Republic of the Philippines

Supreme Court

Manila

THIRD DIVISION

HEIRS OF JOSE REYES, JR., namely: G.R. No. 158377

MAGDALENA C. REYES, OSCAR C.
REYES, GAMALIEL C. REYES,
NENITA R. DELA CRUZ, RODOLFO
C. REYES, and RODRIGO C. REYES,

Petitioners,

Present:

-versus -

CARPIO MORALES., Chairperson,

BRION,
BERSAMIN,
AMANDA S. REYES,
CONSOLACION S. REYES, ABAD,* and
EUGENIA R. ELVAMBUENA,
LUCINA R. MENDOZA, PEDRITO S. VILLARAMA, JR., JJ.
REYES, MERLINDA R.
FAMODULAN, EDUARDO S. REYES,
and JUNE S. REYES,

Respondents.
 Promulgated:

August 13, 2010

x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:

The petitioners assail the decision dated July 31, 2002 rendered in C.A.-G.R. CV No.
53039, by which the Court of Appeals (CA) affirmed the decision dated May 21, 1996 of the
Regional Trial Court (RTC), Branch 9, in Malolos, Bulacan.

Antecedents

Antonio Reyes and his wife, Leoncia Mag-isa Reyes (Leoncia), were owners of a parcel
of residential land with an area of 442 square meters, more or less, located in Pulilan, Bulacan
and covered by Tax Declaration No. 7590. On that land they constructed their dwelling. The
couple had four children, namely: Jose Reyes, Sr. (Jose, Sr.), Teofilo Reyes (Teofilo), Jose
Reyes, Jr. (Jose, Jr.) and Potenciana Reyes-Valenzuela (Potenciana). Antonio Reyes died
intestate, and was survived by Leoncia and their three sons, Potenciana having predeceased her
father. Potenciana also died intestate, survived by her children, namely: Gloria ReyesValenzuela,
Maria Reyes Valenzuela, and Alfredo Reyes Valenzuela. Jose, Jr., and his family resided in
the house of the parents, but Teofilo constructed on the property his own house, where he and his
family resided.

On July 9, 1955, Leoncia and her three sons executed a deed denominated Kasulatan ng
Biling Mabibiling Muli, whereby they sold the land and its existing improvements to the Spouses
Benedicto Francia and Monica Ajoco (Spouses Francia) for P500.00, subject to the vendors’
right to repurchase for the same amount sa oras na sila'y makinabang. Potenciana’s heirs did
not assent to that deed. Nonetheless, Teofilo and Jose, Jr. and their respective families remained
in possession of the property and paid the realty taxes thereon.

Leoncia and her children did not repay the amount of P500.00.

The Spouses Francia both died intestate (i.e., Monica Ajoco on September 16, 1963, and
Benedicto Francia on January 13, 1964).

Alejandro Reyes (Alejandro), the son of Jose, Sr., first partially paid to the Spouses
Francia the amount of P265.00 for the obligation of Leoncia, his uncles and his father. Alejandro
later paid the balance of P235.00. Thus, on August 11, 1970, the heirs of Spouses Francia
executed a deed entitled Pagsasa-ayos ng Pag-aari at Pagsasalin, whereby they transferred and
conveyed to Alejandro all their rights and interests in the property for P500.00.

On August 21, 1970, Alejandro executed a Kasulatan ng Pagmeme-ari, wherein he

declared that he had acquired all the rights and interests of the heirs of the Spouses Francia,
including the ownership of the property, after the vendors had failed to repurchase within the
given period. On the basis of the Kasulatan ng Pagmeme-ari, Tax Declaration No. 3703
covering the property was canceled by Tax Declaration No. 8715, effective 1971, issued to
Alejandro. From then on, he had paid the realty taxes for the property.

Nevertheless, on October 17, 1970, Alejandro, his grandmother (Leoncia), and his father
(Jose, Sr.) executed a Magkakalakip na Salaysay, by which Alejandro acknowledged the right of
Leoncia, Jose, Jr., and Jose, Sr. to repurchase the property at any time for the same amount of
P500.00.

On October 22, 1970, Leoncia died intestate. She was survived by Jose, Sr., Teofilo, Jose,
Jr. and the heirs of Potenciana. Even after Leonica’s death, Teofilo and Jose, Jr., with their
respective families, continued to reside in the property.

Subsequently, Tax Declaration 1228, under the name of Alejandro, was issued effective
1980. All of Leoncia’s sons eventually died intestate, survived by their respective heirs, namely:

Name of Decedent Surviving Heirs

Teofilo Romeo Reyes, Leonardo Reyes,

and Leonora C. Reyes

Jose, Jr. Rodrigo Reyes, Nenita Reyes-

dela Cruz, Rodolfo Reyes, Oscar
Reyes, Gamaliel Reyes, Magdalena Reyes
(petitioners herein), Efren Reyes and Amado
Reyes dela
 Cruz

Jose, Sr. Alejandro Reyes (respondents’

predecessor)

On September 2, 1993, Alejandro also died intestate. Surviving him were his wife,
Amanda Reyes, and their children, namely: Consolacion Reyes, Eugenia Reyes-Elvambuena,
Luciana Reyes-Mendoza, Pedrito S. Reyes, Merlinda Reyes-Famodulan, Eduardo Reyes and
June S. Reyes (respondents herein).

In 1994, respondent Amanda Reyes asked the heirs of Teofilo and Jose, Jr., to vacate the
property because she and her children already needed it. After the petitioners refused to comply,
she filed a complaint against the petitioners in the barangay, seeking their eviction from the
property. When no amicable settlement was reached, the Barangay Lupon issued a certification
to file action to the respondents on September 26, 1994.

In the interim, petitioner Nenita R. de la Cruz and her brother Romeo Reyes also
constructed their respective houses on the property.

RTC Proceedings and Ruling

On September 28, 1994, the respondents initiated this suit for quieting of title and
reconveyance in the RTC. The complaint, docketed as Civil Case No. 817-M-94 and entitled
Amanda Reyes, et al. v. Heirs of Jose Reyes, Jr., et al., was later amended. They alleged that
their predecessor Alejandro had acquired ownership of the property by virtue of the deed
Pagsasa-ayos ng Pag-aari at Pagsasalin executed on August 11, 1970 by the heirs of the
Spouses Francia; that on the basis of such deed of assignment, Alejandro had consolidated his
ownership of the property via his Kasulatan ng Pagmeme-ari; and that under the Magkasanib na
Salaysay, Alejandro had granted to Leoncia, his father Jose, Sr., and his uncles, Teofilo and
Jose, Jr. the right to repurchase the property, but they had failed to do so.

The respondents prayed for judgment in their favor, as follows:

WHEREFORE, it is respectfully prayed that judgment be rendered:

1. Quieting the title to the property by declaring the plaintiffs (respondents

herein) as the rightful and lawful owners thereof;

2. Ordering the defendants (petitioners herein) to vacate subject premises

and reconvey and or surrender possession thereof to the plaintiffs;

3. Ordering the defendants to recognize the right of the plaintiffs as the

lawful owners of subject property;

4. Ordering the defendants to pay plaintiffs the following:

a. Moral damages in the amount of P50,000.00;

b. Exemplary damages in the amount of P20,000.00;

c. Attorney's fees of P20,000.00, acceptance fee of

P10,000.00 and P500.00 per recorded Court appearance of
counsel;

d. The costs of this suit.

