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G.R. No.

L-57499 June 22, 1984 were built and planted with conjugal funds and through her industry; that the
sale of the land together with the house and improvements to DAGUINES
MERCEDES CALIMLIM- CANULLAS, petitioner, was null and void because they are conjugal properties and she had not
vs. given her consent to the sale,
HON. WILLELMO FORTUN, Judge, Court of First instance of
Pangasinan, Branch I, and CORAZON DAGUINES, respondents. In its original judgment, respondent Court principally declared DAGUINES
"as the lawful owner of the land in question as well as the one-half () of the
Fernandez Law Offices for petitioner. house erected on said land." Upon reconsideration prayed for by
MERCEDES, however, respondent Court resolved:
Francisco Pulido for respondents.
WHEREFORE, the dispositive portion of the Decision of this
Court, promulgated on October 6, 1980, is hereby amended
to read as follows:
(1) Declaring plaintiff as the true and lawful owner of the land
in question and the 10 coconut trees;
Petition for Review on certiorari assailing the Decision, dated October 6,
1980, and the Resolution on the Motion for Reconsideration, dated
(2) Declaring as null and void the sale of the conjugal house
November 27, 1980, of the then Court of First Instance of Pangasinan,
to plaintiff on April 15, 1980 (Exhibit A) including the 3
Branch I, in Civil Case No. 15620 entitled "Corazon DAGUINES vs.
coconut trees and other crops planted during the conjugal
MERCEDES Calimlim-Canullas," upholding the sale of a parcel of land in
relation between Fernando Canullas (vendor) and his
favor of DAGUINES but not of the conjugal house thereon'
legitimate wife, herein defendant Mercedes Calimlim-
The background facts may be summarized as follows: Petitioner
MERCEDES Calimlim-Canullas and FERNANDO Canullas were married on
xxx xxx xxx
December 19, 1962. They begot five children. They lived in a small house on
the residential land in question with an area of approximately 891 square
meters, located at Bacabac, Bugallon, Pangasinan. After FERNANDO's The issues posed for resolution are (1) whether or not the construction of a
father died in 1965, FERNANDO inherited the land. conjugal house on the exclusive property of the husband ipso facto gave the
land the character of conjugal property; and (2) whether or not the sale of the
lot together with the house and improvements thereon was valid under the
In 1978, FERNANDO abandoned his family and was living with private
respondent Corazon DAGUINES. During the pendency of this appeal, they circumstances surrounding the transaction.
were convicted of concubinage in a judgment rendered on October 27, 1981
by the then Court of First Instance of Pangasinan, Branch II, which judgment The determination of the first issue revolves around the interpretation to be
has become final. given to the second paragraph of Article 158 of the Civil Code, which reads:

On April 15, 1980, FERNANDO sold the subject property with the house xxx xxx xxx
thereon to DAGUINES for the sum of P2,000.00. In the document of sale,
FERNANDO described the house as "also inherited by me from my Buildings constructed at the expense of the partnership
deceased parents." during the marriage on land belonging to one of the spouses
also pertain to the partnership, but the value of the land shall
Unable to take possession of the lot and house, DAGUINES initiated a be reimbursed to the spouse who owns the same.
complaint on June 19, 1980 for quieting of title and damages against
MERCEDES. The latter resisted and claimed that the house in dispute where We hold that pursuant to the foregoing provision both the land and the
she and her children were residing, including the coconut trees on the land, building belong to the conjugal partnership but the conjugal partnership is
indebted to the husband for the value of the land. The spouse owning the lot in favor of a concubine after he had abandoned his family and left the
becomes a creditor of the conjugal partnership for the value of the conjugal home where his wife and children lived and from whence they
lot, 1 which value would be reimbursed at the liquidation of the conjugal derived their support. That sale was subversive of the stability of the family, a
partnership. 2 basic social institution which public policy cherishes and protects. 5

In his commentary on the corresponding provision in the Spanish Civil Code Article 1409 of the Civil Code states inter alia that: contracts whose cause,
(Art. 1404), Manresa stated: object, or purpose is contrary to law, morals, good customs, public order, or
public policy are void and inexistent from the very beginning.
El articulo cambia la doctrine; los edificios construidos
durante el matrimonio en suelo propio de uno de los Article 1352 also provides that: "Contracts without cause, or with unlawful
conjuges son gananciales, abonandose el valor del suelo al cause, produce no effect whatsoever. The cause is unlawful if it is contrary to
conj uge a quien pertenezca. law, morals, good customs, public order, or public policy."

It is true that in the case of Maramba vs. Lozano, 3 relied upon by respondent Additionally, the law emphatically prohibits the spouses from selling property
Judge, it was held that the land belonging to one of the spouses, upon which to each other subject to certain exceptions.6 Similarly, donations between
the spouses have built a house, becomes conjugal property only when the spouses during marriage are prohibited. 7 And this is so because if transfers
conjugal partnership is liquidated and indemnity paid to the owner of the or con conveyances between spouses were allowed during marriage, that
land. We believe that the better rule is that enunciated by Mr. Justice J.B.L. would destroy the system of conjugal partnership, a basic policy in civil law. It
Reyes in Padilla vs. Paterno, 3 SCRA 678, 691 (1961), where the following was also designed to prevent the exercise of undue influence by one spouse
was explained: over the other,8 as well as to protect the institution of marriage, which is the
cornerstone of family law. The prohibitions apply to a couple living as
As to the above properties, their conversion from husband and wife without benefit of marriage, otherwise, "the condition of
paraphernal to conjugal assets should be deemed to retroact those who incurred guilt would turn out to be better than those in legal
to the time the conjugal buildings were first constructed union." Those provisions are dictated by public interest and their criterion
thereon or at the very latest, to the time immediately before must be imposed upon the wig of the parties. That was the ruling
the death of Narciso A. Padilla that ended the conjugal in Buenaventura vs. Bautista, also penned by Justice JBL Reyes (CA) 50
partnership. They can not be considered to have become O.G. 3679, and cited in Matabuena vs. Cervantes. 9 We quote hereunder the
conjugal property only as of the time their values were paid pertinent dissertation on this point:
to the estate of the widow Concepcion Paterno because by
that time the conjugal partnership no longer existed and it We reach a different conclusion. While Art. 133 of the Civil
could not acquire the ownership of said properties. The Code considers as void a donation between the spouses
acquisition by the partnership of these properties was, under during the marriage, policy considerations of the most
the 1943 decision, subject to the suspensive condition that exigent character as wen as the dictates of morality require
their values would be reimbursed to the widow at the that the same prohibition should apply to a common-law
liquidation of the conjugal partnership; once paid, the effects relationship.
of the fulfillment of the condition should be deemed to
retroact to the date the obligation was constituted (Art. 1187, As announced in the outset of this opinion, a 1954 Court of
New Civil Code) ... Appeals decision, Buenaventura vs. Bautista, 50 OG 3679,
interpreting a similar provision of the old Civil Code speaks
The foregoing premises considered, it follows that FERNANDO could not unequivocally. If the policy of the law is, in the language of
have alienated the house and lot to DAGUINES since MERCEDES had not the opinion of the then Justice J.B.L. Reyes of that Court, 'to
given her consent to said sale. 4 prohibit donations in favor of the other consort and his
descendants because of fear of undue influence
Anent the second issue, we find that the contract of sale was null and void for and improper pressure upon the donor, a prejudice deeply
being contrary to morals and public policy. The sale was made by a husband rooted in our ancient law, ..., then there is every reason to
apply the same prohibitive policy to persons living together On May 21, 1954, Iluminada Abiertas sold a portion of Lot No. 1018
as husband and wife without benefit of nuptials. For it is not (1018-A) to her other children, namely, Raul Distajo, Ricardo Distajo, Ernesto
to be doubted that assent to such irregular connection for Distajo, Federico Distajo, and Eduardo Distajo.[3]
thirty years bespeaks greater influence of one party over the
other, so that the danger that the law seeks to avoid is On May 29, 1963, Iluminada Abiertas certified to the sale of Lot Nos. 1046
correspondingly increased'. Moreover, as pointed out by and 1047 in favor of Rufo Distajo.[4]
Ulpian (in his lib 32 ad Sabinum, fr. 1), "It would not be just On June 4, 1969, Iluminada Abiertas sold Lot No. 1057 to Rhodora
that such donations should subsist, lest the conditions of Distajo, the daughter of Rufo Distajo.[5]
those who incurred guilt should turn out to be better." So
long as marriage remains the cornerstone of our family law, On July 12, 1969, Iluminada Abiertas sold Lot No. 1018 to Rufo Distajo.[6]
reason and morality alike demand that the disabilities
Meanwhile, Justo Abiertas, Jr., the brother of Iluminada Abiertas, died
attached to marriage should likewise attach
leaving behind his children, Teresita, Alicia, Josefa and Luis Abiertas. Teresita
to concubinage (Emphasis supplied),
paid for the real estate taxes of the following properties, which she inherited
from her father: Lot Nos. 1001, 1048, 1049, and a portion of Lot No. 1047, all
WHEREFORE, the Decision of respondent Judge, dated October 6, 1980, located in Capiz. On May 26, 1954, Teresita Abiertas sold Lot No. 1001 in
and his Resolution of November 27, 1980 on petitioner's Motion for favor of Rufo Distajo.[7] On June 2, 1965, Teresita Abiertas, for herself and
Reconsideration, are hereby set aside and the sale of the lot, house and representing her sisters and brother, sold Lot Nos. 1048, 1049, and a portion
improvements in question, is hereby declared null and void. No costs. of Lot No. 1047 to Rufo Distajo.[8]

SO ORDERED. After purchasing the above-mentioned parcels of land, Rufo Distajo took
possession of the property and paid the corresponding real estate taxes
thereon. Rhodora Distajo likewise paid for the real estate taxes of Lot No.
[G.R. No. 112954. August 25, 2000] When Iluminada Abiertas died in 1971, Zacarias Distajo, Pilar Distajo-
Tapar, and Rizaldo Distajo,[9] demanded possession of the seven parcels of
land from Lagrimas S. Distajo, and her husband, Rufo Distajo. The latter
DISTAJO, ZACARIAS A. DISTAJO, EDUARDO DISTAJO, and Consequently, on June 5, 1986, Ricardo Distajo, with the other heirs of
PILAR DISTAJO TAPAR, petitioners, vs. COURT OF APPEALS Iluminada Abiertas, namely, Ernesto Distajo, Raul Distajo, Federico Distajo,
and LAGRIMAS SORIANO DISTAJO, respondents. Zacarias Distajo, Eduardo Distajo, and Pilar Distajo, filed with the Regional
Trial Court, Roxas City a complaint for recovery of possession and ownership
of Lot No. 1018, partition of Lot Nos. 1001, 1018-B, 1046, 1047, 1048, 1049,
1057, and damages.
On September 4, 1986, private respondent Lagrimas Distajo [10] filed an
answer with counterclaim.
The case under consideration is a petition for review on certiorari of a
decision of the Court of Appeals[1], which modified the ruling of the Regional On April 9, 1990, the trial court dismissed the complaint for lack of cause
Trial Court, Roxas City regarding seven parcels of land located in Barangay of action, laches and prescription. The counterclaim was likewise
Hipona, Pontevedra, Capiz.[2] dismissed. The parties appealed to the Court of Appeals.[11]

