opol, Misamis Oriental.[1] Judgment was rendered in favor of complainant as plaintiff in
the ejectment case, ordering the defendants to pay damages, attorneys fees, and the costs of the suit. To
satisfy the judgment, the sheriff sold at public auction on March 25, 1971 a parcel of land belonging to
one of the defendants to complainant Daroy as highest bidder for P1,250.00. Upon failure of the
defendants to redeem the land, its ownership was consolidated in complainant Daroy.

Complainant Daroy claimed that respondent Abecia forged his signature in a deed of absolute sale, dated
March 31, 1971, transferring the subject parcel of land to Jose Gangay purportedly for the sum
of P1,250.00 and that in a fictitious deed of absolute sale, dated April 17, 1971, it was made to appear that
Gangay in turn conveyed the land to Nena Abecia, wife of respondent Abecia, for the sum
of P1,350.00.[2] Complainant alleged that he entrusted the title to the land (TCT No. T-315) to Abecia as
his counsel and allowed him to take possession of the land upon the latters request. By means of the
forged deed of sale, Abecia was able to obtain new transfer certificates of title, first in the name of
Gangay and then in that of Mrs. Abecia, from the Registry of Deeds of Misamis Oriental.[3] Daroy
claimed he discovered the fraud only in 1984.

Daroy submitted in evidence a report of the National Bureau of Investigation, which had examined the
deed of sale in favor of Jose Gangay, showing that Daroys signature in the deed of sale had been written
by a different hand. In addition, Daroy presented the affidavit, executed on August 10, 1988, of Anita
Gangay, wife of Jose Gangay, in which she retracted an earlier affidavit executed on June 5, 1985. In the
first affidavit, she stated that she had bought the land in question from Regalado Daroy and then sold it to
her sister Nena Abecia, wife of respondent Esteban. Now, in her present affidavit, it is stated that she did
not buy the land from Daroy nor later sell it to Nena Abecia and that she really did not know anything
about the controversy between Regalado Daroy and Esteban Abecia, both of whom are her brothers-in-
law. (It appears that Mrs. Conchita Daroy, Mrs. Anita Gangay, and Mrs. Nena Abecia are sisters, although
Conchita Daroy and Regalado Daroy are not married but lived together in a common-law relationship.)

A complaint for falsification of public document was also filed against respondent Abecia in the Office of
the City Prosecutor of Cagayan de Oro which, however, dismissed the same. [4] On appeal, then
Undersecretary of Justice Silvestre H. Bello III reversed on May 6, 1988 the findings of the City
Prosecutor of Cagayan de Oro and consequently ordered the filing of the corresponding information in
court.[5] Accordingly, City Prosecutor Rodolfo R. Waga filed an information for falsification of public
document, dated June 30, 1988, with the Regional Trial Court of Misamis Oriental.[6]

Respondent Abecia was unable to attend the hearings. He asked for their transfer to Cagayan de Oro on
the ground that he did not have the means to travel, but his request was apparently denied sub silencio as
the Commission continued the hearings in Pasig, Metro Manila. As a result only his counsel was present
at the hearings.[7]

As respondent reiterated his request for the transfer of venue, it was agreed at the hearing of January 30,
1989 that respondents answer, dated August 3, 1987, and the affidavits of his witnesses as well as his own
would be considered as their direct testimonies.[8]
In his answer, respondent Esteban Abecia maintained that on March 31, 1971, Regalado Daroy sold the
land in question to Jose Gangay, and the latter in turn sold the land to Nena Abecia on April 17, 1971. He
cited the sheriffs return, dated August 6, 1973, in which it was stated that on August 4, 1993 Regalado
Daroy and his assignee Nena Abecia were . . . placed in actual possession of the parcel of land subject
matter of the Deed of Conveyance and Possession.[9] He also referred to the resolution of the Assistant
Provincial Fiscal of Misamis Oriental, who dismissed the complaint for grave coercion and malicious
mischief filed by Gertrudes De Bajuyo, one of the defendants in the ejectment case, against Regalado
Daroy and Nena Abecia for the demolition of her house, precisely on the basis of the right of Mrs. Nena
Abecia . . . as assignee to do whatever she wants to do of the things she owns.[10]

