Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-27010 April 30, 1969

MARLENE DAUDEN-HERNAEZ, petitioner,

vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon City,
HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON VALENZUELA, respondents.

R. M. Coronado and Associates for petitioner.

Francisco Lavides for respondent.

REYES, J.B.L., Acting C.J.:

Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of Quezon City
(Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for breach of contract and
damages, denying reconsideration, refusing to admit an amended complaint, and declaring the
dismissal final and unappealable.

The essential facts are the following:

Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein
private respondents, Hollywood Far East Productions, Inc., and its President and General Manager,
Ramon Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for
her services as leading actress in two motion pictures produced by the company, and to recover
damages. Upon motion of defendants, the respondent court (Judge Walfrido de los Angeles
presiding) ordered the complaint dismissed, mainly because the "claim of plaintiff was not evidenced
by any written document, either public or private", and the complaint "was defective on its face" for
violating Articles 1356 and 1358 of the Civil, Code of the Philippines, as well as for containing
defective allege, petitions. Plaintiff sought reconsideration of the dismissal and for admission of an
amended complaint, attached to the motion. The court denied reconsideration and the leave to
amend; whereupon, a second motion for reconsideration was filed. Nevertheless, the court also
denied it for being pro forma, as its allegations "are, more or less, the same as the first motion", and
for not being accompanied by an affidavit of merits, and further declared the dismissal final and
unappealable. In view of the attitude of the Court of First Instance, plaintiff resorted to this Court.

The answer sets up the defense that "the proposed amended complaint did not vary in any material
respect from the original complaint except in minor details, and suffers from the same vital defect of
the original complaint", which is the violation of Article 1356 of the Civil Code, in that the contract
sued upon was not alleged to be in writing; that by Article 1358 the writing was absolute and
indispensable, because the amount involved exceeds five hundred pesos; and that the second
motion for reconsideration did not interrupt the period for appeal, because it was not served on three
days' notice.
We shall take up first the procedural question. It is a well established rule in our jurisprudence that
when a court sustains a demurrer or motion to dismiss it is error for the court to dismiss the
complaint without giving the party plaintiff an opportunity to amend his complaint if he so
chooses. 1 Insofar as the first order of dismissal (Annex D, Petition) did not provide that the same
was without prejudice to amendment of the complaint, or reserve to the plaintiff the right to amend
his complaint, the said order was erroneous; and this error was compounded when the motion to
accept the amended complaint was denied in the subsequent order of 3 October 1966 (Annex F,
Petition). Hence, the petitioner-plaintiff was within her rights in filing her so-called second motion for
reconsideration, which was actually a first motion against the refusal to admit the amended
complaint.

It is contended that the second motion for reconsideration was merely pro forma and did not
suspend the period to appeal from the first order of dismissal (Annex D) because (1) it merely
reiterated the first motion for reconsideration and (2) it was filed without giving the counsel for
defendant-appellee the 3 days' notice provided by the rules. This argument is not tenable, for the
reason that the second motion for reconsideration was addressed to the court' refusal to allow an
amendment to the original complaint, and this was a ground not invoked in the first motion for
reconsideration. Thus, the second motion to reconsider was really not pro forma, as it was based on
a different ground, even if in its first part it set forth in greater detail the arguments against the
correctness of the first order to dismiss. And as to the lack of 3 days' notice, the record shows that
appellees had filed their opposition (in detail) to the second motion to reconsider (Answer, Annex 4);
so that even if it were true that respondents were not given the full 3 days' notice they were not
deprived of any substantial right. Therefore, the claim that the first order of dismissal had become
final and unappealable must be overruled.

It is well to observe in this regard that since a motion to dismiss is not a responsive pleading, the
plaintiff-petitioner was entitled as of right to amend the original dismissed complaint. In Paeste vs.
Jaurigue 94 Phil. 179, 181, this Court ruled as follows:

Appellants contend that the lower court erred in not admitting their amended complaint and
in holding that their action had already prescribed. Appellants are right on both counts.

Amendments to pleadings are favored and should be liberally allowed in the furtherance of
justice. (Torres vs. Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule 17, Rules of
Court, a party may amend his pleading once as a matter of course, that is, without leave of
court, at any time before a responsive pleading is served. A motion to dismiss is not a
"responsive pleading". (Moran on the Rules of Court, vol. 1, 1952, ed., p. 376). As plaintiffs
amended their complaint before it was answered, the motion to admit the amendment should
not have been denied. It is true that the amendment was presented after the original
complaint had been ordered dismissed. But that order was not yet final for it was still under
reconsideration.