During the lifetime of Iluminada Abiertas, she designated one of her sons, On August 21, 1992, the Court of Appeals rendered its decision, [12] the
Rufo Distajo, to be the administrator of her parcels of land denoted as Lot Nos. dispositive portion of which states as follows:
1018, 1046, 1047, and 1057 situated in Barangay Hipona, Pontevedra, Capiz.
PREMISES CONSIDERED, the decision appealed from is hereby SET
ASIDE and a new judgment rendered, as follows:
WHEREFORE, the Court decides the case in favor of the defendant and case.[17]When there is no conflict between the findings of the trial and appellate
dismisses the plaintiffs complaint for lack of cause of action except with courts, a review of the facts found by the appellate court is unnecessary. [18]
regard to the plaintiffs claim over a 238 sq. m. portion of Lot No. 1018 (the
portion adjoining the market site and measuring seventeen meters and that Since the trial court and the Court of Appeals agree that Iluminada
adjoining the property of E. Rodriguez measuring 14 meters). The Court Abiertas owned Lot Nos. 1046, 1057 and a portion of Lot No. 1047, and that
hereby Orders the partition of Lot No. 1018 to conform to the following: 238 Justo Abiertas Jr. owned Lot Nos. 1001, 1048, and 1049, such findings are
sq. m. as above specified to belong to the plaintiffs as prayed for by them binding on this Court, which is not a trier of facts.[19] However, the record shows
while the rest is declared property of the defendant. that Lot No. 1018 should be divided into Lot No. 1018-A and 1018-B, the
delineation of which the Court of Appeals clarified in its decision.
Upon partition of Lot No. 1018 in accordance with this Courts Order, the City The issues in this case, therefore, are limited to those properties which
Assessor of Roxas City is hereby Ordered to cancel Tax Declaration 2813 in were owned by Iluminada Abiertas, ascendant of petitioner, consisting of Lot
the name of Rufo Distajo (or any subsequent tax declaration/s issued relative Nos. 1018-A, 1046, 1057, and a portion of 1047.
to the above-cited Tax Declaration No. 2813) and forthwith to issue the
corresponding tax declarations in the names of the respective parties herein. In his petition, Ricardo Distajo assails the genuineness of the signatures
of Iluminada Abiertas in the deeds of sale of the parcels of land, and claims
that Rufo Distajo forged the signature of Iluminada Abiertas. However, no
handwriting expert was presented to corroborate the claim of
forgery. Petitioner even failed to present a witness who was familiar with the
On September 10, 1992, Ricardo Distajo filed a motion for signature of Iluminada Abiertas. Forgery should be proved by clear and
reconsideration.[13] On December 9, 1993, the Court of Appeals denied the convincing evidence, and whoever alleges it has the burden of proving the
motion.[14] same.[20]
Hence, this petition.[15] Petitioner likewise contends that the sale transactions are void for having
Petitioner alleges that Iluminada Abiertas exclusively owns the seven been entered into by the administrator of the properties. We disagree. The
parcels of land delineated as Lot Nos. 1001, 1018, 1046, 1047, 1048, 1049, pertinent Civil Code provision provides:
and 1057, all of which should be partitioned among all her heirs. Furthermore,
Rufo Distajo cannot acquire the subject parcels of land owned by Iluminada Art. 1491. The following persons cannot acquire by purchase, even at a
Abiertas because the Civil Code prohibits the administrator from acquiring public or judicial auction, either in person or through the mediation of
properties under his administration.[16] Rufo Distajo merely employed another:
fraudulent machinations in order to obtain the consent of his mother to the
sale, and may have even forged her signature on the deeds of sale of the (1) The guardian, the property of the person or persons who may be
parcels of land. under guardianship;
In her comment dated May 13, 1994, private respondent Lagrimas S. (2) Agents, the property whose administration or sale may have
Distajo contends that Rufo Distajo rightfully owns the subject parcels of land been entrusted to them, unless the consent of the principal has
because of various deeds of sale executed by Iluminada Abiertas selling Lot been given;
Nos. 1018-B, 1047 and 1046 in favor of Rufo Distajo and Lot No. 1057 in favor
of Rhodora Distajo. Private respondent also avers that petitioner cannot claim (3) Executors and administrators, the property of the estate under
any right over Lot Nos. 1001, 1048 and 1049, considering that such lands administration; x x x
belong to the brother of Iluminada Abiertas, namely, Justo Abiertas, Jr., whose Under paragraph (2) of the above article, the prohibition against agents
heirs sold said parcels of land to Rufo Distajo. purchasing property in their hands for sale or management is not absolute. It
The petition lacks merit. does not apply if the principal consents to the sale of the property in the hands
of the agent or administrator. In this case, the deeds of sale signed by
Factual findings of the trial court will not be disturbed on appeal unless Iluminada Abiertas shows that she gave consent to the sale of the properties
the court has overlooked or ignored some fact or circumstance of sufficient in favor of her son, Rufo, who was the administrator of the properties. Thus,
weight or significance, which, if considered, would alter the result of the

the consent of the principal Iluminada Abiertas removes the transaction out of Maharlika that the conditions of the contract would be enforced should
the prohibition contained in Article 1491(2). Maharlika fail to settle its account within fifteen (15) days from notice.
Because of Maharlika's failure to settle the unpaid accounts, the GSIS
Petitioner also alleges that Rufo Distajo employed fraudulent notified Maharlika in writing on June 26, 1967 that the conditional contract of
machinations to obtain the consent of Iluminada Abiertas to the sale of the sale was annulled and cancelled and required Maharlika to sign a lease
parcels of land. However, petitioner failed to adduce convincing evidence to contract. Maharlika refused to vacate the premises and to sign the lease
substantiate his allegations. contract.
In the absence of any showing of lack of basis for the conclusions made
by the Court of Appeals, this Court finds no cogent reason to reverse the ruling Sometime later, the GSIS published an invitation to bid several acquired
of the appellate court. properties, among which was the property in question, to be held at the
Office of the General Manager, second floor, GSIS Building, Arroceros
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision Street, Manila, from 9:00 a.m. to 3:00 p.m. on February 12, 1971.
of the Court of Appeals in CA-G.R. CV No. 30063.
SO ORDERED. Meanwhile, on February 11, 1971, or one day before the scheduled public
bidding, Maharlika represented by its president Adolfo Calica addressed to
G.R. No. L-65594 July 9, 1986 GSIS a letter-proposal to repurchase their foreclosed properties proposing
that they be allowed to pay P11,000.00 representing ten percent (10%) of
their total account; that they be allowed to pay P18,300.00 as balance to
complete the twenty-five percent (25%) of their total arrearages(
P117,175.00) not later than February 28, 1971 and the remaining seventy-
five percent (75%) to be paid in twenty four (24) months.
INTERMEDIATE APPELLATE COURT, respondents. This letter-proposal was discussed by Adolfo Calica with GSIS Board Vice-
Chairman Leonilo Ocampo, who wrote a note to the General Manager
Roman Cruz, Jr., the last paragraph of which reads as follows:

It sounds fair and reasonable subject to your wise judgment,

as usual. (Exhibit 4, Maharlika)
The Government Service Insurance System (GSIS) was the registered owner
Said letter-proposal and Ocampo's note were taken by Calica to General
of a parcel of land consisting of 1,373 square meters situated in the district of
Manager Cruz, Jr., who, in turn, wrote on the face of Exhibit 4-Maharlika a
Paco and covered by Transfer Certificate of Title No. 5986 of the Registry of
note to one Mr. Ibaez which reads: "Hold Bidding. Discuss with me." The
Deeds of Manila.
letter-proposal together with two (2) checks amounting to P11,000.00 were
submitted to the office of General Manager Cruz, Jr. and were received by
On June 4, 1963, the GSIS entered into a conditional contract to sell the his Secretary.
parcel of land to petitioner Maharlika Publishing Corporation (Maharlika for
short) together with the building thereon as well as the printing machinery
On February 12, 1971, however, the public bidding of this particular property
and equipment therein. Among the conditions of the sale are that the
was held as scheduled prompting Adolfo Calica to submit his bid to the
petitioner shall pay to the GSIS monthly installments of P969.94 until the total
Bidding Committee with a deposit of P11,000.00 represented by the same
purchase price shall have been fully paid and that upon the failure of
two checks submitted to General Manager Cruz, Jr., together with his letter-
petitioner to pay any monthly installment within ninety (90) days from due
proposal. His bid proposal reads: "I bid to match the highest bidder."
date, the contract shall be deemed automatically cancelled.
The bidding committee rejected Maharlika's bid as an imperfect bid and
After Maharlika failed to pay the installments for several months, the GSIS,
recommended acceptance of private respondent Luz Tagle's bid of
on June 7, 1966, notified Maharlika in writing of its arrearages and warned
P130,000.00 with a ten percent (10%) deposit of P13,000.00.
On February 19, 1971, the GSIS addressed a letter to Adolfo Calica (e) dismissing the counterclaim of defendants Maharlika and
informing him of the non-acceptance of his bid and returning his two checks. the Calicas against plaintiffs;