On July 15, 1993, Commissioner Plaridel C. Jose rendered a report finding respondent Abecia guilty of
malpractice and recommending his disbarment. In his report, Commissioner Jose stated:[11]

. . . In the course of his law practice, the respondent handled several cases in behalf of the complainant
Regalado Daroy, among which is Civil Case No. 3288, wherein a parcel of land located at Opol, Misamis
Oriental covered by TCT No. T-15924 (TCT No. T-315) was the subject of litigation. In the course of
handling the same, the complainant entrusted to the respondent the pertinent documents necessary in the
said case which included his said TCT No. T-15924.

In the year 1971, without the knowledge of the complainant, a document entitled Deed of Sale dated
March 31, 1971 was executed and notarized by Notary Public Erasmo G. Damasing as Doc. No. 68, Page
No. 16, Book No. VIII, Series of 1971, which appears to have been signed by complainant Regalado
Daroy, thereby conveying the said property in favor of a certain Jose Gangay, married to Anita Basmayor,
by virtue of which TCT No. T-15925 was issued in the name of Jose Gangay.

Two weeks thereafter, under date of April 17, 1971, the said Jose Gangay executed a Deed of Sale of the
same property in favor of Mrs. Nena Abecia, the wife of the respondent, by virtue of which TCT No. T-
15926 was issued in the name of Nena Abecia, married to Atty. Esteban Abecia, the respondent.

Sometime in the year 1984, the complainant discovered that his said property was already in the name of
Mrs. Nena Abecia and Atty. Esteban Abecia.

....

The foregoing evidence sufficiently proved respondents acts complained of in the present case . . . . The
significant fact is that the herein respondent was instrumental and responsible for falsifying the signature
of his client, complainant Daroy, in the deed of conveyance in favor of Jose Gangay, for which he is at
present criminally charged in Criminal Case No. 88-443 before the Regional Trial Court of Misamis
Oriental.

In an unclear manner, respondent tried to justify his act by alleging that the transfer of his clients property
to his wife was proper because he allegedly was not paid for his professional services. Such allegation,
even if true, would not exculpate him from liability. A lawyer who executed with his client a deed
transferring ownership over a parcel of land involved in a pending litigation as his attorneys fees violates
the rule prohibiting the purchase of property in litigation by a lawyer from his client.
. . . What is saddening is the fact that he is presently an incumbent labor arbiter of the National Labor
Relations Commission with the delicate responsibility of administering justice to the parties before him. .
. . The Commission has no alternative but to recommend his disbarment. It is likewise recommended that
the National Labor Relations Commission be furnished with these findings for its guidance and
appropriate action.

The Board of Governors of the Integrated Bar of the Philippines in Resolution No. XI-94-072, dated
March 26 1994,[12] approved the report but reduced the penalty to indefinite suspension.

Respondent Abecia filed a Motion for Reconsideration and/or Appeal. Among other things, he contends
that:[13]

....

1. The Commission on Bar Discipline erred when it held that complainant had no knowledge of the
execution of the Deed of Absolute Sale on March 31, 1971 before Notary Public Erasmo G. Damasing.

Complainant very well knew of the execution of the deed of sale as shown in the Sheriffs Return of
Service (Respondents Annex 9) dated August 6, 1973, where he declared that he was accompanied by the
complainant and his assignee, Nena Abecia, in implementing the Deed of Conveyance and Possession on
August 4, 1973. The Deputy Sheriff even went as far as declaring that the land was already in the name of
complainants assignee. Paragraph 2 of the said Sheriffs Return of Service is herein quoted verbatim:

2. The undersigned then proceeded to the parcel of land which is the subject matter of the Deed of
Conveyance and Possession together with purchaser Regalado Daroy, his assignee Nena Abecia, Atty.
Esteban Abecia, Ex-LTC Registrar Clemente Quiblat, P.M. Salazar, and the Police Sgt. of Opol, Misamis
Oriental, Felix Abejuela. Regalado Daroy and his assignee, Nena Abecia, were then formally placed in
actual and physical possession of the parcel of land subject matter of the Deed of Conveyance and
Possession. Regalado Daroy and his assignee, Nena Abecia, then asserted their ownership of the parcel of
land by making use of the improvements found on the land such as the young coconuts and bananas. As a
matter of fact the parcel of land is already in the name of Nena Abecia per Transfer Certificate of Title
No. T-15926 entered in the Register of Deeds of Cagayan de Oro City on June 18, 1973 at 1:00
P.M. (Underscoring Ours).