 Plaintiffs further pray for such other relief which the Honorable Court may
deem just and equitable under the premises.

In their answer, the petitioners averred that the Kasulatan ng Biling Mabibiling Muli was
an equitable mortgage, not a pacto de retro sale; that the mortgagors had retained ownership of
the property; that the heirs of the Spouses Francia could not have validly sold the property to
Alejandro through the Pagsasaayos ng Pag-aari at Pagsasalin; that Alejandro’s right was only
to seek reimbursement of the P500.00 he had paid from the co-owners, namely: Leoncia, Teofilo,
Jose, Jr. and Jose, Sr. and the heirs of Potenciana; and that Alejandro could not have also validly
consolidated ownership through the Kasulatan ng Pagmeme-ari, because a consolidation of
ownership could only be effected via a court order.

The petitioners interposed a counterclaim for the declaration of the transaction as an

equitable mortgage, and of their property as owned in common by all the heirs of Leoncia,
Teofilo, Jose, Jr. and Jose, Sr.

On May 21, 1996, the RTC ruled in favor of the respondents, declaring that Alejandro had
acquired ownership of the property in 1965 by operation of law upon the failure of the
petitioners’ predecessors to repurchase the property; that the joint affidavit executed by
Alejandro, Leoncia and Jose, Jr. and Jose, Sr., to extend the period of redemption was
inefficacious, because there was no more period to extend due to the redemption period having
long lapsed by the time of its execution; and that the action should be dismissed insofar as the
heirs of Potenciana were concerned, considering that Potenciana, who had predeceased her
parents, had no successional rights in the property.
Accordingly, the RTC decreed as follows:

WHEREFORE, on the basis of the evidence adduced and the

law/jurisprudence applicable thereon, judgment is hereby rendered:

a) sustaining the validity of the “Kasulatan ng Biling Mabibiling Muli”

(Exh. B/Exh. 1) executed on July 9, 1955 by Leoncia Mag-isa and her sons
Teofilo, Jose, Sr. and Jose, Jr., all surnamed Reyes, in favor of Spouses Benedicto
Francia and Monica Ajoco as well as the “Pagsasa-ayos ng Pag-aari at
Pagsasalin” (Settlement of Estate and Assignment) [Exh. C/Exh. 4] executed on
August 11, 1970 by the heirs of spouses Benedicto Francia and Monica Ajoco in
favor of the spouses Alejandro Reyes and Amanda Salonga;

b) declaring the aforementioned “Kasulatan Ng Biling Mabibili Muli” (Exh.

B/ Exh. 1) to be a contract of sale with right to repurchase and not an equitable
mortgage;

c) confirming the consolidation of ownership, by operation of law, of

spouses Alejandro M. Reyes and Amanda Salonga over the residential lot
mentioned and referred to in Exhibit B/Exhibit 1 and Exhibit C/Exhibit 4;

d) allowing the registration with the Registry of Deeds for the Province of
Bulacan of the “Kasulatan ng Pagmeme-ari” (Document of Ownership) [Exh.
E/Exh. 5] executed by Alejandro M. Reyes on August 21, 1970 or of any
appropriate deed of consolidation of ownership over the residential lot covered by
Exhibit E/Exhibit 5 which the plaintiffs, as eventual owners by succession of the
aforementioned proeprty, may deem proper to execute;

e) ordering the defendants and all persons claiming rights under them to
vacate the residential lot subject of the above-entitled case and to restore
possession thereof unto the plaintiffs;

f) directing the defendants (except the heirs of Potenciana Reyes-

Valenzuela) to pay unto the plaintiffs the amount of P20,000.00 as attorney's fees;
and

g) dismissing the complaint in so far as the defendant heirs of Potenciana

Reyes-Valenzuela are concerned as well as their counterclaim for damages and
attorney's fees.

No pronouncement as to costs.

SO ORDERED.
 Aggrieved, the petitioners appealed to the CA.

CA Ruling

In the CA, the petitioners assailed the RTC’s dispositions, except the dismissal of the
complaint as against Potenciana’s heirs.

In its decision dated July 31, 2002, the CA ruled that the transaction covered by the
Kasulatan ng Biling Mabibiling Muli was not a pacto de retro sale but an equitable mortgage
under Article 1602 of the Civil Code; that even after the deed’s execution, Leoncia, Teofilo,
Jose, Jr. and their families had remained in possession of the property and continued paying
realty taxes for the property; that the purported vendees had not declared the property for
taxation purposes under their own names; and that such circumstances proved that the parties
envisaged an equitable mortgage in the Kasulatan ng Biling Mabibiling Muli.

The CA observed that the heirs of the Spouses Francia had themselves admitted in
paragraph 5 of the Pagsasa-ayos ng Pag-aari at Pagsasalin that the property had been
mortgaged to their predecessors-in-interest, viz:

Na, sa oras ng kamatayan ay nakaiwan sila ng isang lagay na lupang

nakasanla sa kanila na makikilala sa kasulatang kalakip nito sa halagang
LIMANG DAANG PISO (P500.00). Ngunit nuong nabubuhay pa ang
magasawang Benedicto Francia at Monica Ajoco ay nakatanggap na ng halagang
P265.00 kay Alejandro Reyes - Filipino, kasal kay Amanda Salonga, may sapat
na gulang at naninirahan sa Pulilan, Bulacan.
 However, the CA held that the appellants’ (petitioners herein) failure to file an action for
the reformation of the Kasulatan ng Biling Mabibiling Muli to reflect the true intention of the
parties within ten years from the deed’s execution on July 9, 1955, pursuant to Article 1144 of
the Civil Code, already barred them from claiming that the transaction executed between Leoncia
and her children, on one hand, and the Spouses Francia, on the other hand, was an equitable
mortgage. The CA agreed with the RTC that the Magkakalakip na Salaysay did not effectively
extend the period for Leoncia and her children to repurchase the property, considering that the
period to repurchase had long lapsed by the time the agreement to extend it was executed on
October 17, 1970.

Issues

In this appeal, therefore, the petitioners insist that:

I.
The Honorable Court of Appeals erred in finding that respondents (were)
already barred from claiming that the transaction entered into by their
predecessors-in-interest was an equitable mortgage and not a pacto de retro sale;

II.
The Honorable Court of Appeals erred in affirming the findings of the court a
quo that the Magkasanib na Salaysay (Joint Affidavit), executed by Alejandro,
Leoncia and Jose, Jr., wherein Leoncia and her children were granted by
Alejandro the right to repurchase the property at anytime for the amount of
P500.00, was of no legal significance.

Ruling of the Court

 The petition is meritorious.

A.