The foregoing observations leave this Court free to discuss the main issue in this petition. Did the
court below abuse its discretion in ruling that a contract for personal services involving more than
P500.00 was either invalid of unenforceable under the last paragraph of Article 1358 of the Civil
Code of the Philippines?

We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable
misunderstanding of the role of the written form in contracts, as ordained in the present Civil Code.

In the matter of formalities, the contractual system of our Civil Code still follows that of the Spanish
Civil Code of 1889 and of the "Ordenamiento de Alcala" 2 of upholding the spirit and intent of the
parties over formalities: hence, in general, contracts are valid and binding from their perfection
regardless of form whether they be oral or written. This is plain from Articles 1315 and 1356 of the
present Civil Code. Thus, the first cited provision prescribes:

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage
and law. (Emphasis supplied)

Concordantly, the first part of Article 1356 of the Code Provides:

ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.... (Emphasis supplied)

These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3)
consideration or causa for the obligation assumed (Article 1318). 3 So that once the three elements
exist, the contract is generally valid and obligatory, regardless of the form, oral or written, in which
they are couched. lawphi 1.nêt

To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356:

However, when the law requires that a contract be in some form in order that it may be valid
or enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable....

It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding
effect inter partes of a contract that possesses the three validating elements of consent, subject
matter, and causa, Article 1356 of the Code establishes only two exceptions, to wit:

(a) Contracts for which the law itself requires that they be in some particular form (writing) in order to
make them valid and enforceable (the so-called solemn contracts). Of these the typical example is
the donation of immovable property that the law (Article 749) requires to be embodied in a public
instrument in order "that the donation may be valid", i.e., existing or binding. Other instances are the
donation of movables worth more than P5,000.00 which must be in writing, "otherwise the donation
shall be void" (Article 748); contracts to pay interest on loans (mutuum) that must be "expressly
stipulated in writing" (Article 1956); and the agreements contemplated by Article 1744, 1773, 1874
and 2134 of the present Civil Code.

(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in
those covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence
not being provable by mere oral testimony (unless wholly or partly executed), these contracts are
exceptional in requiring a writing embodying the terms thereof for their enforceability by action in
court.

The contract sued upon by petitioner herein (compensation for services) does not come under either
exception. It is true that it appears included in Article 1358, last clause, providing that "all other
contracts where the amount involved exceeds five hundred pesos must appear in writing, even a
private one." But Article 1358 nowhere provides that the absence of written form in this case will
make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that
contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence
of writing.
 ART. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to
observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action the contract. (Emphasis supplied) .

It thus becomes inevitable to conclude that both the court a quo as well as the private respondents
herein were grossly mistaken in holding that because petitioner Dauden's contract for services was
not in writing the same could not be sued upon, or that her complaint should be dismissed for failure
to state a cause of action because it did not plead any written agreement.

The basic error in the court's decision lies in overlooking that in our contractual system it is not
enough that the law should require that the contract be in writing, as it does in Article 1358. The law
must further prescribe that without the writing the contract is not valid or not enforceable by action.

WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered remanded to
the court of origin for further proceedings not at variance with this decision.

Costs to be solidarity paid by private respondents Hollywood Far East Productions, Inc., and Ramon
Valenzuela.

Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and Barredo, JJ., concur.
Concepcion, C.J. and Castro, J., are on leave.
Capistrano, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 66715 September 18, 1990

PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT (First Civil Cases Division) and
ROMEO ALCEDO, respondents.

Juan D. Diaz, Benjamin C. Del Rosario and Pedro R. Lazo for petitioner.

Carlos S. Ayeng, Augustus C. Rallos and Orlando S. Ayeng for private respondent.

GRIÑO-AQUINO, J.:

This is a petition for certiorari which seeks to set aside: (a) the decision dated November 29, 1983 of
the Intermediate Appellate Court (now Court of Appeals) in
CA-G.R. CV No. 68021 which affirmed the decision of the Court of First Instance of Negros
Occidental (now Regional Trial Court), Branch IV, Bacolod City, in Civil Case No. 11393; and (b)
respondent court's resolution dated February 29, 1984 denying petitioner Philippine National Bank's
(PNB for short) motion for reconsideration.
The facts of the case are the following:

On March 20, 1968, Leticia de la Vina-Sepe executed a real estate mortgage in favor of PNB, San
Carlos Branch, over a lot registered in her name under TCT No.
T-31913 to secure the payment of a sugar crop loan of P3,400. Later, Leticia Sepe, acting as
attorney-in-fact for her brother-in-law, private respondent Romeo Alcedo, executed an amended real
estate mortgage to include his (Alcedo's) Lot No. 1626 (being a portion of Lot No. 1402, covered by
TCT 52705 of the Isabela Cadastre) as additional collateral for Sepe's increased loan of P16,500
(pp. 5-6, PNB's Brief, p. 74, Rollo). Leticia Sepe and private respondent Alcedo verbally agreed to
split fifty-fifty (50-50) the proceeds of the loan (p. 94, Rollo) but failing to receive his one-half share
from her, Alcedo wrote a letter on May 12, 1970 to the PNB, San Carlos Branch, revoking the
Special Power of Attorney which he had given to Leticia Sepe to mortgage his Lot No. 1626 (p. 95,
Rollo).

Replying on May 22, 1970, the PNB Branch Manager, Jose T. Gellegani advised Alcedo that his
land had already been included as collateral for Sepe's 1970-71 sugar crop loan, which the latter
had already availed of, nevertheless, he assured Alcedo that the bank would exclude his lot as
collateral for Sepe's forthcoming (1971-72) sugar crop loan (p. 95, Rollo). The letter reads:

May 22, 1970

Mr. Romeo Alcedo

Mamballo, M. Padilla

Negros Occidental

Dear Mr. Alcedo:

This is to acknowledge receipt of your letter dated May 12, 1970, requesting us to
revoke the 'Special Power of Attorney' you have executed in favor of Mrs. Leticia de
la Vina-Sepe, on February 18, 1969, on Lot No. 1402, Isabela Cadastre, covered by
Transfer Certificate of Title No. 52705, with an area of 20.9200 hectares.

In this connection, we wish to advise you that the aforementioned parcel of land had
been included as collateral to secure the 1970-71 sugar crop loan of Mrs. Leticia de
la Vina-Sepe, which she had already availed of. In view of your late request, please
be advised and assured that we shall exclude the aforementioned lot as a collateral
of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan.

For your information, we enclose a copy of our letter to Mrs. Sepe, which is self-
explanatory,

Thank you.

Very truly yours,

(Sgd.) JOSE T. GELLEGANI Manager

(pp. 6-7, Record on Appeal, p. 75, Rollo.)

On the same day, May 22, 1970, PNB advised Sepe in writing to replace Lot No. 1402 with another
collateral of equal or higher value.

May 22, 1970

Mrs. Leticia de la Vina-Sepe

Canla-on City

Dear Mrs. Sepe:

We wish to advice you that Mr. Romeo Alcedo, in a letter written to us, has plans to
revoke the 'Special Power of Attorney' he executed in 1969 in your favor, affecting
Lot No. 1402, Isabela Cadastre, covered by Transfer Certificate of Title No. 52705
with an area of 20.9200 Hectares. Our record shows that this parcel of land is
mortgaged to us to secure the agricultural sugar crop loans we have granted you.

Mr. Alcedo made us understand that this said property shall serve as security for
your 1969/70 sugar crop loan only. As it already secures your 1970-71 crop loan,
which you have already availed, the same may be excluded as security for future
crop loans. In the meantime, it is requested that you replace Lot No. 1402, above-
mentioned, with the same or more appraised value.

Kindly call on us regarding this matter at your earliest convenience.

Thank you.

Very truly yours,

(Sgd.) JOSE T. GELLEGANI

Manager

(pp. 7-8, Record on Appeal, p. 75, Rollo.)

Despite the above advice from PNB, Sepe was still able to obtain an additional loan from PNB
increasing her debt of P 16,500 to P56,638.69 on the security of Alcedo's property as collateral. On
January 15, 1974, Alcedo received two (2) letters from PNB: (1) informing him of Sepe's failure to
pay her loan in the total amount of P 56,638.69; and (2) giving him six (6) days to settle Sepe's
outstanding obligation, as otherwise, foreclosure proceedings would be commenced against his
property (p. 33, Rollo). Alcedo requested Sepe to pay her accounts to forestall foreclosure
proceedings against his property, but to no avail (p. 15, Rollo).

On April 17, 1974, Alcedo sued Sepe and PNB in the Court of First Instance of Negros Occidental
for collection and injunction with damages (p. 33, Rollo).

During the pendency of the case, PNB filed in the Office of the Sheriff at Pasig, Metro Manila, a
petition for extrajudicial foreclosure of its real estate mortgage on Alcedo's land. On November 19,
1974, the property was sold to PNB as the highest bidder in the sale. The corresponding Sheriffs
Certificate of Sale was issued to the Bank (p. 33, Rollo).
On October 18, 1975, Alcedo filed an amended complaint against Leticia and her husband Elias
Sepe, and the Provincial Sheriff of Negros Occidental praying additionally for annulment of the
extrajudicial foreclosure sale and reconveyance of the land to him free from liens and
encumbrances, with damages.