After approval and confirmation of the sale of the subject property to Luz (f) dismissing the cross-claim of defendants Maharlika and
Tagle on April 20, 1971, the GSIS executed a Deed of Conditional Sale in the Calicos against defendant GSIS;"
favor of the Tagles on June 8, 1971.
(g) dismissing all other claims which the parties may have
Due to the refusal of petitioners to surrender the possession of the property against each other; and
in question, respondent spouses Luz R. Tagle and Edilberto Tagle filed a
case for Recovery of Possession with Damages with the Court of First (h) directing defendants Maharlika, Adolfo Calica and Angela
Instance of Manila which rendered the following decision on May 15, 1974:" Calica to pay the costs of this suit.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the After a motion to set aside judgment and grant a new trial was denied by the
Court hereby renders judgment: trial court for lack of merit, the case was brought on appeal to the former
Court of Appeals on April 8, 1976. On March 2, 1983, the Intermediate
(a) declaring the letter-proposal (Exh.. 3-Maharlika) Appellate Court affirmed the decision of the trial court, stating as follows:
ineffective and without any binding effect, being imperfect to
create any contractual relation between GSIS and xxx xxx xxx
defendants Maharlika and Adolfo Calica;
The mere offer to repurchase of the subject property and the
(b) declaring plaintiffs and (sic) entitled to the possession of deposit of the amount of P11,000.00 by the defendants on
the properties in question and directing, therefore, February 11, 1971, does not have the effect of reviving the
defendants Maharlika and Adolfo Calica, or any person or conditional deed of sale (Exhibit 4-GSIS, Ibid, p. 29)
persons holding or possessing the properties in their behalf, executed by the GSIS and the defendants. To revive the
to forthwith vacate the properties in question and to said contract, and for the defendants to be deemed to have
surrender the same to the plaintiffs;" repurchased the subject property, there should have been
payment in favor of the GSIS of all the installments due and
(c) dismissing the complaint as against defendants 'Heirs of interests thereon in the total amount of P117,175.00 as of
the deceased Pio Calica' (except Angela Calica) it appearing February 11, 1971
that they were not properly summoned and represented in
the instant suit:" But the defendants insist that the notations of Leonilo M.
Ocampo, Vice-Chairman of the GSIS Board of Trustees, to
(d) directing the defendants Maharlika, Adolfo Calica and GSIS General Manager Roman Cruz, Jr. (Exhibits 4-A and
Angela Calica, to pay jointly and severally the plaintiffs a 4-B Maharlika, Ibid, p. 76) as well as the notation of GSIS
monthly rental of the properties in question in the sum of General Manager Roman Cruz, Jr.' to hold bidding. Discuss
P976.00 a month commencing 12 February 1971, until the with me' (Exhibit 4-C Maharlika, Ibid, p. 76) means that the
said properties are vacated by said defendants, with legal GSIS had accepted defendants' offer and had revived the
interest of all sums due from 12 Feb. 1971 up to the conditional contract of sale dated June 4, 1963.
rendition of this judgment in this instant suit, such interest to
commence from the filing of the complaint until the same is This interpretation is far-fetched. The notations referred to by
fully paid; and that such monthly rentals commencing from the defendants do not show acceptance of defendants' offer
the date of this judgment, shall also earn interest at the legal to repurchase the subject property. In fact, the defendants
rate unless paid within the first ten days of the current month themselves were aware that their offer was not accepted at
for the rental of the preceding month;" all because they submitted to and participated in the bidding

of the subject property on February 12,1971 (Exhibits K, K-1, (3) Whether or not the auction sale in question is void for
6, 6-A, Ibid, pp. 16-34), using its letter- proposal as deposit having been conducted despite the directive of the GSIS
for its bid. But defendants' bid was rejected because it was General Manager to suspend the same in virtue of
imperfect and not accompanied with a deposit of 10% of the petitioners' offer to repurchase the subject property and their
highest bid (Exhibits B-1, 7 GSIS, 7-A Maharlika, Ibid, pp. 5, payment of P11,000.00 in checks as earnest money which
35), and that defendants' bid did not contain a specific bid he accepted.
price proposal (Exhibit 7 GSIS, Ibid, p. 35).
Significantly, on September 21, 1984, the GSIS filed a Supplemental
The consequent auction sale of the property on February 12, Memorandum submitting for resolution of this Court the matter of whether the
1971 and execution of the conditional deed of sale in favor of respondent spouses Luz and Edilberto Tagle can still enforce their claim as
the plaintiffs (Exhibit A, Ibid, p. 1) is valid. The plaintiffs are winning bidders considering the fact that they have so far made only two
entitled to the possession of the subject property. payments to the GSIS amounting to P32,500.00 in violation of the terms and
conditions of the conditional sale executed in their favor and which provides
xxx xxx xxx for its automatic cancellation in such case, or whether the petitioners can still
repurchase the property in question as original owners thereof.
A motion for reconsideration and/or new trial was filed by petitioners. The
motion was denied by the respondent Appellate Court. We find the petitioners' motion for reconsideration impressed with merit.

Hence, this petition for review on certiorari filed on December 16,1983. The certification secured by the petitioners from GSIS on April 28, 1983
shows that Edilberto Tagle was Chief, Retirement Division, GSIS, from 1970
to 1978. He worked for the GSIS since 1952. Strictly speaking, the evidence
On January 9, 1984, we resolved to deny in a minute resolution, the petition
of Mr. Tagle's being a GSIS official when his wife bid for the disputed
for lack of merit. A timely motion for reconsideration was filed by the
petitioners which contained the following reasons to warrant review of the property is not newly discovered evidence. However, we cannot simply
case: ignore the fact that on February 12, 1971 when Adolfo Calica was
desperately trying to retrieve the property foreclosed against him, after
receiving assurances from the highest GSIS officials that his letter- proposal
It is apparent that petitioners will suffer serious injustice, would be accepted and after the sale at public auction of the property was, in
consisting in the loss of the subject property, by reason of fact, ordered to be stopped, the wife of a GSIS official would be allowed to
the failure of respondent Court to decide questions of bid for that property and would actually win in the bidding.
substance involved herein in a way not in accord with law
and the applicable decisions of this Honorable Court, such
As stated by the petitioners, this important factor implicit in good government,
questions being the following:
should have been considered in the interest of justice. It was incumbent
under the law for GSIS to have rejected the bid of the wife of a GSIS official
(1) Whether or not respondent Edilberto Tagle's being a and to have refused to enter into the deed of conditional sale with the
GSIS officer at the time of the sale by the GSIS of the respondents Tagle.
subject property to his wife should be allowed to be
introduced as newly discovered evidence or at any rate
The petitioners bank on the allegation that the indirect participation of
received in the interest of justice;"
Edilberto Tagle in the public bidding creates a "conflict of interests situation"
which invalidates the aforesaid transaction under the precept laid down in
(2) Whether or not respondent Court acted with grave abuse Article 1409 paragraph (1) of the Civil Code making his participation void for
of discretion in ignoring the irregular appearance of being contrary to morals, good customs, and public policy.
respondent Luz Tagle's bid and the inference of fraud
flowing therefrom in the context of surrounding
circumstances; The Supreme Court has ample authority to go beyond the pleadings when in
the interest of justice and the promotion of public policy there is a need to
make its own finding to support its conclusions. In this particular case, there
is absolutely no doubt that Mr. Edilberto Tagle was a GSIS Division Chief (5) Justices, judges, prosecuting attorneys, clerk of superior
when his wife bid for the property being sold by GSIS. The only issue is and inferior courts, and other officers and employees
whether or not to consider this fact because it surfaced only after trial proper. connected with the administration of justice, the property and
rights in litigation or levied upon an execution before the
We declare it to be a policy of the law that public officers who hold positions court within whose jurisdiction or territory they exercise their
of trust may not bid directly or indirectly to acquire prop properties foreclosed respective functions; this prohibition includes the act of
by their offices and sold at public auction. acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
Article XIII, Section 1 of our Constitution states that: any litigation in which they may take part by virtue of their
Public office is a public trust. Public officers and employees
(6) Any others specially disqualified by law.
shall serve with the highest degree of responsibility, integrity,
loyalty and efficiency, and shall remain accountable to the
people. In so providing, the Code tends to prevent fraud, or more precisely, tends not
to give occasion for fraud, which is what can and must be done
(Francisco, Sales, p. 111). We, therefore, reject the contention of
We stated in Ancheta vs. Hilario (96 SCRA 62);
respondents that the fact that Edilberto Tagle was, at the time of the public
bidding, a GSIS official, will not alter or change the outcome of the case.
xxx xxx xxx
A Division Chief of the GSIS is not an ordinary employee without influence or
...A public servant must exhibit at all times the highest sense of honesty and authority. The mere fact that he exercises ample authority with respect to a
integrity. ... particular activity, i.e., retirement, shows that his influence cannot be lightly
Under Article 1491 of the Civil Code the following persons cannot acquire by
purchase, even at a public or judicial auction, either in person or through the The point is that he is a public officer and his wife acts for and in his name in
mediation of another: any transaction with the GSIS. If he is allowed to participate in the public
bidding of properties foreclosed or confiscated by the GSIS, there will always
(1) The guardian, the property of the person or persons who be the suspicion among other bidders and the general public that the insider
may be under his guardianship; official had access to information and connections with his fellow GSIS
officials as to allow him to eventually acquire the property. It is precisely the
(2) Agents, the property whose administration or sale may need to forestall such suspicions and to restore confidence in the public
have been intrusted to them, unless the consent of the service that the Civil Code now declares such transactions to be void from
principal has been given; the beginning and not merely voidable (Rubias vs. Batiller, 51 SCRA 120).
The reasons are grounded on public order and public policy. We do not
(3) Executors and administrators, the property of the estate comment on the motives of the private respondents or the officers
under administration; supervising the bidding when they entered into the contract of sale. Suffice it
to say that it fags under the prohibited transactions under Article 1491 of the
Civil Code and, therefore, void under Article 1409.
(4) Public officers and employees, the property of the State
or of any subdivisions thereof, or of any government owned
or controlled corporation, or institution, the administration of In the case of Garciano vs. Oyao (102 SCRA 195), this Court held:
which has been intrusted to them; this provision shall apply
to judges and government experts who, in any manner xxx xxx xxx
whatsoever, take part in the sale;
...We need not exaggerate the importance of being
absolutely free from any suspicion which may unnecessarily
erode the faith and confidence of the People in their There are other grounds which contain us to grant this petition.
government. As the Constitution categorically declared:
'Public office is a public trust. Public officers and employees We now come to the issue whether or not there was a repurchase of the
shall serve with the highest degree of responsibility, integrity, property in question from the GSIS effected by the petitioners the day before
loyalty and efficiency, and shall remain accountable to the the public bidding.
people' (Art. XIII, Sec. 1, Constitution).
In Article 1475 of the Civil Code, we find that "the contract of sale is
xxx xxx xxx perfected at the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price. From that moment, the parties
Respondent Wilfredo Oyao, should avoid so far as may reciprocally demand performance, subject to the law governing the form
reasonably possible a situation which would normally tend to of contracts. "
arouse any reasonable suspicion that he is utilizing his
official position for personal gain or advantage to the This Court in the case of Central Bank of the Philippines vs. Court of
prejudice of party litigants or the public in general. In the Appeals (63 SCRA 431) ruled on the perfection of government contracts in
language of then Justice, now Chief Justice Enrique M. the following manner:
Fernando in the case of Pineda vs. Claudio (28 SCRA 34,
54): 'There may be occasion then where the needs of the
We are not persuaded that petitioner's posture conforms with
collectivity that is the government may collide with his private law and equity. According to Paragraph IB 114.1 of the
interest as an individual. Instructions to Bidders, Ablaza was 'required to appear in the
office of the Owner (the Bank) in person, or, if a firm or
In Mclain vs. Miller County (23 SW 2d. 2-4; 255) the Court ruled that: corporation, a duly authorized representative (thereof )and to
execute the contract within five (5) days after notice that the
As the efficiency of the public service is a matter of vital contract has been awarded to him. Failure or neglect to do
concern to the public, it is not surprising that agreements so shall constitute a breach of agreement effected by the
tending to injure such service should be regarded as being acceptance of the Proposal. There can be no other meaning
contrary to public policy. It is not necessary that actual fraud of this provision than that the Bank's acceptance of the bid of
should be shown, for a contract which tends to the injury of respondent Ablaza effected an actionable agreement
the public service is void, although the parties entered into it between them. We cannot read it in the unilateral sense
honestly, and proceeded under it in good faith. The courts do suggested by petitioner that it bound only the contractor,
not inquire into the motives of the parties in the particular without any corresponding responsibility or obligation at all
case to ascertain whether they were corrupt or not, but stop on the part of the Bank. An agreement presupposed a
when it is ascertained that the contract is one which is meeting of minds and when that point is reached in the
opposed to public policy. Nor is it necessary to show that negotiations between two parties intending to enter into a
any evil was in fact, done by or through the contract. The contract, the purported contract is deemed perfected and
purpose of the rule is to prevent persons from assuming a none of them may thereafter disengage himself therefrom
position where selfish motives may impel them to sacrifice without being liable to the other in an action for specific
the public good to private benefit. performance. "