The CA correctly concluded that the true agreement of the parties vis-à-vis the Kasulatan
ng Biling Mabibiling Muli was an equitable mortgage, not a pacto de retro sale. There was no
dispute that the purported vendors had continued in the possession of the property even after the
execution of the agreement; and that the property had remained declared for taxation purposes
under Leoncia’s name, with the realty taxes due being paid by Leoncia, despite the execution of
the agreement. Such established circumstances are among the badges of an equitable mortgage
enumerated in Article 1602, paragraphs 2 and 5 of the Civil Code, to wit:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in

any of the following cases:
xxx
(2) When the vendor remains in possession as lessee or otherwise;
xxx
(5) When the vendor binds himself to pay the taxes on the thing sold;
xxx

The existence of any one of the conditions enumerated under Article 1602 of the Civil
Code, not a concurrence of all or of a majority thereof, suffices to give rise to the presumption
that the contract is an equitable mortgage. Consequently, the contract between the vendors and
vendees (Spouses Francia) was an equitable mortgage.

B.
 Are the petitioners now barred from claiming that the transaction under the Kasulatan ng
Biling Mabibiling Muli was an equitable mortgage by their failure to redeem the property for a
long period of time?

The petitioners contend that prescription, if it must apply to them, should as well be
applied to the respondents, who had similarly failed to enforce their right under the equitable
mortgage within ten years from its execution on July 9, 1955. Consequently, they urge the
upholding of the original intention of the parties to the Kasulatan ng Biling Mabibiling Muli,
without taking prescription into account, because both parties did not enforce their respective
rights within the ten-year prescriptive period, is more in keeping with fairness and equity.

We agree with the petitioners.

Considering that sa oras na sila’y makinabang, the period of redemption stated in the
Kasulatan ng Biling Mabibiling Muli, signified that no definite period had been stated, the period
to redeem should be ten years from the execution of the contract, pursuant to Articles 1142 and
1144 of the Civil Code. Thus, the full redemption price should have been paid by July 9, 1955;
and upon the expiration of said 10-year period, mortgagees Spouses Francia or their heirs should
have foreclosed the mortgage, but they did not do so. Instead, they accepted Alejandro’s
payments, until the debt was fully satisfied by August 11, 1970.

The acceptance of the payments even beyond the 10-year period of redemption estopped
the mortgagees’ heirs from insisting that the period to redeem the property had already expired.
Their actions impliedly recognized the continued existence of the equitable mortgage. The
conduct of the original parties as well as of their successors-in-interest manifested that the parties
to the Kasulatan ng Biling Mabibiling Muli really intended their transaction to be an equitable
mortgage, not a pacto de retro sale.

In Cuyugan v. Santos, the purported buyer under a so-called contract to sell with right to
repurchase also accepted partial payments from the purported seller. We held that the acceptance
of partial payments was absolutely incompatible with the idea of irrevocability of the title of
ownership of the purchaser upon the expiration of the term stipulated in the original contract for
the exercise of the right of redemption. Thereby, the conduct of the parties manifested that they
had intended the contract to be a mortgage, not a pacto de retro sale.

C.

When Alejandro redeemed the property on August 11, 1970, he did not thereby become a
co-owner thereof, because his father Jose, Sr. was then still alive. Alejandro merely became the
assignee of the mortgage, and the property continued to be co-owned by Leoncia and her sons
Jose, Sr., Jose Jr., and Teofilo. As an assignee of the mortgage and the mortgage credit,
Alejandro acquired only the rights of his assignors, nothing more. He himself confirmed so in the
Magkasanib na Salaysay, whereby he acknowledged the co-owners’ right to redeem the property
from him at any time (sa ano mang oras) for the same redemption price of P500.00.

It is worthy to note that Alejandro’s confirmation in the Magkasanib na Salaysay of the

co-owners’ right to redeem was made despite 15 years having meanwhile elapsed from the
execution of the original Kasulatan ng Biling Mabibiling Muli (July 9, 1955) until the execution
of the Magkasanib na Salaysay (August 21, 1970).
 D.

Neither did the petitioners’ failure to initiate an action for reformation within ten years
from the execution of the Kasulatan ng Biling Mabibiling Muli bar them from insisting on their
rights in the property. The records show that the parties in the Kasulatan ng Biling Mabibiling
Muli had abided by their true agreement under the deed, to the extent that they and their
successors-in-interest still deemed the agreement as an equitable mortgage despite the lapse of
15 years from the execution of the purported pacto de retro sale. Hence, an action for
reformation of the Kasulatan ng Biling Mabibiling Muli was unnecessary, if not superfluous,
considering that the reason underlying the requirement for an action for reformation of
instrument has been to ensure that the parties to a contract abide by their true intended
agreement.

The Kasulatan ng Pagmeme-ari executed by Alejandro on August 21, 1970 was

ineffectual to predicate the exclusion of the petitioners and their predecessors in interest from
insisting on their claim to the property. Alejandro’s being an assignee of the mortgage did not
authorize him or his heirs to appropriate the mortgaged property for himself without violating the
prohibition against pactum commissorium contained in Article 2088 of the Civil Code, to the
effect that “[t]he creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them[;] [a]ny stipulation to the contrary is null and void.” Aptly did the Court hold in
Montevirgen v. Court of Appeals:

The declaration, therefore, in the decision of July 1, 1971 to the effect that
absolute ownership over the subject premises has become consolidated in the
 respondents upon failure of the petitioners to pay their obligation within the
specified period, is a nullity, for consolidation of ownership is an improper and
inappropriate remedy to enforce a transaction declared to be one of mortgage. It is
the duty of respondents, as mortgagees, to foreclose the mortgage if he wishes to
secure a perfect title to the mortgaged property if he buys it in the foreclosure
sale.

Moreover, the respondents, as Alejandro’s heirs, were entirely bound by his previous acts
as their predecessors-in-interest. Thus, Alejandro’s acknowledgment of the effectivity of the
equitable mortgage agreement precluded the respondents from claiming that the property had
been sold to him with right to repurchase.

E.

What was the effect of the Magkasanib na Salaysay?

Both the trial court and the CA declared that the Magkasanib na Salaysay, which extended
the redemption period of the mortgaged property, was inefficacious, because the period to
redeem could no longer be extended after the original redemption period had already expired.

In contrast, the petitioners submit that disregarding the Magkasanib na Salaysay made no
sense, considering that the respondents’ predecessors-in-interest admitted therein that the
petitioners had a right to redeem the property.
 The respondents counter, however, that the Magkasanib na Salaysay, which acknowledged
the other co-owners’ right to redeem the property, was void; that the petitioners could no longer
claim to be co-owners entitled to redeem the property, because the co-ownership had come to an
end by Alejandro having openly repudiated the co-ownership; that Alejandro’s acts of
repudiation had consisted of: (a) redeeming the property from the Spouses Francia; (b) acquiring
the property from the heirs of Spouses Francia by virtue of a deed of assignment denominated
as Pag-aayos ng Pag-aari at Pagsasalin; (c) executing an affidavit of consolidation of
ownership over the property (Kasulatan ng Pagmeme-ari); (d) applying for the cancellation of
the tax declaration of property in the name of Leoncia, and the subsequent issuance of a new tax
declaration in his name; (e) his continuous possession of the property from 1955, which
possession the respondents as his heirs had continued up to the present time, or for a period of
almost 50 years already; and (f) the payment of the taxes by Alejandro and the respondents for
more than 30 years without any contribution from the petitioners; and that such repudiation
established that Alejandro and his successors-in-interest had already acquired sole title over the
property through acquisitive prescription.