Likewise, in Office File No. 419-74 of the Office of the Provincial Fiscal (Respondents Annex 10) dated
April 18, 1974, wherein complainant Regalado Daroy was the accused, then 4th Asst. Fiscal Alejo G.
Rola referred to Nena Abecia as the owner of the subject property by virtue of her being the assignee
and/or transferee of the rights of Regalado Daroy.

Furthermore, in Criminal Case No. 88-443 before Branch 25 of the RTC of Misamis Oriental,
complainant testified in open court that he came to know of the Deed of Absolute Sale (Exhibit A) when
the sheriff awarded the land to him (TSN, p. 3. Oct. 4, 1989). The Sheriffs Deed of Conveyance and
Possession, however, was executed by the Provincial Sheriffs way back in April 11, 1972.

How indeed can complainant now have the temerity to claim that he discovered that the subject property
was transferred only in 1984? And how could the Commission on Bar Discipline have overlooked the
above evidence and believed the complainant hook, line and sinker?
2. The Commission on Bar Discipline erred in not giving credence and weight to the testimony/sworn
statement of the Notary Public (Respondents Annex 4) and the instrumental witnesses to the execution of
the questioned Deed of Absolute Sale (Respondents Annexes 5 and 6). Between the Notary Public and the
complainant, the Notary Public, who is known for his unquestioned integrity, honesty and probity, is more
believable. In fact, Notary Public Erasmo G. Damasing, then the incumbent vice-mayor, went on to
become the congressman of Cagayan de Oro City. And between the positive identification of the
complainant as the person who executed the instrument by the Notary Public (and the instrumental
witnesses) and the assertion of the alleged handwriting expert, the positive identification must prevail
especially since the questioned signature of complainant has as many strokes as the sample signatures in
the documents submitted for comparison.

Respondents motion is well taken. As already stated, the land in question was purchased by complainant
at the sheriffs sale held on March 25, 1971. The land was owned by Gertrudes de Bajuyo, wife of one of
the defendants in the action for forcible entry. Upon the lapse of one year and the failure of the owner to
redeem the land, its ownership was consolidated in the name of complainant Regalado Daroy. In his
sheriffs Return of Service issued on August 6, 1973 - long before the complaint in this case was filed on
May 25, 1987 Deputy Sheriff Eufrosino P. Castillo stated that when he finally transferred the land to the
buyer, he placed in possession of the land not only the buyer, Regalado Daroy, but also the latters
assignee, Nena Abecia, in whose name the title to the land had in fact been transferred. The Deputy
Sheriff said in his report:[14]

2. The undersigned then proceeded to the parcel of land which is the subject matter of the
Deed of Conveyance and Possession together with purchaser Regalado Daroy, his
assignee Nena Abecia, Atty. Esteban Abecia, Ex-LTC Registrar Clemente Quiblat, P.M.
Salazar, and the Police Sgt. of Opol, Misamis Oriental, Felix Abejuela. Regalado Daroy
and his assignee, Nena Abecia, were then formally place in actual and physical
possession of the parcel of land subject of the Deed of Conveyance and
Possession. Regalado Daroy and his assignee, Nena Abecia, then asserted their ownership
of the parcel of land by making use of the improvements found in the land such as the
young coconuts and bananas. As a matter of fact the parcel of land is already in the name
of Nena Abecia per Transfer Certificate of Title No. T-15926 entered in the Register of
Deeds at Cagayan de Oro City on June 18, 1973 at 1:00 P.M.