With leave of court, Alcedo filed a second amended complaint withdrawing his action to collect his
one-half share (amounting to P28,319.34) out of the proceeds of the sugar crop loans obtained by
Sepe (p. 34, Rollo).

In its answer, PNB alleged that it had no knowledge of the agreement between Mrs. Sepe and
Alcedo to split the crop loan proceeds between them. It required Sepe to put up other collaterals
when it granted her an additional loan because Alcedo informed the Bank that he was revoking the
Special Power of Attorney he gave Sepe; that the revocation was not formalized in accordance with
law; and that in any event, the revocation of the Special Power of Attorney on May 12, 1970 by
Alcedo did not impair the real estate mortgage earlier executed on April 28, 1969 by Sepe in favor of
the Bank (p. 36, Rollo).

On March 14, 1980, the trial court rendered judgment in favor of Alcedo-

1. Declaring the public auction sale and the certificate of sale executed by the
Provincial Sheriff of Negros Occidental relative to Lot No. 1626, Isabela Cadastre
(TCT No. T-52705), as null and void;

2. Ordering the defendant Philippine National Bank to reconvey to plaintiff the title to
aforesaid Lot No. 1626 free from all liens and encumbrances relative to the loans
obtained by defendant Leticia de la Vina-Sepe;

3. Ordering defendant spouses Leticia de la Vina-Sepe and Elias Sepe and the
Philippine National Bank, in solidum, to pay to the plaintiff moral damages in the sum
of Pl 0,000.00, and another sum of P5,000.00 as attorney's fees and expenses of
litigation;

4. On the cross-claim of defendant PNB against Leticia de la Vina-Sepe, considering

that no evidence has been adduced regarding the updated actual accountability of
the latter with the former, it is hereby directed that PNB proceed to collect against the
cross-defendant whatever outstanding obligation the latter owes the former arising
from transactions in connection with the instant case.

No pronouncement as to costs. (pp. 10-11, Rollo.)

The bank appealed but to no avail for on November 29,1983, the Intermediate Appellate Court
affirmed in toto the judgment of the trial court (p. 54, Rollo.) The appellate court reasoned out that
the Bank was estopped from foreclosing the mortgage on Alcedo's lot to pay Sepe's 1971-72 sugar
crop loan, after having assured Alcedo on May 22, 1970 "that we shall exclude the aforementioned
lot as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan"
(p. 37, Rollo). The Court of Appeals held:

... Plaintiff-appellee's letter was unequivocal and clear to the effect that defendant
Leticia de la Vina Sepe was no longer empowered to bind, encumber or mortgage
his property. Although We may not hold this revocation to retroact to April 28, 1969
which was the date of the original mortgage, We can neither interpret it in any other
way than that from the moment of notice to the PNB, it was the absolute intention of
 the owner to withdraw all authority from said defendant to further bind or encumber
his property. This was clearly understood by the defendant-appellant PNB. There
was no question on its part that Leticia de la Vina Sepe was no longer authorized to
offer plaintiff-appellee's property as collateral for her contract of mortgage with the
PNB. Defendant-appellant, therefore, acknowledged this revocation of the agency
and in no uncertain terms assured the plaintiff-appellee that indeed, the latter's
property will no longer be accepted by it as collateral for the sugar crop loan of the
aforementioned defendant for the year 1971 to 1972. This meeting of the minds
between the plaintiff-appellee and defendant-appellant took place not through verbal
communications only, but in writing, as shown by their letters dated May 12, 1970
and May 22, 1970, respectively. ...

xxx xxx xxx

... To Our minds, the aforementioned act and declaration of defendant-appellant PNB
as embodied in said letter binds said bank under the principle of estoppel by deed
and defined as follows:

A doctrine in American jurisprudence whereby a party creating an appearance of fact

which is not true is held bound by that appearance as against another person who
has acted on the faith of it. (Strong v. Gutierrez Repide, 6 Phil. 685).

which is provided for in Articles 1431 and 1433 of the New Civil Code in conjunction
with Section 3, paragraph (a), Rule 131 of the Rules of Court, all of which provide:

Art. 1431. Through estoppel an admission or representation is rendered conclusive

upon the person making it, and cannot be denied or disproved as against the person
relying thereon.' '

Art. 1433. Estoppel may be in pais or by deed.