There is no need, therefore, to pass upon the issue of irregularity in the In American Jurisprudence, 2d., Section 73 (pp. 186-187), we read:
appearance of the private respondents' bid and the alleged inference of fraud
flowing therefrom. The principle is fundamental that a party cannot be held to
have contracted if there was no assent, and this is so both
We reiterate that assuming the transaction to be fair and not tainted with as to express contracts and contracts implied in fact. There
irregularity, it is still looked upon with disfavor because it places the officer in must be mutual assent or a meeting of minds in all essential
a position which might become antagonistic to his public duty. elements or terms in order to form a binding contract.
However, ordinarily no more is meant by this than an made. Naturally he can have little or no information as to
expression or manifestation of mutual assent, as an what occurs in corporate meetings; and he must necessarily
objective thing, is necessary, and that is generally deemed rely upon the external manifestation of corporate consent.
sufficient in the formation of a contract ... In other words, The integrity of commercial transactions can only be
appropriate conduct by the parties may be sufficient to maintained by holding the corporation strictly to the liability
establish an agreement, and there may be instances where fixed upon it by its agents in accordance with law; and we
interchanged correspondence does not disclose the exact would be sorry to announce a doctrine which would permit
point at which the deal was closed, but the actions of the the property of a man in the city of Paris to be whisked out of
parties may indicate that a binding obligation has been his hands and carried into a remote quarter of the earth
undertaken. without recourse against the corporation whose name and
authority had been used in the manner disclosed in this
It is undisputed that when the letter-proposal of petitioners was presented to case. As already observed, it is familiar doctrine that if a
GSIS General Manager Roman Cruz, Jr., he wrote on the face of such letter corporation knowingly permits one of its officers, or any other
the words "Hold Bidding. Discuss with me." These instructions were agent, to do acts within the scope of an apparent authority,
addressed to one Mr. Ibaez who was in-charge of public bidding. and thus holds him out to the public as possessing power to
Thereafter, a deposit of P11,000.00 in checks was accepted by the Secretary do those acts, the corporation will, as against any one who
of Mr. Roman Cruz, Jr. In the light of these circumstances an inference may has in good faith dealt with the corporation through such
be made that General Manager Cruz, Jr. had already accepted the agent, be estopped from denying his authority; and where it
petitioners' offer of repurchase or at the very least had led them to is said if the corporation permits' this means the same as 'if
understand that he had arrived at a decision to accept it. the thing is permitted by the directing power of the
It should also be noted that there is no serious denial as to General Manager
Cruz, Jr.'s capacity to enter into binding contractual obligations for GSIS We note that the petitioners are not complete strangers entering into a
without the prior approval of the Board of Trustees. contract with respondent GSIS for the first time. There was an earlier
contract to sell the same properties to the petitioners. That contract was
perfected and there had been partial compliance with its terms. The
On the other hand, the letter of endorsement made by the GSIS Board Vice-
transaction now under question in this case merely referred to the curing of
Chairman Leonilo Ocampo which states ...subject to your wise judgment, as
certain defects which led to the cancellation of the earlier contract by GSIS.
usual leads one to conclude that it has been the practice of GSIS to permit
Under the peculiar circumstances of this case, therefore, the acceptance of
the General Manager to do acts within the scope of his apparent authority.
the petitioners' letter-proposal by Mr. Roman Cruz, Jr., the person with
authority to do so, and his order to his subordinates to stop the bidding so
In the case of Francisco vs. Government Service Insurance System (7 SCRA that they could first discuss the matter with him, created an agreement of
577), we held that: binding nature with the petitioners.

xxx xxx xxx WHEREFORE, the decision and resolution of the Intermediate Appellate
Court subject of the instant petition for review on certiorari are hereby SET
... Corporate transactions would speedily come to a standstill ASIDE. The conditional sale entered into between public respondent GSIS
were every person dealing with a corporation held duty- and private respondents Luz and Edilberto Tagle is declared NULL and VOID
bound to disbelieve every act of its responsible officers, no for being contrary to public policy. The prayer of petitioners for the
matter how regular they should appear on their face. This repurchase of the subject property in an amount equal to the amount offered
Court has observed in Ramirez vs. Orientalist Co., 38 Phil. by private respondents and to retain ownership and possession of the
634, 654-655, that disputed property is GRANTED.

In passing upon the liability of a corporation in cases of this SO ORDERED.

kind it is always well to keep in mind the situation as it
presents itself to the third party with whom the contract is
G.R. No. L-68838 March 11, 1991 Thank you.

FLORENCIO FABILLO and JOSEFA TANA (substituted by their heirs Cordially yours,
Gregorio Fabillo, Roman Fabillo, Cristeta F. Maglinte and Antonio (Sgd.) Alfredo M. Murillo
Fabillo), petitioners, Aug. 9, 19643
THE HONORABLE INTERMEDIATE APPELLATE COURT (Third Civil Thirteen days later, Florencio and Murillo entered into the following contract:
Case Division) and ALFREDO MURILLO (substituted by his heirs
Fiamita M. Murillo, Flor M. Agcaoili and Charito M. Babol), respondents.

Francisco A. Tan for petitioners.

Von Kaiser P. Soro for private respondent.
legal age, Filipino citizen and with residence and postal
address at Palo, Leyte, was the Petitioner in Special
In the instant petition for review on certiorari, petitioners seek the reversal of Proceedings No. 843, entitled "In the Matter of the Testate
the appellate court's decision interpreting in favor of lawyer Alfredo M. Murillo Estate of the late Justina Fabillo, Florencio Fabillo,
the contract of services entered into between him and his clients, spouses Petitioner" of the Court of First Instance of Leyte;
Florencio Fabillo and Josefa Taa.
That by reason of the Order of the Court of First Instance of
In her last will and testament dated August 16, 1957, Justina Fabillo Leyte dated June 2, 1962, my claim for the house and lot
bequeathed to her brother, Florencio, a house and lot in San Salvador Street, mentioned in paragraph one (1) of the last will and testament
Palo, Leyte which was covered by tax declaration No. 19335, and to her of the late Justina Fabillo, was denied altho the will was
husband, Gregorio D. Brioso, a piece of land in Pugahanay, Palo, probated and allowed by the Court;
Leyte.1 After Justina's death, Florencio filed a petition for the probate of said
will. On June 2, 1962, the probate court approved the project of partition
That acting upon the counsel of Atty. Alfredo M. Murillo, I
"with the reservation that the ownership of the land declared under Tax have cause(d) the preparation and filing of another case,
Declaration No. 19335 and the house erected thereon be litigated and
entitled "Florencio Fabillo vs. Gregorio D. Brioso," which was
determined in a separate proceedings."2
docketed as Civil Case No. 3532 of the Court of First
Instance of Leyte;
Two years later, Florencio sought the assistance of lawyer Alfredo M. Murillo
in recovering the San Salvador property. Acquiescing to render his services, That I have retained and engaged the services of Atty.
Murillo wrote Florencio the following handwritten letter:
ALFREDO M. MURILLO, married and of legal age, with
residence and postal address at Santa Fe, Leyte to be my
Dear Mr. Fabillo: lawyer not only in Social Proceedings No. 843 but also in
Civil Case No. 3532 under the following terms and
I have instructed my stenographer to prepare the complaint and file the same conditions;
on Wednesday if you are ready with the filing fee and sheriffs fee of not less
than P86.00 including transportation expenses. That he will represent me and my heirs, in case of my
demise in the two cases until their successful conclusion or
Considering that Atty. Montilla lost this case and the present action is a until the case is settled to my entire satisfaction;
revival of a lost case, I trust that you will gladly give me 40% of the money
value of the house and lot as a contigent (sic) fee in case of a success. That for and in consideration for his legal services, in the two
When I come back I shall prepare the contract of services for your signature. cases, I hereby promise and bind myself to pay Atty.
ALFREDO M. MURILLO, in case of success in any or both IN WITNESS HEREOF, I hereby set unto my signature
cases the sum equivalent to FORTY PER CENTUM (40%) below this 22nd day of August 1964 at Tacloban City.
of whatever benefit I may derive from such cases to be
implemented as follows: (Sgd.) FLORENCIO FABILLO