The respondents’ and the lower courts’ positions cannot be sustained.

The provisions of the Civil Code governing equitable mortgages disguised as sale
contracts, like the one herein, are primarily designed to curtail the evils brought about by
contracts of sale with right to repurchase, particularly the circumvention of the usury law and
pactum commissorium. Courts have taken judicial notice of the well-known fact that contracts of
sale with right to repurchase have been frequently resorted to in order to conceal the true nature
of a contract, that is, a loan secured by a mortgage. It is a reality that grave financial distress
renders persons hard-pressed to meet even their basic needs or to respond to an emergency,
leaving no choice to them but to sign deeds of absolute sale of property or deeds of sale with
pacto de retro if only to obtain the much-needed loan from unscrupulous money lenders. This
reality precisely explains why the pertinent provision of the Civil Code includes a peculiar rule
concerning the period of redemption, to wit:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in

any of the following cases:

xxx

(3)When upon or after the expiration of the right to repurchase another

instrument extending the period of redemption or granting a new period is
executed;

xxx

Ostensibly, the law allows a new period of redemption to be agreed upon or granted even
after the expiration of the equitable mortgagor’s right to repurchase, and treats such extension as
one of the indicators that the true agreement between the parties is an equitable mortgage, not a
sale with right to repurchase. It was indubitable, therefore, that the Magkasanib na Salaysay
effectively afforded to Leoncia, Teofilo, Jose, Sr. and Jose, Jr. a fresh period within which to pay
to Alejandro the redemption price of P500.00.

F.

Did Alejandro and his heirs (respondents herein) acquire the mortgaged property through
prescription?
 It is true that Alejandro became a co-owner of the property by right of representation upon
the death of his father, Jose Sr. As a co-owner, however, his possession was like that of a trustee
and was not regarded as adverse to his co-owners but in fact beneficial to all of them.

Yet, the respondents except to the general rule, asserting that Alejandro, having earlier
repudiated the co-ownership, acquired ownership of the property through prescription.

The Court cannot accept the respondents’ posture.

In order that a co-owner’s possession may be deemed adverse to that of the cestui que
trust or the other co-owners, the following elements must concur:

1. The co-owner has performed unequivocal acts of repudiation of the co-

ownership amounting to an ouster of the cestui que trust or the other co-
owners;

2. Such positive acts of repudiation have been made known to the cestui que
trust or the other co-owners;

3. The evidence on the repudiation is clear and conclusive; and

4. His possession is open, continuous, exclusive, and notorious.

The concurrence of the foregoing elements was not established herein. For one, Alejandro
did not have adverse and exclusive possession of the property, as, in fact, the other co-owners
had continued to possess it, with Alejandro and his heirs occupying only a portion of it. Neither
did the cancellation of the previous tax declarations in the name of Leoncia, the previous co-
owner, and the issuance of a new one in Alejandro’s name, and Alejandro’s payment of the
realty taxes constitute repudiation of the co-ownership. The sole fact of a co-owner declaring the
land in question in his name for taxation purposes and paying the land taxes did not constitute an
unequivocal act of repudiation amounting to an ouster of the other co-owner and could not
constitute adverse possession as basis for title by prescription. Moreover, according to Blatero v.
Intermediate Appellate Court, if a sale a retro is construed as an equitable mortgage, then the
execution of an affidavit of consolidation by the purported buyer to consolidate ownership of the
parcel of land is of no consequence and the “constructive possession” of the parcel of land will
not ripen into ownership, because only possession acquired and enjoyed in the concept of owner
can serve as title for acquiring dominion.

In fine, the respondents did not present proof showing that Alejandro had effectively
repudiated the co-ownership. Their bare claim that Alejandro had made oral demands to vacate
to his co-owners was self-serving and insufficient. Alejandro’s execution of the affidavit of
consolidation of ownership on August 21, 1970 and his subsequent execution on October 17,
1970 of the joint affidavit were really equivocal and ambivalent acts that did not manifest his
desire to repudiate the co-ownership.

The only unequivocal act of repudiation was done by the respondents when they filed the
instant action for quieting of title on September 28, 1994, nearly a year after Alejandro’s death
on September 2, 1993. However, their possession could not ripen into ownership considering that
their act of repudiation was not coupled with their exclusive possession of the property.

G.
 The respondents can only demand from the petitioners the partition of the co-owned
property and the reimbursement from their co-owners of the amount advanced by Alejandro to
repay the obligation. They may also seek from their co-owners the proportional reimbursement
of the realty taxes paid for the property, pursuant to Article 488 of the Civil Code. In the
alternative, they may opt to foreclose the equitable mortgage, considering that the petitioners’
period to redeem the mortgaged property, which was ten years from the execution on October
17, 1970 of the Magkakasanib na Salaysay, had already long lapsed. We clarify, however, that
the respondents may take these recourses only through the appropriate actions commenced in
court.

H.

The petitioners’ counterclaim for damages is dismissed for their failure to prove their
entitlement to it.

WHEREFORE, we grant the petition for review on certiorari.

The decision dated July 31, 2002 rendered by the Court of Appeals is reversed and set
aside, and another judgment is rendered:

a) Upholding the validity of the Kasulatan ng Biling Mabibiling Muli (Deed of Sale with
Right of Repurchase) executed on July 9, 1955 by Leoncia Mag-isa Reyes and her sons Teofilo,
Jose, Sr. and Jose, Jr., all surnamed Reyes, in favor of the late Spouses Benedicto Francia and
Monica Ajoco as well as the Pagsasa-ayos ng Pag-aari at Pagsasalin (Settlement of Estate and
Assignment) executed on August 11, 1970 by the heirs of the late Spouses Benedicto Francia and
Monica Ajoco in favor of the spouses Alejandro Reyes and Amanda Salonga;

b) Declaring the Kasulatan ng Biling Mabibili Muli to be an equitable mortgage, not a

contract of sale with right to repurchase;

c) Finding the Magkakalakip na Salaysay executed on October 17, 1970 by and among
Leoncia Mag-isa Reyes, Jose Reyes, Sr. and Alejandro Reyes valid and effective;

c) Nullifying the Kasulatan ng Pagmeme-ari executed by Alejandro M. Reyes on August

21, 1970; and

d) Dismissing the petitioners’ counterclaim.

Costs of suit to be paid by the respondents.

SO ORDERED.
 LUCAS P. BERSAMIN

Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice

Chairperson

ARTURO D. BRION ROBERTO A. ABAD

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice
 ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.