Sec. 3. Conclusive presumptions. The following are instances of conclusive

presumptions:

(a) Whenever a party has,by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief,
he cannot, in any litigation arising out of such declaration, act, or omission, be
permitted to falsify it.

and which was enunciated in the following decisions of the Supreme Court:

Whenever a party has, by his own declaration, act or omission intentionally and
deliberately led another to believe a particular thing true and to act upon such belief,
he cannot, in any litigation arising out of such declaration, act, or omission, be
permitted to falsify it.

Estoppel arises when one, by his acts, representations, or admissions, or by his

silence when he ought to speak out, intentionally or through culpable negligence
induces another to believe certain facts to exist and such other rightfully relies and
acts on such belief, so that he will be prejudiced if the former is permitted to deny the
existence of such facts (Huyatid v. Huyatid 47265-R, Jan. 4, 1978).
 The doctrine of estoppel is based upon the grounds of public policy, fair dealing,
good faith and justice, and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they were directed and
who reasonably relied thereon. Said doctrine springs from equitable principles and
the equities of the case. It is designed to aid the law in the administration of justice
where without its aid injustice might result.' (Philippine National Bank v. Court of
Appeals, L-30831, November 21, 1979, 94 SCRA 368)

By its letter dated May 22, 1970, defendant-appellant PNB led plaintiff-appellee to
believe that his property covered by TCT T-52705 would no longer be included as
collateral in the sugar crop loan of defendant Leticia de la Vina Sepe for the year
1971-72. It led said plaintiff-appellee to believe that his property as of said year will
no longer be encumbered and will be free from any lien or mortgage. Plaintiff-
appellee had the light to rely on said belief, because of the aforementioned act and
declaration of defendant-appellant bank. Under the laws and jurisprudence
aforequoted, defendant-appellant bank can no longer be allowed to deny or falsify its
act or declaration, or to renege from it. This is one of the conclusive presumptions
provided for by the Rules of Court. (pp. 37, 38-39, Rollo.)

PNB seeks a review of that decision on the grounds that:

1. the doctrine of promissory estoppel does not apply to this case;

2. PNB was a mortgagee in good faith and for value; and

3. PNB adduced substantial evidence in support of its cross-claim against defendant Leticia Sepe (p.
15, Rollo).

These issues boil down to whether or not PNB validly foreclosed the real estate mortgage on
Alcedo's property despite notice of Alcedo's revocation of the Special Power of Attorney authorizing
Leticia Sepe to mortgage his property as security for her sugar crop loans and despite the Bank's
written assurance to Alcedo that it would exclude his property as collateral for Sepe's future loan
obligations.

After careful deliberation, the Court is not persuaded to disturb the decisions of the trial court and the
Court of Appeals in this case.

We agree with the opinion of the appellate court that under the doctrine of promissory estoppel
enunciated in the case of Republic Flour Mills Inc. vs. Central Bank, L-23542, August 11, 1979, the
act and assurance given by the PNB to Alcedo "that we shall exclude the aforementioned lot [Lot No.
1402] as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop
loan" (p. 37, Rollo) is binding on the bank. Having given that assurance, the bank may not turn
around and do the exact opposite of what it said it would not do. One may not take inconsistent
positions (Republic vs. Court of Appeals, 133 SCRA 505). A party may not go back on his own acts
and representations to the prejudice of the other party who relied upon them (Lazo vs. Republic
Surety & Insurance Co., Inc., 31 SCRA 329.)

In the case of Philippine National Bank vs. Court of Appeals (94 SCRA 357), where the bank
manager assured the heirs of the debtor-mortgagor that they would be allowed to pay the remaining
obligation of their deceased parents, the Supreme Court held that the bank must abide by its
representations.
 On equitable principles, particularly on the ground of estoppel, we must rule against
petitioner Bank. The doctrine of estoppel is based upon the grounds of public policy,
fair dealing, good faith and justice, and its purpose is to forbid one to speak against
its own act, representations, or commitments to the injury of one to whom they were
directed and who reasonably relied thereon. The doctrine of estoppel springs from
equitable principles and the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. It has been
applied by this Court wherever and whenever the special circumstances of a case so
demands.

In the case at bar, since PNB had promised to exclude Alcedo's property as collateral for Sepe's
1971-72 sugar crop loan, it should have released the property to Alcedo. The mortgage which Sepe
gave to the bank on Alcedo's lot as collateral for her 1971-72 sugar crop loan was null and void for
having been already disauthorized by Alcedo. Since Alcedo's property secured only P13,100.00 of
Sepe's 1970-71 sugar crop loan of P16,500.00 (because P3,400 was secured by Sepe's own
property), Alcedo's property may be held to answer for only the unpaid balance, if any, of Sepe's
1970-71 loan, but not the 1971-72 crop loan.