If the house and lot in question is finally awarded to me or a (Sgd.) JOSEFA T. FABILLO
part of the same by virtue of an amicable settlement, and the WITH MY CONFORMITY:
same is sold, Atty. Murillo, is hereby constituted as Atty. in-
fact to sell and convey the said house and lot and he shall
be given as his compensation for his services as counsel
and as attorney-in-fact the sum equivalent to forty per
centum of the purchase price of the house and lot; (Sgd.) ROMAN T. FABILLO (Sgd.) CRISTETA F. MAGLINTE
(Witness) (Witness)4
If the same house and lot is just mortgage(d) to any person,
Atty. Murillo shall be given the sum equivalent to forty per Pursuant to said contract, Murillo filed for Florencio Fabillo Civil Case No.
centum (40%) of the proceeds of the mortgage; 3532 against Gregorio D. Brioso to recover the San Salvador property. The
case was terminated on October 29, 1964 when the court, upon the parties'
If the house and lot is leased to any person, Atty. Murillo joint motion in the nature of a compromise agreement, declared Florencio
shall be entitled to receive an amount equivalent to 40% Fabillo as the lawful owner not only of the San Salvador property but also the
(FORTY PER CENTUM) of the rentals of the house and lot, Pugahanay parcel of land.
or a part thereof;
Consequently, Murillo proceeded to implement the contract of services
If the house and lot or a portion thereof is just occupied by between him and Florencio Fabillo by taking possession and exercising
the undersigned or his heirs, Atty. Murillo shall have the rights of ownership over 40% of said properties. He installed a tenant in the
option of either occupying or leasing to any interested party Pugahanay property.
FORTY PER CENT of the house and lot.
Sometime in 1966, Florencio Fabillo claimed exclusive right over the two
Atty. Alfredo M. Murillo shall also be given as part of his properties and refused to give Murillo his share of their produce.5 Inasmuch
compensation for legal services in the two cases as his demands for his share of the produce of the Pugahanay property were
FORTY PER CENTUM of whatever damages, which the unheeded, Murillo filed on March 23, 1970 in the then Court of First Instance
undersigned can collect in either or both cases, provided, of Leyte a complaint captioned "ownership of a parcel of land, damages and
that in case I am awarded attorney's fees, the full amount of appointment of a receiver" against Florencio Fabillo, his wife Josefa Taa,
attorney's fees shall be given to the said Atty. ALFREDO M. and their children Ramon (sic) Fabillo and Cristeta F. Maglinte.6
Murillo prayed that he be declared the lawful owner of forty per cent of the
That in the event the house and lot is (sic) not sold and the two properties; that defendants be directed to pay him jointly and severally
same is maintained by the undersigned or his heirs, the P900.00 per annum from 1966 until he would be given his share of the
costs of repairs, maintenance, taxes and insurance produce of the land plus P5,000 as consequential damages and P1,000 as
premiums shall be for the account of myself or my heirs and attorney's fees, and that defendants be ordered to pay moral and exemplary
Attorney Murillo, in proportion to our rights and interest damages in such amounts as the court might deem just and reasonable.
thereunder that is forty per cent shall be for the account of
Atty. Murillo and sixty per cent shall be for my account or my In their answer, the defendants stated that the consent to the contract of
heirs. services of the Fabillo spouses was vitiated by old age and ailment; that
Murillo misled them into believing that Special Proceedings No. 843 on the
probate of Justina's will was already terminated when actually it was still
pending resolution; and that the contingent fee of 40% of the value of the (a) Declaring the plaintiff as entitled to and the true and lawful owner
San Salvador property was excessive, unfair and unconscionable of forty percent (40%) of the parcels of land and improvements
considering the nature of the case, the length of time spent for it, the efforts thereon covered by Tax Declaration Nos. 19335 and 6229 described
exerted by Murillo, and his professional standing. in Paragraph 5 of the complaint;

They prayed that the contract of services be declared null and void; that (b) Directing all the defendants to pay jointly and severally to the
Murillo's fee be fixed at 10% of the assessed value of P7,780 of the San plaintiff the sum of Two Thousand Four Hundred Fifty Pesos
Salvador property; that Murillo be ordered to account for the P1,000 rental of (P2,450.00) representing 40% of the net produce of the Pugahanay
the San Salvador property which he withdrew from the court and for the property from 1967 to 1973;
produce of the Pugahanay property from 1965 to 1966; that Murillo be
ordered to vacate the portion of the San Salvador property which he had (c) Declaring the plaintiff entitled to 40% of the 1974 and 1975
occupied; that the Pugahanay property which was not the subject of either income of said riceland now on deposit with the Prudential Bank,
Special Proceedings No. 843 or Civil Case No. 3532 be declared as the Tacloban City, deposited by Mr. Pedro Elona, designated receiver of
exclusive property of Florencio Fabillo, and that Murillo be ordered to pay the property;
moral damages and the total amount of P1,000 representing expenses of
litigation and attorney's fees.
(d) Ordering the defendants to pay the plaintiff the sum of Three
Hundred Pesos (P 300.00) as attorney's fees; and
In its decision of December 2, 1975,7 the lower court ruled that there was
insufficient evidence to prove that the Fabillo spouses' consent to the (e) Ordering the defendants to pay the costs of this suit.
contract was vitiated. It noted that the contract was witnessed by two of their
children who appeared to be highly educated. The spouses themselves were
old but literate and physically fit. SO ORDERED.

In claiming jurisdiction over the case, the lower court ruled that the complaint In view of the death of both Florencio and Justina Fabillo during the
being one "to recover real property from the defendant spouses and their pendency of the case in the lower court, their children, who substituted them
heirs or to enforce a lien thereon," the case could be decided independent of as parties to the case, appealed the decision of the lower court to the then
the probate proceedings. Ruling that the contract of services did not violate Intermediate Appellate Court. On March 27, 1984, said appellate court
Article 1491 of the Civil Code as said contract stipulated a contingent fee, the affirmed in toto the decision of the lower court.8
court upheld Murillo's claim for "contingent attorney's fees of 40% of the
value of recoverable properties." However, the court declared Murillo to be The instant petition for review on certiorari which was interposed by the
the lawful owner of 40% of both the San Salvador and Pugahanay properties Fabillo children, was filed shortly after Murillo himself died. His heirs likewise
and the improvements thereon. It directed the defendants to pay jointly and substituted him in this case. The Fabillos herein question the appellate
severally to Murillo the amount of P1,200 representing 40% of the net court's interpretation of the contract of services and contend that it is in
produce of the Pugahanay property from 1967 to 1973; entitled Murillo to violation of Article 1491 of the Civil Code.
40% of the 1974 and 1975 income of the Pugahanay property which was on
deposit with a bank, and ordered defendants to pay the costs of the suit. The contract of services did not violate said provision of law. Article 1491 of
the Civil Code, specifically paragraph 5 thereof, prohibits lawyers from
Both parties filed motions for the reconsideration of said decision: Fabillo, acquiring by purchase even at a public or judicial auction, properties and
insofar as the lower court awarded 40% of the properties to Murillo and the rights which are the objects of litigation in which they may take part by virtue
latter insofar as it granted only P1,200 for the produce of the properties from of their profession. The said prohibition, however, applies only if the sale or
1967 to 1973. On January 29, 1976, the lower court resolved the motions assignment of the property takes place during the pendency of the litigation
and modified its decision thus: involving the client's property.9

ACCORDINGLY, the judgment heretofore rendered is modified to Hence, a contract between a lawyer and his client stipulating a contingent fee
read as follows: is not covered by said prohibition under Article 1491 (5) of the Civil Code
because the payment of said fee is not made during the pendency of the Considering the nature of the case, the value of the properties subject matter
litigation but only after judgment has been rendered in the case handled by thereof, the length of time and effort exerted on it by Murillo, we hold that
the lawyer. In fact, under the 1988 Code of Professional Responsibility, a Murillo is entitled to the amount of Three Thousand Pesos (P3,000.00) as
lawyer may have a lien over funds and property of his client and may apply reasonable attorney's fees for services rendered in the case which ended on
so much thereof as may be necessary to satisfy his lawful fees and a compromise agreement. In so ruling, we uphold "the time-honored legal
disbursements.10 maxim that a lawyer shall at all times uphold the integrity and dignity of the
legal profession so that his basic ideal becomes one of rendering service and
As long as the lawyer does not exert undue influence on his client, that no securing justice, not money-making. For the worst scenario that can ever
fraud is committed or imposition applied, or that the compensation is clearly happen to a client is to lose the litigated property to his lawyer in whom all
not excessive as to amount to extortion, a contract for contingent fee is valid trust and confidence were bestowed at the very inception of the legal
and enforceable.11 Moreover, contingent fees were impliedly sanctioned by controversy."16
No. 13 of the Canons of Professional Ethics which governed lawyer-client
relationships when the contract of services was entered into between the WHEREFORE, the decision of the then Intermediate Appellate Court is
Fabillo spouses and Murillo.12 hereby reversed and set aside and a new one entered (a) ordering the
petitioners to pay Atty. Alfredo M. Murillo or his heirs the amount of
However, we disagree with the courts below that the contingent fee P3,000.00 as his contingent fee with legal interest from October 29, 1964
stipulated between the Fabillo spouses and Murillo is forty percent of the when Civil Case No. 3532 was terminated until the amount is fully paid less
properties subject of the litigation for which Murillo appeared for the Fabillos. any and all amounts which Murillo might have received out of the produce or
A careful scrutiny of the contract shows that the parties intended forty rentals of the Pugahanay and San Salvador properties, and (b) ordering the
percent of the value of the properties as Murillo's contingent fee. This is receiver of said properties to render a complete report and accounting of his
borne out by the stipulation that "in case of success of any or both cases," receivership to the court below within fifteen (15) days from the finality of this
Murillo shall be paid "the sum equivalent to forty per centum of whatever decision. Costs against the private respondent.
benefit" Fabillo would derive from favorable judgments. The same stipulation
was earlier embodied by Murillo in his letter of August 9, 1964 aforequoted. SO ORDERED.