CONCHITA CARPIO MORALES

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
 Chief Justice

* Additional member per Special Order No. 843 dated May 17, 2010.

The petitioners were collectively denominated in the caption of the petition as Heirs of Jose
Reyes, Jr., et al., represented by Rodrigo C. Reyes. On August 11, 2003, the Court required
Rodrigo C. Reyes to submit his authority to represent the heirs of Jose Reyes, Jr. within 15 days
from notice (rollo, p. 65). Rodrigo C. Reyes submitted his compliance on September 24, 2003,
enclosing the original of the special power of attorney executed on January 28, 1995 naming
Magdalena C. Reyes, Oscar C. Reyes, Gamaliel C. Reyes, Nenita R. Dela Cruz, Rodolfo C.
Reyes and Rodrigo C. Reyes as the heirs of Jose Reyes, Jr. (id., pp. 68-69).

Rollo, pp.18-33; penned by Associate Justice Romeo J. Callejo, Sr. (later a Member of the
Court, since retired), with Associate Justice Remedios Salazar-Fernando and Associate Justice
Danilo B. Pine (retired) concurring.

Id., pp. 54-64.

Records, p. 128 (translated: Deed of Sale with Right to Repurchase).

Id., pp. 9-10 (Translated: Settlement of Estate and Assignment).

Id., p. 11 (Translated: Deed of Ownership).

Id., p. 185.

Id., pp. 186-187.

Id., p. 130 (Translated: Joint Affidavit).

Id., p. 156.

Id., p. 132.

Rollo, p. 20.

Records, p. 155.

Id., p. 152.

Id., pp. 157-159 (Exhibits N to N-5).

Id., pp. 1-5.

Id., pp. 83-90.

 Id., p. 89.

Id., pp. 34-41.

Rollo, pp. 63-64.

Records, p. 9.

Article 1144. The following actions must be brought within ten years from the time the right
of action accrues:

1. Upon a written contract;

2. Upon an obligation created by law;

3. Upon a judgment.

Rollo, p. 12.

Raymundo v. Bandong, G.R. No. 171250, July 4, 2007, 526 SCRA 514, 528.

Article 1144. The following actions must be brought within ten years from the time the right of
action accrues:

1) Upon a written contract;

2) Upon an obligation created by law;

3) Upon a judgment.

Article 1142. A mortgage action prescribes after ten years.

G.R. No. 10265, March 3, 1916, 34 Phil 100, 121.

G.R. No. L-44943, March 17, 1982, 112 SCRA 641, 647-648.

The Civil Code states:

Article 1439: Estoppel is effective only as between the parties thereto or their successors-in-
interest.

Santos v. Duata, G.R. No. L-20901, August 31, 1965, 14 SCRA 1041, 1045.

Matanguihan v. Court of Appeals, G.R. No. 115033, July 11, 1997, 275 SCRA 380, 390-391.
 Articles 970 and 975 of the Civil Code provide thus:

Art 970. Representation is a right created by fiction of law, by virtue of which the
representative is raised to the place and the degree of the person represented, and acquires the
rights which the latter would have if he were living or if he could have inherited.

Art. 975. When children of one or more brothers or sisters of the deceased survive, they
shall inherit from the latter by representation, if they survive with their uncles or aunts. But if
they alone survive, they shall inherit in equal portions.

Salvador v. Court of Appeals, G.R. No. 109910, April 5, 1995, 243 SCRA 239, 251.

Adille v. Court of Appeals, G.R. No. L-44546, January 29, 1988, 157 SCRA 455, 461; Vda.
de Arceo v. Court of Appeals, G.R. No. 81401, May 18, 1990, 185 SCRA 489, 495.

Laguna v. Levantino, 71Phil 566 (1941); Guillen v. Court of Appeals, G.R. No. 83175,
December 4, 1989, 179 SCRA 789,798; Bicarme v. Court of Appeals, G.R. No. 51914, June 6,
1990, 186 SCRA 294.

G.R. No. L-73889, September 30, 1987, 154 SCRA 530.

Id., pp. 539-541; Article 540, Civil Code.

Kasulatan ng Pagmeme-ari

Magkakalakip na Salaysay

Article 488. Each co-owner shall have a right to compel the other co-owners to contribute to the
expenses of preservation of the thing or right owned in common and to the taxes. Anyone of the
latter may exempt himself from this obligation by renouncing so much of his undivided interest
as may be equivalent to his share of the expenses and taxes. No such waiver shall be made if it is
prejudicial to the co-ownership.

People v. Bano, G.R. No. 148710, January 15, 2004, 419 SCRA 697, 707; Mahinay v.
Velasquez, Jr. G.R. No. 152753, January 23, 2004, 419 SCRA 118, 121-122.

SECOND DIVISION
SPOUSES PATRICIO and G.R. No. 163271
MYRNA BERNALES,
Petitioners,

- versus -

HEIRS OF JULIAN SAMBAAN, Present:

namely: EMMA S. FELICILDA,
ANITA S. SAMBAAN, CARPIO, J., Chairperson,
VIOLETA S. DADSANAN, BRION,
ABSALON S. SAMBAAN, DEL CASTILLO,
AGUSTINE S. SAMBAAN, ABAD, and
EDITHA S. MANGUIRAN, PEREZ, JJ.
GRACE S. NITCHA.
CLODUALDO S. SAMBAAN,
GINA S. SAMBAAN and
FE S. YAP, Promulgated:
Respondents. January 15, 2010

x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

A legal tussle among children is a nightmare for their parents. Sometimes, this happens when pecuniary
interests takes precedence over family relationship. In the instant case, we are at the forefront of a family
squabble over a disputed land situated in Cagayan de Oro City which was purportedly conveyed to the
eldest child through a Deed of Absolute Sale.
Branch 18 of the Regional Trial Court (RTC) of Misamis Oriental rendered judgment in favor of the
herein respondents, which was affirmed in toto by the Court of Appeals (CA). Alleging that the CA
Decision is not in accordance with law and jurisprudence, as well as the evidence on record, petitioners
now come to us via the instant Petition for Review on Certiorari.

Factual Antecedents

Julian Sambaan (Julian), married to Guillerma Saarenas-Sambaan (Guillerma), was the registered owner
of a property located at Bulua, Cagayan de Oro City. The lot was covered by Transfer Certificate of Title
(TCT) No. T-14202 issued on March 8, 1972, and more particularly described as follows:

A parcel of land (Lot No. 5947-A of the Subdivision Plan (LRC) Psd-138019, being a portion of
Lot No. 5947, Cagayan Cadastre, LRC Cad. Rec. No. 1572) situated in the Barrio of Bulua, City
of Cagayan de Oro, Island of Mindanao x x x containing an area of THREE THOUSAND SIX
HUNDRED FORTY THREE (3,643) SQUARE METERS, more or less.

The respondents herein and the petitioner Myrna Bernales (Myrna) are the children of Julian and
Guillerma. Myrna, who is the eldest of the siblings, is the present owner and possessor of the property in
question.