While Article 1358 of the New Civil Code requires that the revocation of Alcedo's Special Power of
Attorney to mortgage his property should appear in a public instrument:

Art. 1358. The following must appear in a public document:

(1) Acts or contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by Articles 1403, No. 2 and 1405.

nevertheless, a revocation embodied in a private writing is valid and binding between the parties
(Doliendo v. Depino, 12 Phil. 758; Hawaiian-Philippines Co. vs. Hernaez, 45 Phil. 746) for —

The legalization by a public writing and the recording of the same in the registry are
not essential requisites of a contract entered into, as between the parties, but mere
conditions of form or solemnities which the law imposes in order that such contract
may be valid as against third persons, and to insure that a publicly executed and
recorded agreement shall be respected by the latter. (Alano, et al. vs. Babasa, 10
Phil. 511.)

The PNB acted with bad faith in proceeding against Alcedo's property to satisfy Sepe's unpaid 1971-
72 sugar crop loan. The extrajudicial foreclosure being null and void ab initio, the certificate of sale
which the Sheriff delivered to PNB as the highest bidder at the sale is also null and void.

WHEREFORE, finding no reversible error in the decision of the Court of Appeals, the petition for
review is denied for lack of merit.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
G.R. No. L-35367 April 9, 1987

MANOTOK REALTY, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS and APOLONIO SIOJO, respondents.

GUTIERREZ, JR., J.:

This is an appeal by way of certiorari seeking to set aside the decision of the Court of Appeals which
reversed the decision of the trial court and upheld the sale of the disputed lot in favor of the private
respondent.

Wayback on November 21, 1951, the Court of First Instance of Manila, acting as a probate court in
the special proceedings of the testate estate of Clara Tambunting de Legarda, authorized Vicente
Legarda, as special co-administrator, to sell the Legarda Tambunting Subdivision. The order of the
probate court partly states:

xxx xxx xxx

The co-administrator herein are hereby authorized to sold the "Legarda Tambunting
Subdivision" covered by Transfer Certificate of Title Nos. 62042, 45149, 29578,
40957, and 59585, with a total area of 80,238.90 square meters, more or less, at a
price of P50.00 per square meter, executing the necessary document or documents
and submitting the same to this Court for Approval

xxx xxx xxx

On December 10, 1952, Vicente Legarda as co-administrator allegedly sold an area of about 280
square meters of the subdivision denominated as Lot 6, Block 4 situated at Dinalupihan, Tondo,
Manila at P30.00 per square meter to Abelardo Lucero. The sale was on an installment basis and
Lucero paid an initial amount of P200.00 by virtue of which a receipt was issued by Legarda. On the
same day, Lucero took possession of the lot,

In 1953, Lucero leased the lot to six persons, one of whom is herein private respondent. Like the
other tenants, respondent constructed a house on an area of 73 square meters of the lot now
denominated as Lot III, Block 2, and paid P15.00 as monthly rentals.

On July 31, 1956, the probate court issued another order authorizing the Philippine Trust Company
as administrator, to sell the subdivision at the earliest possible time at the best obtainable price.

Sometime in 1957, the lessees of Lucero, including the private respondent, defaulted in their
payment of rentals. Separate actions for ejectment were filed against them However, a compromise
agreement was concluded and the tenants resumed the payment of rentals. Up until 1966, the
private respondent continued paying monthly rentals to Lucero.

In the meantime, Lucero accordingly awaited the sending by Legarda of the formal contract but as
none came, he could not make further payments. In 1957-58, he, therefore, went to the Philippine
Trust Company to make further payments, showing it the receipt evidencing the down payment but
the latter refused either to receive payment or to issue a formal contract because the Legarda-
Tambunting Subdivision was involved in litigation.

The petitioner was subsequently awarded the sale of the entire subdivision. On March 13, 1959, the
deed of sale was executed by and between petitioner and Philippine Trust Company and the same
was approved by the probate court. The petitioner obtained Transfer Certificate of Title Numbers
62042, 45149, 29578, 40957 and 59585 which covered the whole Legarda-Tambunting estate
including the lot sold to Lucero.