3. At about 2:00 P.M. of the same day, August 4, 1973, the undersigned accompanied
with police Sgt. Felex Abejuela of Opol Police Department and P.M. Salazar went to the
house of Restituto Bajuyo at Mulugan, Opol, Mis. Or. The undersigned explained to
Restituto Bajuyo that Regalado Daroy and his assignee Nena Abecia were already placed
in actual and physical possession of the parcel of land subject matter of the Deed of
Conveyance and Possession and admonished him not to molest Regalado Daroy and his
assignee or anybody appointed by them to take care of the aforecited parcel of land. He
was warned that any violation will be contrary to law and will subject him to court
punishment.

It would appear, therefore, that as early as August 4, 1973 Daroy already knew that title to the land had
already been transferred in the name of respondents wife. Complainants claim that he came to know of
such transfer only in 1984 is thus belied. Nor does it appear that the transfer was made without his
knowledge and consent. To the contrary, the sheriffs return suggests that Daroy had agreed to such
transfer. Hence, the references to Mrs. Abecia as Daroys assignee.

It appears further that as a consequence of the demolition of the former owners house, complainant and
Mrs. Abecia were charged, together with Deputy Sheriff Eufrosino P. Castillo, with grave
coercion/malicious mischief in the Office of the Provincial Fiscal of Misamis Oriental. In his resolution,
dated April 18, 1974, dismissing the charges, Assistant Provincial Fiscal Alejo G. Rola stated, among
other things:[15]

The undersigned despite the declaration of complainant Gertrudes de Bajuyo corroborated by the
testimony of Josefina Jaraula that she was intimidated by a PC soldier, is of the opinion that such
evidence is insufficient to warrant a belief that such an act was in fact done by Sgt. Abalos, because the
other witnesses for the complainant namely, Lito Ejina and Jose Jaime never mentioned that there was
such intimidation employed by Sgt. Abalos at the time despite the fact that these two (2) aforenamed
witnesses, were present at the time and on the date Josefina Jaraula was around. The undersigned is
however of the considered opinion that the house occupied by complainant Gertrudes de Bajuyo was
demolished by respondents, but such an act is a right of Mrs. Nena Abecia in her capacity as an assignee
to do whatever she wants to do of the thing she owns.Furthermore, the allegation of complainant
regarding the intimidation made against her by the PC Sgt. corroborated by the other witness Josefina
Jaraula is insufficient to offset the presumption of regularity of performance of an official duty by a public
officer, apart from the fact that the testimony of Gertrudes Bajuyo and Josefina Jaraula are of dubious
credibility.

Like the sheriffs return made in 1973, this resolution of the Assistant Provincial Fiscal rendered the
following year (1974) belies complainants allegation that the land in question was transferred to Mrs.
Abecia without his knowledge and consent and that he came to know about it only in 1984.

The aforementioned documents were attached to the answer of respondent Esteban Abecia. However,
despite the parties agreement made at the hearing held on January 30, 1989, that the said documents
would be considered the evidence of respondent Abecia, they were not even mentioned in the report of the
Commissioner who investigated the case.

Indeed, what appears to have happened in this case is that the parties thought that because the land had
been acquired by complainant at a public sale held in order to satisfy a judgment in his favor in a case in
which respondent was complainants counsel, the latter could not acquire the land. The parties apparently
had in mind Art. 1491 of the Civil Code which provides, in pertinent parts, as follows:

ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either
in person or through the mediation of another:

....

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and
employees connected with the administration of justice, the property and rights in litigation or levied upon
an execution before the court within whose jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of any litigation in which they may take part by
virtue of their profession.[16]

Of course, the parties were mistaken in thinking that respondent could not validly acquire the land.
In Guevara v. Calalang,[17] on facts similar to those in this case, we held that the prohibition in Art. 1491
does not apply to the sale of a parcel of land, acquired by a client to satisfy a judgment in his favor, to his
attorney as long as the property was not the subject of the litigation. For indeed, while judges, prosecuting
attorneys, and others connected with the administration of justice are prohibited from acquiring property
or rights in litigation or levied upon in execution, the prohibition with respect to attorneys in the case
extends only to property and rights which may be the object of any litigation in which they may take part
by virtue of their profession.