Sometime in 1975, Julian was ambushed at Merayon, Talakad, Bukidnon, and was hospitalized due to a
gunshot wound. On April 11, 1975, Julian allegedly requested his children to gather so that he could
make his last two wishes. Julian’s first wish was for the children to redeem the subject property which
was mortgaged to Myrna and her husband Patricio Bernales (Patricio), while his second wish was for his
remains not to be brought to the house of Myrna at Nazareth, Cagayan de Oro City. Thus, in 1982,
respondent Absalon Sambaan (Absalon), one of Julian’s children, offered to redeem the property but the
petitioners refused because they were allegedly using the property as tethering place for their cattle.

In January 1991, respondents received information that the property covered by TCT No. T-14202 was
already transferred to petitioners’ name. Whereupon, they secured a copy of the Deed of Absolute Sale
dated December 7, 1970 which bore the signatures of their parents and had it examined by the National
Bureau of Investigation (NBI). The result of the examination revealed that the signatures of their parents,
Julian and Guillerma, were forged.
Proceedings before the Regional Trial Court

Thus, on April 13, 1993, the respondents, together with their mother Guillerma, filed a Complaint for
Annulment of Deed of Absolute Sale and Cancellation of Transfer Certificate of Title No. T-14204 with
Damages and Writ of Preliminary Injunction against herein petitioners. They alleged that in spite of the
forged signature of their parents, the petitioners were able to register the Deed of Absolute Sale with the
Registry of Deeds of Cagayan de Oro City and secure TCT No. T-14204 on March 8, 1972. They
prayed for an injunctive relief in order to prevent the petitioners from selling, disposing, or mortgaging
said property. They further prayed that (i) the Deed of Absolute Sale and TCT No. T-14204 be annulled;
(ii) they be declared the absolute owners of the property; (iii) all documents executed, made and entered
into relative to the said title be declared void; and, (iv) the petitioners be ordered to pay them P300,000.00
as moral and exemplary damages, and P50,000.00 as attorney’s fees plus P1,000.00 as appearance fee.

On May 6, 1992, petitioners filed their Answer, alleging that the subject property (Lot No. 5947-A) used
to be a portion of Lot No. 5947, which was originally owned by Clodualdo Sambaan (Clodualdo) and
Gliceria Dacer (Gliceria). Lot No. 5947 is more particularly described as follows:

A parcel of land (Lot No. 5947 of the Cadastral Survey of Cagayan) situated at Bulua, Cagayan
de Oro City. Bounded on the NE., by Lot No. 5984 and 5948; E., by Lot Nos. 5948 and 5946,
SW., by Lot No. 5946; and on the NW., by Lot No. 5984, containing an area of 7,286 square
meters, more or less, under Tax Declaration No. 21421 and covered by Original Certificate of
Title No. 7921 issued on September 23, 1940.

After the death of Clodualdo and Gliceria in 1949, their heirs, namely, Alicia Lago, wife of Pedro
Gacusan; Bernardo Lago (single); Gloria Lago, wife of Jimmy Angco; Dionesia Lago, married to Paulino
Unat; Prysbetero Sambaan, married to Rosario Zaragosa; Juanito Sambaan, married to Renerio Galos;
Leo Sambaan, married to Adeloisa Tambulian; Renato Sambaan, married to Adelina Ablon; Aida
Sambaan (single); Julian Sambaan, married to Guillerma Saarenas; Paz Sambaan, wife of Rufinito Lago;
and, Bernie Sambaan, married to Alicia Sabuero, executed an Extra Judicial Settlement and Sale dated
April 10, 1970 involving the abovementioned land covered by Original Certificate of Title (OCT) No.
7921.

It appears, however, that Juanito, Aida and Renato sold their share to a certain Domingo Ebarrat
(Ebarrat). Hence, a portion of the property belonged to Julian while another portion belonged to Ebarrat.
In view of the co-ownership between Ebarrat and Julian, the former and the latter executed a Deed of
Partition dated September 8, 1970 whereby Lot No. 5947 was divided. The eastern half with an area of
3,643 square meters was assigned to Julian, while the western half with the same area went to Ebarrat.

Petitioners claimed that Julian subsequently sold his share to them by virtue of a Deed of Absolute
Sale dated December 7, 1970. The said property is

described as follows:

A Parcel of land (Lot No. 5947-A, being a portion of Lot No. 5947, Cadastral Survey of
Cagayan) situated at Bulua, Cagayan de Oro City. Bounded on the North by Lot Nos. 5947-B
and 5948, Cad. 237; South by Lot Nos. 5946, Cad-237; East by Lot Nos. 5948 and 5946, Cad.
237; and West by Lot No. 5947-B, containing an area of 3643 square meters, more or less,
covered by OCT No. 7921 (now TCT No. T-14202) of the Registry of Deeds of Cagayan de Oro
City.

Thereafter, on December 10, 1970, Ebarrat and Patricio executed an Agreement wherein Ebarrat
acknowledged that petitioners are the owners of the 18 coconut trees planted in Ebarrat’s property and
even made Julian as a witness to the said Agreement.

In addition, petitioners alleged that the imputation of falsification of the signatures of Julian and
Guillerma is a product of respondents’ inflamed imagination because the latter envy them for they have
been successful in managing their properties. Petitioners thus prayed that judgment be rendered
dismissing the complaint; affirming their title over the controverted property and ordering respondents to
pay them P500,000.00 as moral damages; P300,000.00 as exemplary damages; P50,000.00 as attorney’s
fees and costs of litigation.

On July 27, 1992, petitioners filed a Motion for Production and Inspection of Document to compel
respondents to produce and permit them to inspect and to copy or photograph the Deed of Absolute Sale
subject matter of said examination. Thereafter, the trial court issued an Order dated August 14, 1992
granting the motion and directing the Regional Office of the NBI to bring the document to court so that
the same may be properly examined.
On August 11, 1992, Guillerma died in Cagayan de Oro City and was accordingly dropped as co-
plaintiff.

After trial on the merits, the trial court rendered its Decision dated August 2, 2001 ruling in favor of the
respondents, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the plaintiffs were able to establish a strong
preponderance of evidence in their favor. Accordingly, Transfer Certificate of Title No. T-14204
is hereby declared NULL AND VOID, and is hereby CANCELLED. Let another title be issued
in the name of the late Julian Sambaan. The defendants are jointly and severally directed to pay
the plaintiffs the sum of P20,000.00 as moral damages, P20,000.00 as attorney’s fees and
P1,671.00 representing actual expenses.

Proceedings before the Court of Appeals

Petitioners, alleging among others that the trial court erred in finding that the signature of Julian on the
assailed document was a forgery, went to the CA by way of ordinary appeal. On August 20, 2003, the
CA rendered a Decision affirming the findings of the trial court, the dispositive portion of which reads:

WHEREFORE, premises considered, the appealed Decision dated August 2, 2001 of the
Regional Trial Court of Cagayan de Oro City, Branch 18, in Civil Case no. 92-179 is hereby
AFFIRMED in toto. Costs against appellants.

Petitioners filed a Motion for Reconsideration which was denied by the CA in its Resolution dated March
17, 2004.