On January 1966, the petitioner caused to be published in the Manila Times and Taliba notices
addressed to "all squatter-occupants" of the subdivision advising them to surrender the material and
actual possession of the portions occupied by them otherwise judicial action would be taken. On
March 4, 1966, the petitioner filed the complaint below for ejectment against the private respondent.
On March 11, 1966, summons was served on the latter. These circumstances, notwithstanding, on
May 23, 1966, Lucero executed a deed of assignment of the lot in question in favor of his lessees,
including the private respondent.

After hearing, the trial court rendered judgment in favor of the petitioner, the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered declaring the plaintiff (petitioner) to be

the owner and entitled to the possession of the land described as Lot III, Block 2,
located at 1286 Dinalupihan, Tondo, Manila, and defendant (private respondent) is
hereby ordered to deliver the possession thereof to the plaintiff, to pay a monthly
rental at the rate of P50 centavos a square meter per month from March 20, 1959
until the land is delivered to the plaintiff, and to pay the cost. (pp, 44-47, Rec. on
Appeal).

On appeal, the Court of Appeals reversed the decision of the trial court and held that the sale made
by Legarda to Lucero was valid because the former acted within his authority as special co-
administrator and that there was no need for the approval of the probate court of such sale.
According to the appellate court, where the co-administrator sold the estate pursuant to an authority
granted him by the probate court, and where, the administrator acted in obedience to the court's
directive and within the scope of his authority, the sale could well be considered the act of the
probate court itself. Therefore, the approval of the probate court, if wanting, cannot affect the validity
of the administrator's act.

The appellate court also ruled that there was a consummated sale between Legarda and Lucero
because they had agreed on the subject matter and the purchase price and that the latter paid part
of the purchase price while the former delivered the land.

In this petition, the petitioner contends the appellate court committed an error of law when: a) it
upheld the validity of the contract of sale between Legarda and Lucero; and b) it ruled that the
approval of the probate court was not necessary for the validity of the said sale.

The petitioner argues that the receipt evidencing the alleged sale by Legarda to Lucero does not
conform to the legal requirements of contracts of sale and that when the law requires that a contract
be in a public document in order that it may be valid or enforceable, such as contracts which have
for their object of the creation or transmission of real rights over immovable property, that
requirement is absolute and indispensable. Therefore, the questioned sale cannot be enforced
against third persons such as petitioner by the private respondent who only derived his right to the
property from Lucero. Furthermore, the alleged sale was on an installment basis and thus,
necessitated court approval because the same was patently not in accordance with the express
terms and conditions specified in the authorization to sell by the probate court.

We find merit in the petition.

The alleged sale made by Legarda to Lucero should have been embodied in a public instrument in
accordance with Article 1358 of the Civil Code and should have been duly registered with the
Register of Deeds to make it binding against third persons. The authority given by the probate court
to Legarda specifically required the execution of necessary documents. Lucero not only failed to
obtain a deed of sale from Legarda but also failed to secure any kind of writing evidencing the
contract of sale other than the receipt issued by Legarda acknowledging the amount of P200.00. No
explanation was offered by the private respondent as to why there was no effort on the part of
Lucero to pay the balance of the purchase price during the time that Legarda was the special co-
administrator. The private respondent merely alleged that Lucero awaited the sending of the formal
contract by Legarda but as none came, he could not make further payments. It was only after about
five years that Lucero allegedly went to the administrator and offered to pay the balance. By this
time, Philippine Trust Company was already the administrator of the Legarda-Tambunting estate and
it refused to accept further payments from Lucero who had only the receipt in the amount of P200.00
and nothing more as proof that more than five years earlier a piece of real property was sold to him
by a special administrator acting under court orders.

We, therefore, rule that the alleged sale made by Legarda to Lucero did not bind the Legarda-
Tambunting estate, much less, the petitioner who acquired the property in dispute with the approval
of the probate court and in a sole reliance on the clean title of the said property. As correctly ruled by
the trial court:

The plaintiff (petitioner), as the registered owner of the property, is entitled to the
possession thereof, unless the defendant (private respondent) could show that he is
entitled to its possession or to purchase the same. The property was advertised for
sale, but neither Abelardo Lucero nor the defendant herein appeared in the testate
proceedings of Clara Tambunting de Legarda to claim their right to the particular lot
in question. The records of the testate proceedings of Clara Tambunting de Legarda
did not show that any claim was made by Dr. Abelardo Lucero or by the defendant
herein. The alleged sale made by Vicente Legarda in favor of Dr. Lucero did not bind
the estate, for aside from the fact that no formal deed of sale was executed by
Vicente Legarda specifying the terms thereof, it was never approved by the Court.
Sales of immovable properties by the administrators did not bind the estate and have
no validity unless they are approved by the Court. Moreover, the alleged receipt
issued by Vicente Legarda does not constitute even a memorandum of sale,
because it did not specify the price of the land and the manner of payment ...