Worth noting are the provisions of the contract which clearly states that in A.M. No. 632 June 27, 1940
case the properties are sold, mortgaged, or leased, Murillo shall be entitled
respectively to 40% of the "purchase price," "proceeds of the mortgage," or In re Attorney MELCHOR E. RUSTE, respondent,
"rentals." The contract is vague, however, with respect to a situation wherein
the properties are neither sold, mortgaged or leased because Murillo is The respondent in his own behalf.
allowed "to have the option of occupying or leasing to any interested party Office of the Solicitor-General Hilado for the Government.
forty per cent of the house and lot." Had the parties intended that Murillo
should become the lawful owner of 40% of the properties, it would have been
clearly and unequivocally stipulated in the contract considering that the LAUREL, J.:
Fabillos would part with actual portions of their properties and cede the same
to Murillo. By virtue of an administrative complaint filed by Mateo San Juan against
Melchor E. Ruste on February 27, 1934, to which the respondent made
The ambiguity of said provision, however, should be resolved against Murillo answer on March 15, 1934, this Court, by resolution of December 1, 1934,
as it was he himself who drafted the contract.13 This is in consonance with referred the case to the Solicitor-General for report. The reference brought
the rule of interpretation that, in construing a contract of professional services forth the following formal complaint filed by the Solicitor-General against the
between a lawyer and his client, such construction as would be more respondent on March 26, 1935:
favorable to the client should be adopted even if it would work prejudice to
the lawyer.14 Rightly so because of the inequality in situation between an Comes now the undersigned Solicitor-General of the Philippine
attorney who knows the technicalities of the law on the one hand and a client Islands in the above entitled administrative case, and pursuant to the
who usually is ignorant of the vagaries of the law on the other hand. 15 provisions of Rule 5 of the rules concerning disbarment or

suspension of attorneys-at-law, to this Honorable Supreme Court, 7. That notwithstanding said second deed of sale, the respondent
respectively alleges: obtained from Ong Chua to allow the complaint and his wife to
continue living house for a period of two years without paying any
1. That in cadastral case No. 6, G. L. R. O. Record No. 483 of the rent;
Court of First Instance of Zamboanga, the respondent, Melchor E.
Ruste, appeared for and represented, as counsel, Severa Ventura 8. That on October 10, 1933, however, the respondent notified the
and her husband, Mateo San Juan, the herein complainant, who complainant and his wife in writing that the said house still belonged
claimed lot No. 3765; and as a result of said cadastral proceedings, to the respondent, and requires said spouses to pay, the sum of
an undivided eleven-twentieth (11/20) share of said lot was P40.50, representing ten months' rental in arrears, and thereafter a
adjudicated by said court to said claimants; monthly rental of P1.50; and

2. That there was no agreement the respondent and his said clients 9. That the respondent did not turn over to the complainant and his
as to the amount of his fees; but that they paid to him upon demand wife the amount of P370 paid by Ong Chua nor any part thereof.
on different occasions the sums of (30 and P25 as attorney's fees;
Wherefore, the undersigned prays that disciplinary action be taken
3. That after said payments, the respondent again demanded of the against the respondent.
complainant and his wife as additional fees the sum of P25, but they
had no money to pay, him, and so he asked them to execute in his To the foregoing complaint, the respondent, on April 23, 1935, interposed the
favor a contract of lease, and a contract of sale, of their share in said following answer:
lot No. 3764 in order that he may be able to borrow or raise said sum
of P25;
Comprarece el infrascrito, en su propiarepresentacion y a la
Honorable Corte Suprema, alega:
4. That in accordance with said respondent's request, the
complainant and his wife executed on September 22, 1930, a
Niega, general y especificamente sus alegaciones en dicha
contract of lease, whereby in consideration of P100, they leased to
demanda, sobretodo en cuanto al pago de cantidades monetarias
him their coconut and banana plantation in said lot No. 3764 for a
alli especificadas, y como defensa especial, alega:
term of five years, and also a deed of sale, whereby in consideration
of P1,000, they sold and transferred to him their undivided eleven-
twentieth (11/20) share in said lot No . 3764, although, ,in fact and in Que el denunciante Mateo San Juan, y sus testigos Esperato Bucoy
truth, neither of the consideration mentioned in said contracts of y Severa Ventura han infringido la Ley del Perjurio; ademasd el
lease and sale were ever receive by them; Fiscal Provincial Jose Evangelista es una parte interesada en el
resultado de este asunto;
5. That on March 21, 1931, the respondent executed a deed of sale,
whereby in consideration of P370 he sold and transferred to Ong Por todo lo expuesto, al Honorable Tribunal pide:
Chua said undivided eleven-twentieth (11/20) share in lot No. 3764
excluding the house and its lot, occupied by the complainant and his (a) Que para la substanciacion de esta causa que actue de Fiscal, el
wife; and on March 28, 1931, the respondent executed another deed Honorable Enrique Braganza, Fiscal de Jolo, Sulu;
of sale, whereby in consideration of the same amount of P370 paid
to him by the same Ong Chua, he sold and transferred to the latter (b) Que dicho Honorable Fiscal Enrique Braganza, sea requerido a
the same undivided eleven-twentieth (11/20") share in lot No. 3764, investigar a los testigos, Esperato Bucoy y Severa, Ventura, y la Ley
but already including said houses and its lot; del Perjirio tal como esta enmendada.

6. That by virtue of the sale to him, Ong Chua has taken possession Sometido respetuosamente.
of said eleven-twentieth share in lot No. 3764;

By resolution of this court of April 24, 1935, the said formal complaint and The property being thus in suit, which the respondent was waging on behalf
answer were referred to the judge of First Instance of Zamboanga for of his clients, his acquisition thereof by the deed of sale, Exhibit B,
investigation, report, and recommendation. After various and postponements, constitutes malpractice. (Hernandez vs. Villanueva, 40 Phil., 775; In
transpiring between August 3, 1935 and October 18, 1939, the Honorable re Calderon, 7 Phil. 427.) Whether the deed of sale in question was executed
Catalino Buenaventura, then presiding over the Court of First Instance of at the instance of the spouses driven by financial necessity, as contended by
Zamboanga, elevated the record of the case of this court. On October 31, the respondent, or at the latter's behest, as contended by the complainant, is
1939, the case was included in the January, 1940 calendar, and at the of no moment. In either case as attorney occupies a vantage position to
hearing thereof on February 1, 1940, the respondent submitted the case press upon or dictate his terms to a harassed client, in breach of the "rule so
without oral argument, and the memorandum presented by the Solicitor- amply protective of the confidential relations, which must necessarily exist
General, recommending the dismissal of the complaint filed against between attorney and client, and of the rights of both."
respondent, was ordered attached to the record. (Hernandez vs. Villanueva, supra.)

From a perusal of the entire record, particularly of the formal complaint filed There is evidence to show that the respondent has failed to account to the
by the Solicitor-General against the respondent attorney, we gather the aggrieved spouses for the various amounts received by him on account of
following material charges formulated against the latter, to wit, (1) that he the transactions effected by him pertaining to the portion of lot No. 3764.
engineered the execution in his favor, by the spouses Mateo San Juan and However, as the evidence is conflicting and the statements of the parties are
Severa Ventura, of the contract of lease, Exhibit A, and of the deed of sale, contradictory on this point, it is believed that the determination of the exact
Exhibit B, covering the property in question; (2) that he did turn over the amount due them by the respondent should better elucidated and determined
considerations therefor to the said spouses; (3) that he likewise deeded the in an appropriate action which the complaint and his spouse may institute
same property to one Ong Chua, for P370, without paying the spouses the against the respondent for this purpose.
said purchase price, and (4) that he required the spouses to pay (40.50 for
ten months' rental in arrears, and thereafter a monthly rental of P1.50 for the For having improperly acquired the property referred to in Exhibits A and B,
house occupied by the said spouses. under the above circumstances, which property was then subject matter of a
judicial proceedings, in which he was counsel, the respondent is found guilty
Sometime in July, 1930, the respondent acted as counsel for the complainant of malpractice and is hereby suspended for a period of one year, reserving to
and his wife when the latter laid claim of ownership upon lot No. 3764 in case the complainant and his spouse such action as may by proper for the
No. 6, G. L. R. O., Cadastral Record 483 of the Court of First Instance of recovery of such amount or amounts as may be due from the respondent. So
Zamboanga, eleven-twentieth of said lot having been eventually adjudicated ordered.
to the wife, Severa Ventura, on December 20, 1933. On September 22,
1930, that is, during pendency of said cadastral case, the spouses Avancea, C.J., Imperial, Diaz, Concepcion and Moran, JJ., concur.
purportedly leased a part of said lot to the respondent for P100, which lease
was cancelled and superseded by a deed of sale executed on the same G.R. No. 91029 February 7, 1991
date, whereby the said spouses, in consideration of P1,000, conveyed
eleven-twentieth of the same land in favor of the respondent. This is also the
finding of the Solicitor-General in his report submitted in this case: NORKIS DISTRIBUTORS, INC., petitioner,
. . . convinieron cancelar el arrendamiento y otorgar en sustitucion
un contrato de compraventa absoluta a favor del recurrido, como en
efecto se hizo y es el Exhibito B (pp. 37-38, Rollo 1), por cuyo Jose D. Palma for petitioner.
documento Severa Ventura con el consentimiento marital Public Attorney's Office for private respondent.
correspondiente vendio definitivamente al recurrido su participacion
pro indivisa da 11/20 partes en el rferido lote, y estando aun el
mismo pendiente de vista u decision el Expediente Catastral No. 6,
Record No. 483, del Juzgado de Primera Instancia de Zamboanga.
(Pp. 19-20.) GRIO-AQUINO, J.:

Subject of this petition for review is the decision of the Court of Appeals On March 20, 1980, DBP released the proceeds of private respondent's
(Seventeenth Division) in CA-G.R. No. 09149, affirming with modification the motorcycle loan to Norkis in the total sum of P7,500. As the price of the
judgment of the Regional Trial Court, Sixth (6th) Judicial Region, Branch LVI. motorcycle later increased to P7,828 in March, 1980, Nepales paid the
Himamaylan, Negros Occidental, in Civil Case No. 1272, which was private difference of P328 (p. 13, Rollo) and demanded the delivery of the
respondent Alberto Nepales' action for specific performance of a contract of motorcycle. When Norkis could not deliver, he filed an action for specific
sale with damages against petitioner Norkis Distributors, Inc. performance with damages against Norkis in the Regional Trial Court of
Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI,
The facts borne out by the record are as follows: where it was docketed as Civil Case No. 1272. He alleged that Norkis failed
to deliver the motorcycle which he purchased, thereby causing him damages.
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of
Yamaha motorcycles in Negros Occidental with office in Bacolod City with Norkis answered that the motorcycle had already been delivered to private
Avelino Labajo as its Branch Manager. On September 20, 1979, private respondent before the accident, hence, the risk of loss or damage had to be
respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand borne by him as owner of the unit.
new Yamaha Wonderbike motorcycle Model YL2DX with Engine No. L2-
329401K Frame No. NL2-0329401, Color Maroon, then displayed in the After trial on the merits, the lower court rendered a decision dated August 27,
Norkis showroom. The price of P7,500.00 was payable by means of a Letter 1985 ruling in favor of private respondent (p. 28, Rollo.) thus:
of Guaranty from the Development Bank of the Philippines (DBP),
Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept. WHEREFORE, judgment is rendered in favor of the plaintiff and
Hence, credit was extended to Nepales for the price of the motorcycle against the defendants. The defendants are ordered to pay solidarity
payable by DBP upon release of his motorcycle loan. As security for the loan, to the plaintiff the present value of the motorcycle which was totally
Nepales would execute a chattel mortgage on the motorcycle in favor of destroyed, plus interest equivalent to what the Kabankalan Sub-
DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh.1) Branch of the Development Bank of the Philippines will have to
showing that the contract of sale of the motorcycle had been perfected. charge the plaintiff on fits account, plus P50.00 per day from
Nepales signed the sales invoice to signify his conformity with the terms of February 3, 1980 until full payment of the said present value of the
the sale. In the meantime, however, the motorcycle remained in Norkis' motorcycle, plus P1,000.00 as exemplary damages, and costs of the
possession. litigation. In lieu of paying the present value of the motorcycle, the
defendants can deliver to the plaintiff a brand-new motorcycle of the
On November 6, 1979, the motorcycle was registered in the Land same brand, kind, and quality as the one which was totally destroyed
Transportation Commission in the name of Alberto Nepales. A registration in their possession last February 3, 1980. (pp. 28-29, Rollo.)
certificate (Exh. 2) in his name was issued by the Land Transportation
Commission on November 6, 1979 (Exh. 2-b). The registration fees were On appeal, the Court of appeals affirmed the appealed judgment on August
paid by him, evidenced by an official receipt, Exhibit 3. 21, 1989, but deleted the award of damages "in the amount of Fifty (P50.00)
Pesos a day from February 3, 1980 until payment of the present value of the
On January 22, 1980, the motorcycle was delivered to a certain Julian damaged vehicle" (p35, Rollo). The Court of Appeals denied Norkis' motion
Nepales who was allegedly the agent of Alberto Nepales but the latter denies for reconsideration. Hence, this Petition for Review.
it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and Julian
Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta The principal issue in this case is who should bear the loss of the motorcycle.
at the DBP offices in Kabankalan, Negros Occidental Branch (p. 12, Rollo). The answer to this question would depend on whether there had already
The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros been a transfer of ownership of the motorcycle to private respondent at the
Occidental. An investigation conducted by the DBP revealed that the unit time it was destroyed.
was being driven by a certain Zacarias Payba at the time of the accident (p.
33, Rollo). The unit was a total wreck (p. 36, t.s.n., August 2,1984; p.
Norkis' theory is that:
13, Rollo), was returned, and stored inside Norkis' warehouse.
. . . After the contract of sale has been perfected (Art. 1475) and
even before delivery, that is, even before the ownership is
transferred to the vendee, the risk of loss is shifted from the vendor In other words, the critical factor in the different modes of effecting delivery,
to the vendee. Under Art. 1262, the obligation of the vendor to which gives legal effect to the act, is the actual intention of the vendor to
deliver a determinate thing becomes extinguished if the thing is lost deliver, and its acceptance by the vendee. Without that intention, there is no
by fortuitous event (Art. 1174), that is, without the fault or fraud of the tradition (Abuan vs. Garcia, 14 SCRA 759).
vendor and before he has incurred in delay (Art. 11 65, par. 3). If the
thing sold is generic, the loss or destruction does not extinguish the In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court
obligation (Art. 1263). A thing is determinate when it is particularly held:
designated or physically segregated from all others of the same
class (Art. 1460). Thus, the vendor becomes released from his The Code imposes upon the vendor the obligation to deliver the thing
obligation to deliver the determinate thing sold while the vendee's
sold. The thing is considered to be delivered when it is "placed in the
obligation to pay the price subsists. If the vendee had paid the price
hands and possession of the vendee." (Civil Code, Art. 1462). It is
in advance the vendor may retain the same. The legal effect,
true that the same article declares that the execution of a public
therefore, is that the vendee assumes the risk of loss by fortuitous
instrument is equivalent to the delivery of the thing which is the
event (Art. 1262) after the perfection of the contract to the time of object of the contract, but, in order that this symbolic delivery may
delivery. (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5,1987 produce the effect of tradition, it is necessary that the vendor shall
Ed., p. 87.) have had such control over the thing sold that, at the moment of the
sale, its material delivery could have been made. It is not enough to
Norkis concedes that there was no "actual" delivery of the vehicle. However, confer upon the purchaser the ownership and the right of
it insists that there was constructive delivery of the unit upon: (1) the possession. The thing sold must be placed in his control. When there
issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the private is no impediment whatever to prevent the thing sold passing into the
respondent and the affixing of his signature thereon; (2) the registration of tenancy of the purchaser by the sole will of the vendor, symbolic
the vehicle on November 6, 1979 with the Land Transportation Commission delivery through the execution of a public instrument is sufficient.
in private respondent's name (Exh. 2); and (3) the issuance of official receipt But if notwithstanding the execution of the instrument, the purchaser
(Exh. 3) for payment of registration fees (p. 33, Rollo). cannot have the enjoyment and material tenancy of the thing and
make use of it himself or through another in his name, because such
That argument is not well taken. As pointed out by the private respondent, tenancy and enjoyment are opposed by the interposition of another
the issuance of a sales invoice does not prove transfer of ownership of the will, then fiction yields to reality-the delivery has riot been
thing sold to the buyer. An invoice is nothing more than a detailed statement effects .(Emphasis supplied.)
of the nature, quantity and cost of the thing sold and has been considered
not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378). The Court of Appeals correctly ruled that the purpose of the execution of the
sales invoice dated September 20, 1979 (Exh. B) and the registration of the
In all forms of delivery, it is necessary that the act of delivery whether vehicle in the name of plaintiff-appellee (private respondent) with the Land
constructive or actual, be coupled with the intention of delivering the thing. Registration Commission (Exhibit C) was not to transfer to Nepales the
The act, without the intention, is insufficient (De Leon, Comments and Cases ownership and dominion over the motorcycle, but only to comply with the
on Sales, 1978 Ed., citing Manresa, p. 94). requirements of the Development Bank of the Philippines for processing
private respondent's motorcycle loan. On March 20, 1980, before private
When the motorcycle was registered by Norkis in the name of private respondent's loan was released and before he even paid Norkis, the
respondent, Norkis did not intend yet to transfer the title or ownership to motorcycle had already figured in an accident while driven by one Zacarias
Nepales, but only to facilitate the execution of a chattel mortgage in favor of Payba. Payba was not shown by Norkis to be a representative or relative of
the DBP for the release of the buyer's motorcycle loan. The Letter of private respondent. The latter's supposed relative, who allegedly took
Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its favor possession of the vehicle from Norkis did not explain how Payba got hold of
of a chattel mortgage over the purchased vehicle is a pre-requisite for the the vehicle on February 3, 1980. Norkis' claim that Julian Nepales was acting
approval of the buyer's loan. If Norkis would not accede to that arrangement, as Alberto's agent when he allegedly took delivery of the motorcycle (p. 20,
DBP would not approve private respondent's loan application and, Appellants' Brief), is controverted by the latter. Alberto denied having
consequently, there would be no sale. authorized Julian Nepales to get the motorcycle from Norkis Distributors or to

enter into any transaction with Norkis relative to said motorcycle. (p. 5, t.s.n., endorsements. The insurance policies provide for coverage on "book debts
February 6, 1985). This circumstances more than amply rebut the disputable in connection with ready-made clothing materials which have been sold or
presumption of delivery upon which Norkis anchors its defense to Nepales' delivered to various customers and dealers of the Insured anywhere in the
action (pp. 33-34, Rollo). Philippines."2 The policies defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of the
Article 1496 of the Civil Code which provides that "in the absence of an loss covered under this Policy."3 The policies also provide for the following
express assumption of risk by the buyer, the things sold remain at seller's conditions:
risk until the ownership thereof is transferred to the buyer," is applicable to
this case, for there was neither an actual nor constructive delivery of the 1. Warranted that the Company shall not be liable for any unpaid
thing sold, hence, the risk of loss should be borne by the seller, Norkis, which account in respect of the merchandise sold and delivered by the
was still the owner and possessor of the motorcycle when it was wrecked. Insured which are outstanding at the date of loss for a period in
This is in accordance with the well-known doctrine of res perit domino. excess of six (6) months from the date of the covering invoice or
actual delivery of the merchandise whichever shall first occur.
WHEREFORE, finding no reversible error in the decision of the Court of
Appeals in CA-G.R. No. 09149, we deny the petition for review and hereby 2. Warranted that the Insured shall submit to the Company within
affirm the appealed decision, with costs against the petitioner. twelve (12) days after the close of every calendar month all amount
shown in their books of accounts as unpaid and thus become
SO ORDERED. receivable item from their customers and dealers. x x x4

G.R. No. 147839 June 8, 2006 xxxx

GAISANO CAGAYAN, INC. Petitioner, Petitioner is a customer and dealer of the products of IMC and LSPI. On
vs. February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro
INSURANCE COMPANY OF NORTH AMERICA, Respondent. City, owned by petitioner, was consumed by fire. Included in the items lost or
destroyed in the fire were stocks of ready-made clothing materials sold and
delivered by IMC and LSPI.

AUSTRIA-MARTINEZ, J.: On February 4, 1992, respondent filed a complaint for damages against
petitioner. It alleges that IMC and LSPI filed with respondent their claims
under their respective fire insurance policies with book debt endorsements;
Before the Court is a petition for review on certiorari of the Decision1 dated that as of February 25, 1991, the unpaid accounts of petitioner on the sale
October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 and delivery of ready-made clothing materials with IMC was P2,119,205.00
which set aside the Decision dated August 31, 1998 of the Regional Trial while with LSPI it was P535,613.00; that respondent paid the claims of IMC
Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the and LSPI and, by virtue thereof, respondent was subrogated to their rights
causes of action for damages of Insurance Company of North America against petitioner; that respondent made several demands for payment upon
(respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA petitioner but these went unheeded.5
Resolution dated April 11, 2001 which denied petitioner's motion for
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that
it could not be held liable because the property covered by the insurance
The factual background of the case is as follows: policies were destroyed due to fortuities event or force majeure; that
respondent's right of subrogation has no basis inasmuch as there was no
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue breach of contract committed by it since the loss was due to fire which it
Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products could not prevent or foresee; that IMC and LSPI never communicated to it
bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately that they insured their properties; that it never consented to paying the claim
obtained from respondent fire insurance policies with book debt of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable Petitioner filed a motion for reconsideration12 but it was denied by the CA in
settlement.7 Thus, trial on the merits ensued. its Resolution dated April 11, 2001.13

On August 31, 1998, the RTC rendered its decision dismissing respondent's Hence, the present petition for review on certiorari anchored on the following
complaint.8 It held that the fire was purely accidental; that the cause of the Assignment of Errors:
fire was not attributable to the negligence of the petitioner; that it has not
been established that petitioner is the debtor of IMC and LSPI; that since the THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE
sales invoices state that "it is further agreed that merely for purpose of IN THE INSTANT CASE WAS ONE OVER CREDIT.
securing the payment of purchase price, the above-described merchandise
remains the property of the vendor until the purchase price is fully paid", IMC
and LSPI retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA
rendered its decision setting aside the decision of the RTC. The dispositive
portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSED and SET ASIDE and a new one is entered ordering defendant- Anent the first error, petitioner contends that the insurance in the present
appellee Gaisano Cagayan, Inc. to pay:
case cannot be deemed to be over credit since an insurance "on credit"
belies not only the nature of fire insurance but the express terms of the
1. the amount of P2,119,205.60 representing the amount paid by the policies; that it was not credit that was insured since respondent paid on the
plaintiff-appellant to the insured Inter Capitol Marketing Corporation, occasion of the loss of the insured goods to fire and not because of the non-
plus legal interest from the time of demand until fully paid; payment by petitioner of any obligation; that, even if the insurance is deemed
as one over credit, there was no loss as the accounts were not yet due since
2. the amount of P535,613.00 representing the amount paid by the no prior demands were made by IMC and LSPI against petitioner for
plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal payment of the debt and such demands came from respondent only after it
interest from the time of demand until fully paid. had already paid IMC and LSPI under the fire insurance policies.15

With costs against the defendant-appellee. As to the second error, petitioner avers that despite delivery of the goods,
petitioner-buyer IMC and LSPI assumed the risk of loss when they secured
SO ORDERED.10 fire insurance policies over the goods.