Issues
In this Petition for Review on Certiorari, petitioners assail the Decision of the CA on the following
grounds:

A. THE COURT OF APPEALS ERRED WHEN IT RULED THAT PRESCRIPTION DID

NOT BAR RESPONDENTS’ ACTION TO RECOVER OWNERSHIP OF THE SUBJECT
PROPERTY.

B. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED SETTLED PRINCIPLES

ON THE ADMISSIBILITY AND APPRECIATION OF OPINIONS OF EXPERT WITNESSES
IN ITS BLANKET ACCEPTANCE OF THE INADEQUATE TESTIMONY OF THE
DOCUMENT EXAMINER WHO WAS COMMISSIONED BY RESPONDENTS PRIOR TO
THE COMMENCEMENT OF CIVIL CASE NO. 92-179.

C. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED THE RULES OF

EVIDENCE IN ARRIVING AT THE CONCLUSION THAT THE DEED OF ABSOLUTE
SALE WAS A FORGED DOCUMENT ON THE BASIS OF SPECIMEN SIGNATURES THE
GENUINENESS OF WHICH WERE NEVER ESTABLISHED.

D. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED LEGAL PRINCIPLES

ON HANDWRITING COMPARISON IN USING SPECIMEN SIGNATURES OF
GUILLERMA SAMBAAN THAT WERE MADE AT THE TIME AND FOR THE SPECIFIC
PURPOSE OF THE HANDWRITING ANALYSIS OF THE DEED OF ABSOLUTE SALE.

E. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED JURISPRUDENCE ON

THE PROOF REQUIRED TO ESTABLISH FORGERY IN ARRIVING AT THE
CONCLUSION THAT THE SIGNATURE OF JULIAN SAMBAAN ON THE DEED OF
ABSOLUTE SALE WAS FORGED BECAUSE IT BELIEVED THAT GUILLERMA
SAMBAAN’S SIGNATURE WAS ALSO FORGED.

F. THE COURT OF APPEALS CONTRAVENED THE LEGAL RULES GOVERNING THE

APPRECIATION OF DOCUMENTS IN RULING AGAINST THE VALIDITY OF JULIAN
SAMBAAN’S SALE OF THE SUBJECT PROPERTY TO PETITIONERS DESPITE THE
EXISTENCE OF THE AGREEMENT DATED 10 DECEMBER 1970 CONFIRMING THE
SALE.
G. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S AWARD
OF DAMAGES IN FAVOR OF RESPONDENTS AND IN DISMISSING PETITIONERS’
COUNTERCLAIMS FOR DAMAGES.

Our Ruling

The core issue to be resolved in the present controversy is the authenticity of the Deed of Absolute Sale
which is a question of fact rather than of law. In Manila Bay Club Corporation v. Court of Appeals, we
held that for a question to be one of law, it must involve no examination of the probative value of the
evidence presented by the litigants or any of them. There is a question of law when the doubt or
difference arises as to what the law is pertaining to a certain state of facts. On the other hand, there is a
question of fact when the doubt arises as to the truth or the falsity of alleged facts.

In the case at bench, the issues raised by the petitioners are essentially factual matters, the determination
of which are best left to the courts below. Well-settled is the rule that the Supreme Court is not a trier of
facts. Factual findings of the lower courts are entitled to great weight and respect on appeal, and in fact
accorded finality when supported by substantial evidence on the record. Substantial evidence is more
than a mere scintilla of evidence. It is that amount of relevant evidence that a reasonable mind might
accept as adequate to support a conclusion, even if other minds, equally reasonable, might conceivably
opine otherwise. But to erase any doubt on the correctness of the assailed ruling, we have carefully
perused the records and, nonetheless, arrived at the same conclusion. We find that there is substantial
evidence on record to support the Court of Appeals and trial court’s conclusion that the signatures of
Julian and Guillerma in the Deed of Absolute Sale were forged.

The examination conducted by the NBI

disclosed that Julian and Guillerma’s
signatures were forged.

We find that both the trial court and the Court of Appeals correctly gave probative value to the testimony
of the NBI Senior Document Examiner Caroline Moldez Pitoy, who categorically testified that the
signatures of Julian and Guillerma in the Deed of Absolute Sale were forged, viz:
 Atty. Dalisay: As Senior Document Examiner of the National Bureau of
Investigation, do [sic] you have [the] occasion of examining [sic] the
signatures of Julian Sambaan and Guillerma Saarenas by virtue of the
case of the Regional Director, Regional Office of the National Bureau of
Investigation, Cagayan de Oro City?
A: Yes sir.

xxxx

Q: What was the result of the findings on the signatures of Julian

Sambaan and Guillerma Saarenas Sambaan appearing on the Deed of
Sale dated December 12, 1990.
A: After [conducting] comparative examinations x x x on the standard
specimen signatures of Julian Sambaan [and Guillerma Sambaan] as
well as the x x x questioned x x x signatures x x x we found out that
[they were] not written by one and the same person.
xxxx

Q: What was the procedure which you have taken x x x in examining

the authenticity of the signatures of Guillerma Saarenas Sambaan?
A: Per Standard Operating Procedures, the first thing we did upon
receipt of the documents submitted to us is to check x x x the documents
attached to the basic letter-request and then the questioned and standard
documents were classified as to the sufficiency and appropriateness of
the standards, and then these were evaluated, after which, they were
marked accordingly, then we go to examining all the standard/specimens
first, to determine whether the handwriting is done by one and the same
person before comparing with the questioned and standard signatures. x
x x After they were found to be written by one and the same person,
before comparing with the questioned documents, the handwriting
characteristics were properly observed in these two (2) sheets of
photographs, then, the final evaluation is made, after which, a written
report is made as a result of the examination, then the same is forwarded
to the Document Examiner for re-examination and this Examiner affixes
his signature and submits the same to the Chief of the Division for
approval and the said report passes to the office of the Regional Director
for final approval.

Petitioners failed to present any evidence to

rebut the findings of the NBI handwriting
expert.
Moreover, the findings of the NBI document examiner were corroborated by the trial court’s own
observation, as affirmed by the CA, that “even a cursory examination of Guillerma’s questioned signature
from her specimen signatures in the enlarged photographs (Exhibits ‘F’ and ‘F-1’) would show that it
needs no expert witness to notice the wide difference in stroke, as well as the writing style in capital ‘G’.”
What is more, Emma S. Felicilda, the daughter of then deceased Guillerma, likewise testified that “in fact
my mother was the one who filed the complaint in this instant case because according to her, she did not
sign the said document”.

The fact that the examination was

commissioned by the respondents did not make
said examination null and void.

It is of no moment that the examination of the Deed of Absolute Sale was commissioned by the
respondents. In the end, it is the court which has the discretion and authority on whether to give probative
value to the results of the examination. As held in Sali v. Abubakar, the fact that the NBI conducted the
examination of certain contested documents upon the request of a private litigant does not necessarily
nullify the examination thus made:

x x x Its purpose is, presumably, to assist the court having jurisdiction over said litigations, in
the performance of its duty to settle correctly the issue relative to said documents. Even a non-
expert private individual may examine the same, if there are facts within his knowledge which
may help the courts in the determination of said issue. Such examination, which may properly be
undertaken by a non-expert private individual, does not, certainly, become null and void when
the examiner is an expert and/or an officer of the NBI.