We also find that the appellate court committed an error of law when it held that the sale of the lot in
question did not need the approval of the probate court.

Although the Rules of Court do not specifically state that the sale of an immovable property
belonging to an estate of a decedent, in a special proceeding, should be made with the approval of
the court, this authority is necessarily included in its capacity as a probate court.

An administrator under the circumstances of this case cannot enjoy blanket authority to dispose of
real estate as he pleases, especially where he ignores specific directives to execute proper
documents and get court approval for the sale's validity.
In the case of Estate of Olave v. Reyes (123 SCRA 767, 772), we ruled:

Section 1, Rule 73 of the Rules of Court, expressly provides that "the court first
taking cognizance of the settlement of the estate of a decedent, shall exercise
jurisdiction to the exclusion of all other courts." (Emphasis supplied). The law is clear
that where the estate of the deceased person is already the subject of a testate or
intestate proceeding, the administrator cannot enter into any transaction involving it
without prior approval of the probate court.

Also, in Vda. de Gil v. Cancio (14 SCRA 796, 800), we ruled:

xxx xxx xxx

... And bearing in mind this situation of the two heirs which happened during the
Japanese occupation, the probate court did not hesitate in approving the agreement
thereby giving to the administratrix the necessary authority to execute the deed of
sale covering the two properties of the deceased in favor of Agustin Cancio provided
that the deed of sale be submitted to the court for its approval. And this matter is
sanctioned by Section 4, Rule 89 of the Rules of Court, which provides:

When it appears that the sale of the whole or a part of the real or personal estate will
be beneficial to the heirs, devisees, legatees, and other interested persons, the court
may, upon application of the executor or administrator and on written notice to the
heirs, devisees, and legatees who are interested in the estate to be sold, authorize
the executor or administrator to sell the whole or a part of said estate, although not
necessary to pay debts, legacies. or expenses of administration; ...

Moreover, the authority granted by the probate court in the case at bar specifically ordered Legarda
to submit the document of sale for its approval.

Thus, as stated earlier, the sale made by Legarda to Lucero, having been done without the approval
of the probate court and without the execution of the necessary documents did not bind the Legarda-
Tambunting estate and could not have affected the rights of the petitioner over the disputed lot.
Furthermore, the private respondent is only a transferee of Lucero. At the time of the transfer of
rights, the private respondent already had notice of the petitioner's ownership because he was
served with a summons in the ejectment case filed against him by the petitioner. More importantly,
the private respondent is deemed to have constructive notice of such ownership from the time the
petitioner was able to secure a title over the said property in 1959. The controversies and litigations
over the estate, the problems with numerous squatters, and other aspects of the acquisition of the
property attracted wide public attention and anybody in the subsidivision could not have avoided
being involved or aware. Therefore, the private respondent cannot even be considered a possessor
and builder in good faith.

Again, as correctly held by the trial court:

After this case had been filed on March 4, 1966, Dr. Abelardo Lucero, on May 23,
1966, executed a deed of sale of the lot in question in favor of his lessees, including
the defendant. This deed of sale did not confer upon the defendant the character of a
builder in good faith, He built his house at the time when he was a mere lessee of Dr.
Abelardo Lucero. The fact that he subsequently bought the rights of Dr. Lucero did
not change the character of his possession to a possessor in good faith. Moreover, it
is apparent that the deed of sale was executed in bad faith with the intention of giving
 the defendant the character of a possessor in good faith. The records show that the
defendant was served with summons on March 11, 1966. At the time of the
execution of the deed of sale (Exh. C) on March 26, 1966, defendant already knew,
or had been informed, that the plaintiff claims to be the owner of the land in question,
and that plaintiff's ownership is evidenced by Transfer Certificate of Title Nos. 62042,
45149, 29578, 40957 and 59585. The alleged sale made by Vicente Legarda to
Abelardo Lucero was not annotated in the certificate of title of the plaintiff, and
therefore, was not binding upon it. When Dr. Abelardo Lucero executed the deed of
sale in favor of the defendant, he already knew of the plaintiff's claim of ownership.

WHEREFORE, IN VIEW OF THE FOREGOING, the questioned decision of the Court of Appeals is
REVERSED and SET ASIDE. The decision of the then Court of First Instance of Manila in Civil Case
No. 64559 is REINSTATED.

SO ORDERED.