The CA held that the sales invoices are proofs of sale, being detailed Concerning the third ground, petitioner submits that there is no subrogation
statements of the nature, quantity and cost of the thing sold; that loss of the in favor of respondent as no valid insurance could be maintained thereon by
goods in the fire must be borne by petitioner since the proviso contained in IMC and LSPI since all risk had transferred to petitioner upon delivery of the
the sales invoices is an exception under Article 1504 (1) of the Civil Code, to goods; that petitioner was not privy to the insurance contract or the payment
the general rule that if the thing is lost by a fortuitous event, the risk is borne between respondent and its insured nor was its consent or approval ever
by the owner of the thing at the time the loss under the principle of res perit secured; that this lack of privity forecloses any real interest on the part of
domino; that petitioner's obligation to IMC and LSPI is not the delivery of the respondent in the obligation to pay, limiting its interest to keeping the insured
lost goods but the payment of its unpaid account and as such the obligation goods safe from fire.
to pay is not extinguished, even if the fire is considered a fortuitous event;
that by subrogation, the insurer has the right to go against petitioner; that, For its part, respondent counters that while ownership over the ready- made
being a fire insurance with book debt endorsements, what was insured was clothing materials was transferred upon delivery to petitioner, IMC and LSPI
the vendor's interest as a creditor.11 have insurable interest over said goods as creditors who stand to suffer

direct pecuniary loss from its destruction by fire; that petitioner is liable for It is well-settled that when the words of a contract are plain and readily
loss of the ready-made clothing materials since it failed to overcome the understood, there is no room for construction.22 In this case, the questioned
presumption of liability under Article 126516 of the Civil Code; that the fire insurance policies provide coverage for "book debts in connection with
was caused through petitioner's negligence in failing to provide stringent ready-made clothing materials which have been sold or delivered to various
measures of caution, care and maintenance on its property because electric customers and dealers of the Insured anywhere in the Philippines."23 ; and
wires do not usually short circuit unless there are defects in their installation defined book debts as the "unpaid account still appearing in the Book of
or when there is lack of proper maintenance and supervision of the property; Account of the Insured 45 days after the time of the loss covered under this
that petitioner is guilty of gross and evident bad faith in refusing to pay Policy."24 Nowhere is it provided in the questioned insurance policies that the
respondent's valid claim and should be liable to respondent for contracted subject of the insurance is the goods sold and delivered to the customers
lawyer's fees, litigation expenses and cost of suit.17 and dealers of the insured.

As a general rule, in petitions for review, the jurisdiction of this Court in cases Indeed, when the terms of the agreement are clear and explicit that they do
brought before it from the CA is limited to reviewing questions of law which not justify an attempt to read into it any alleged intention of the parties, the
involves no examination of the probative value of the evidence presented by terms are to be understood literally just as they appear on the face of the
the litigants or any of them.18 The Supreme Court is not a trier of facts; it is contract.25 Thus, what were insured against were the accounts of IMC and
not its function to analyze or weigh evidence all over again.19 Accordingly, LSPI with petitioner which remained unpaid 45 days after the loss through
findings of fact of the appellate court are generally conclusive on the fire, and not the loss or destruction of the goods delivered.
Supreme Court.20
Petitioner argues that IMC bears the risk of loss because it expressly
Nevertheless, jurisprudence has recognized several exceptions in which reserved ownership of the goods by stipulating in the sales invoices that "[i]t
factual issues may be resolved by this Court, such as: (1) when the findings is further agreed that merely for purpose of securing the payment of the
are grounded entirely on speculation, surmises or conjectures; (2) when the purchase price the above described merchandise remains the property of the
inference made is manifestly mistaken, absurd or impossible; (3) when there vendor until the purchase price thereof is fully paid."26
is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) The Court is not persuaded.
when in making its findings the CA went beyond the issues of the case, or its
findings are contrary to the admissions of both the appellant and the
The present case clearly falls under paragraph (1), Article 1504 of the Civil
appellee; (7) when the findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; (10) ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk
when the findings of fact are premised on the supposed absence of evidence until the ownership therein is transferred to the buyer, but when the
and contradicted by the evidence on record; and (11) when the CA ownership therein is transferred to the buyer the goods are at the buyer's risk
manifestly overlooked certain relevant facts not disputed by the parties, whether actual delivery has been made or not, except that:
which, if properly considered, would justify a different
conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition. (1) Where delivery of the goods has been made to the buyer or to a bailee for
the buyer, in pursuance of the contract and the ownership in the goods has
At issue is the proper interpretation of the questioned insurance policy. been retained by the seller merely to secure performance by the buyer of his
Petitioner claims that the CA erred in construing a fire insurance policy on obligations under the contract, the goods are at the buyer's risk from the time
book debts as one covering the unpaid accounts of IMC and LSPI since such of such delivery; (Emphasis supplied)
insurance applies to loss of the ready-made clothing materials sold and
delivered to petitioner. xxxx

The Court disagrees with petitioner's stand.

Thus, when the seller retains ownership only to insure that the buyer will pay payment even by reason of a fortuitous event shall not relieve him of his
its debt, the risk of loss is borne by the buyer.27 Accordingly, petitioner bears liability.33 The rationale for this is that the rule that an obligor should be held
the risk of loss of the goods delivered. exempt from liability when the loss occurs thru a fortuitous event only holds
true when the obligation consists in the delivery of a determinate thing and
IMC and LSPI did not lose complete interest over the goods. They have an there is no stipulation holding him liable even in case of fortuitous event. It
insurable interest until full payment of the value of the delivered goods. does not apply when the obligation is pecuniary in nature.34
Unlike the civil law concept of res perit domino, where ownership is the basis
for consideration of who bears the risk of loss, in property insurance, one's Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic
interest is not determined by concept of title, but whether insured has thing, the loss or destruction of anything of the same kind does not extinguish
substantial economic interest in the property.28 the obligation." If the obligation is generic in the sense that the object thereof
is designated merely by its class or genus without any particular designation
Section 13 of our Insurance Code defines insurable interest as "every or physical segregation from all others of the same class, the loss or
interest in property, whether real or personal, or any relation thereto, or destruction of anything of the same kind even without the debtor's fault and
liability in respect thereof, of such nature that a contemplated peril might before he has incurred in delay will not have the effect of extinguishing the
directly damnify the insured." Parenthetically, under Section 14 of the same obligation.35 This rule is based on the principle that the genus of a thing can
Code, an insurable interest in property may consist in: (a) an existing never perish. Genus nunquan perit.36 An obligation to pay money is generic;
interest; (b) an inchoate interest founded on existing interest; or (c) an therefore, it is not excused by fortuitous loss of any specific property of the
expectancy, coupled with an existing interest in that out of which the debtor.37
expectancy arises.
Thus, whether fire is a fortuitous event or petitioner was negligent are
Therefore, an insurable interest in property does not necessarily imply a matters immaterial to this case. What is relevant here is whether it has been
property interest in, or a lien upon, or possession of, the subject matter of the established that petitioner has outstanding accounts with IMC and LSPI.
insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated With respect to IMC, the respondent has adequately established its claim.
with reference to the property that he would be liable to loss should it be Exhibits "C" to "C-22"38 show that petitioner has an outstanding account with
injured or destroyed by the peril against which it is insured. 29 Anyone has an IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher
insurable interest in property who derives a benefit from its existence or evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed
would suffer loss from its destruction.30Indeed, a vendor or seller retains an by IMC in favor of respondent upon receipt of the insurance proceeds. All
insurable interest in the property sold so long as he has any interest therein, these documents have been properly identified, presented and marked as
in other words, so long as he would suffer by its destruction, as where he has exhibits in court. The subrogation receipt, by itself, is sufficient to establish
a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain not only the relationship of respondent as insurer and IMC as the insured, but
to the unpaid accounts appearing in their Books of Account 45 days after the also the amount paid to settle the insurance claim. The right of subrogation
time of the loss covered by the policies. accrues simply upon payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely sanctioned by
The next question is: Is petitioner liable for the unpaid accounts? Article 2207 of the Civil Code which provides:

Petitioner's argument that it is not liable because the fire is a fortuitous event Art. 2207. If the plaintiff's property has been insured, and he has received
under Article 117432 of the Civil Code is misplaced. As held earlier, petitioner indemnity from the insurance company for the injury or loss arising out of the
bears the loss under Article 1504 (1) of the Civil Code. wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. x x x
Moreover, it must be stressed that the insurance in this case is not for loss of
goods by fire but for petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the Petitioner failed to refute respondent's evidence.
payment of money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to make the
As to LSPI, respondent failed to present sufficient evidence to prove its
cause of action. No evidentiary weight can be given to Exhibit "F Levi
Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager,
Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid
account with LSPI. It only confirms the loss of Levi's products in the amount
of P535,613.00 in the fire that razed petitioner's building on February 25,

Moreover, there is no proof of full settlement of the insurance claim of LSPI;

no subrogation receipt was offered in evidence. Thus, there is no evidence
that respondent has been subrogated to any right which LSPI may have
against petitioner. Failure to substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated

October 11, 2000 and Resolution dated April 11, 2001 of the Court of
Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.

No pronouncement as to costs.