The point is, the parties in this case thought the transfer of the land to respondent Abecia was prohibited
and so they contrived a way whereby the land would be sold to Jose Gangay, whose wife Anita is the
sister of Mrs. Nena Abecia, and then Gangay would sell the land to Mrs. Abecia. As Jose Gangay stated
in his affidavit of March 6, 1985:[18]

4. T - Ano ba ang iyong masasabi tungkol sa nangyari?

S - Sinabihan ako ni Atty. Esteban Abecia, sapagkat siya raw ang abogado sa lupang
pinagkaguluhan, hindi maari na siya ang nakalagay na nagbili ng upa sa kanyang cliente na si
Regalado Daroy, dahil laban raw sa kanilang batas sa mga abogado, kaya sinabihan ako ni
Atty. Esteban Abecia na maari bang gamitin niya ang pangalan ko na ako raw ang nakabili sa
lupa ni Regalado Daroy at paglipas raw ng isang taon, ay kanya ng ilipat sa pangalan sa
documento at tituto hanggang sa pangalan ng kanyang asawa na si Nena Abecia.

5.T - Sumagot ka ba sa hiling ni Atty. Esteban Abecia?

S - Opo, pumayag ako dahil silang dalawa, si Regalado Daroy at si Atty. Esteban Abecia ay
aking mga bilas, sapagkat ang isat-isa naming mga asawa ay magkakapatid.

6. T - Ano man ang nangyari pagkatapos noon?

S - Isang araw, ay pumunta si Atty. Esteban Abecia sa amin at sinama niya ako doon kay Atty.
Wilfredo Linaac upang ipa tunayan ang aking pangalan doon sa documento sa pagbili, at dahil
doon, iyong documento sa pabili ay na notariohan ni Atty. Wilfredo Linaac.

7. T - Binayaran ba kayo ni Nena Abecia at ni Atty. Esteban Abecia sa pera na naghaga ng

isang libo tatlong daan at limang[pung] pesos (P1,350.00) na iyong ang halaga sa lupa.

S - Wala.

8. T - Ipakita ko sa iyo itong documento ng pagbili at may takda ng petsa na Abril 17, 1971
notariadad ni Atty. Wilfredo Linaac Signes sa Doc. No. 333, Pahina 48, Aklat No. VI; taon
series sa 1971; ano mang ang kaugnayan nito sa documento ng pagbili?

S - Ang lahat na mga papiles sa sinasabi ninyo ay wala akong nalalaman, ang nalaman ko lang
noon akoy dinala ni Atty. Esteban Abecia sa oficina ni Atty. Wilfredo Linaac tinanong ako
kong aking pirma iyong sa sa documento.
The sale of the land to Gangay may be fictitious and, therefore, void, but that complainant Regalado
Daroy intended to convey the land ultimately to respondent Esteban Abecia appears to be the case.

It is true that the NBI found the signature of Regalado Daroy on the deed of sale made in favor of Jose
Gangay to have been forged. But Erasmo Damasing, the notary public who notarized the deed, affirmed
that Daroy and his wife appeared before him on March 31, 1971 and, in his presence, signed the
document in question.[19] Daisy Felicilda likewise stated in an affidavit executed on February 17, 1986
that she was a witness to the execution of the deed of sale and that she saw Daroy signing the deed of
sale.[20]

Daroy never denied these claims of the notary public and a witness to the execution of the deed of sale.
Nor was the NBI writing expert ever called to testify on his finding that the signature of Daroy in the deed
of sale appeared to have been signed by a different hand. The finding that the deed of sale was forged was
simply implied from the report of the NBI writing expert. As complainant, Daroy had the burden of
proving that contrary to the recital in the jurat he and his wife never appeared before the notary public and
acknowledged the deed to be their voluntary act.

WHEREFORE, the resolution dated March 26, 1994, of the IBP Board of Governors is
RECONSIDERED and the complaint against respondent Esteban Abecia is DISMISSED.

SO ORDERED.