Indeed, any person, expert or not, either in his private or in his official capacity, may
testify in court on matters, within his personal knowledge, which are relevant to a suit, subject to
the judicial authority to determine the credibility of said testimony and the weight thereof. [On]
the other hand, the question whether a public official may or shall be ordered or permitted by his
superior to examine documents and testify thereon in a given case, is one mainly administrative
in character, which is within the competence of said superior officer, or the Bureau Director or
Head of the Office, or the corresponding department head to decide, and is independent of the
validity of the examination thus made or of the credence and weight to be given by the Court to
the conclusions reached, in consequence of said examination, by the official who made it.

The procedures taken by the NBI document

examiner did not violate Section 22, Rule 132 of
the Rules of Court.
We are not swayed by petitioners’ allegation that the comparisons made by the document examiner, the
CA and the trial court, of Guillerma’s signature in the Deed of Absolute Sale and her specimen
signatures, violated Section 22, Rule 132 of the Rules of Court on the authentication of private
documents. It should be borne in mind that in this case respondents were not presenting evidence to
authenticate a private document. On the contrary, they are challenging the signatures appearing in the
Deed of Absolute Sale.

The confluence of the following circumstances

prove by preponderance of evidence that the
Deed of Absolute Sale was forged.

Records show that Julian was unaware of any absolute conveyance of his rights over the subject property
in favor of petitioners. As found by the trial court and affirmed by the CA, Julian even requested his
children to redeem subject property from the petitioners. In furtherance of his father’s request, Absalon
offered to redeem the subject property from the petitioners in 1982, however, the latter refused because
they were allegedly using the same as tethering place for their cattle.

The caretaker of the subject property, Eufronio Abrea, also testified on cross-examination that there were
times when the brothers and sisters of Myrna went to the land and asked for coconuts. Petitioners take
this to imply that the respondents “never owned the subject property because they had to ask for coconuts
from petitioners, who were the real owners of the property.” We disagree with this interpretation.
Harvesting of coconuts requires specialized skills; an ordinary person who does not know how to climb
necessarily has to ask the caretaker to get the coconuts for him or her.

In addition, Myrna admitted that she was not present when her parents signed the assailed Deed of
Absolute Sale. Neither was she cognizant of who the witnesses were to the said deed. Interestingly,
Guillerma, one of the alleged signatories, would have been privy to the transaction that involved her
husband. Yet, she joined herein respondents in filing an action for the Annulment of the Deed of
Absolute Sale on the ground of forgery.

Lastly, the trial court and the CA were one in proclaiming that considering that the subject property
belongs to Julian’s capital, the execution of the assailed Deed of Absolute Sale could be validly made by
Julian even without his wife’s signature. As a matter of fact, the wife’s name was not typed in the
assailed deed and her purported signature merely appears next to the supposed signature of Julian. This
only confirms that the person who prepared the deed knew that her signature was unnecessary for the
assailed document.

The trial court and the CA further concluded:

x x x If such was the case, we are in a query why the signature of GUILLERMA must have to be
forged when her consent, as spouse of JULIAN, is not necessary to the execution of the Deed of
Absolute Sale? The answer to this is simple: JULIAN never executed the assailed Deed of
Absolute Sale in favor of MYRNA and such deed conveys no ownership in favor of the
appellants.

Conclusions and findings of fact by the trial court are entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons because the trial court is in a better position to examine real
evidence, as well as to observe the demeanor of the witnesses while testifying in the case. The fact that
the CA adopted the findings of fact of the trial court makes the same binding upon this court. In
Philippine Airlines, Inc. v. Court of Appeals, we held that factual findings of the CA which are supported
by substantial evidence are binding, final and conclusive upon the Supreme Court. A departure from this
rule may be warranted where the findings of fact of the CA are contrary to the findings and conclusions
of the trial court, or when the same is unsupported by the evidence on record. There is no ground to
apply the exception in the instant case, however, because the findings and conclusions of the CA are in
full accord with those of the trial court.

The forged Deed of Absolute Sale is null and conveys no title.

Having affirmed the findings of fact of both the CA and the trial court that the signatures of Julian and
Guillerma are forgeries, we now come to the question of the validity of the transfer of title to the
petitioners.

In Sps. Solivel v. Judge Francisco, we held that:

x x x in order that the holder of a certificate for value issued by virtue of the registration of a
voluntary instrument may be considered a holder in good faith for value, the instrument
registered should not be forged. When the instrument presented is forged, even if accompanied
by the owner’s duplicate certificate of title, the registered owner does not thereby lose his title,
and neither does the assignee in the forged deed acquire any right or title to the property.

x x x The innocent purchaser for value protected by law is one who purchases a titled land by
virtue of a deed executed by the registered owner himself, not by a forged deed, as the law
expressly states. x x x

In Instrade, Inc. v. Court of Appeals, we reiterated the said ruling maintaining that “[A]s early as Joaquin
v. Madrid, x x x, we said that in order that the holder of a certificate for value issued by virtue of the
registration of a voluntary instrument may be considered a holder in good faith and for value, the
instrument registered should not be forged”. Indubitably, therefore, the questioned Deed of Absolute
Sale did not convey any title to herein petitioners. Consequently, they cannot take refuge in the
protection accorded by the Torrens system on titled lands.

Thus, we hold that with the presentation of the forged deed, even if accompanied by the owner’s
duplicate certificate of title, the registered owner did not thereby lose his title, and neither does the
assignee in the forged deed acquire any right or title to the said property. The CA has aptly arrived at the
same conclusion in its August 20, 2003 Decision affirming in toto the August 2, 2001 Decision of the
RTC of Cagayan de Oro City ratiocinating that:

It is significant to stress that the main thrust in the case at bench is the regularity and validity of
the assailed Deed of Absolute Sale dated December 7, 1970 (Record p. 374, Exhibit “3”)
allegedly executed by JULIAN in favor of the appellants. As such, we must not confuse the
issue at hand by averring that other documents should be considered in determining the validity
of the deed of absolute sale. The reason is simple: the valid execution of the Deed of Absolute
Sale will convey and transfer ownership in favor of appellants title based on the rule that by the
contract of sale one of the contracting parties obligates himself to transfer ownership of and to
deliver a determinate thing, and the other to pay therefor a sum certain in money or its equivalent
(Coronel vs. Court of Appeals, 263 SCRA 15). The fact that the assailed Deed was not signed by
JULIAN and the signatures of JULIAN and GUILLERMA were forged per findings of the NBI
Senior Document Examiner, it can therefore be inferred that the subsequent issuance of Transfer
Certificate of Title No. T-14204 has no basis at all since ownership was not conveyed to
appellants by reason of the forged Deed.
In addition, as to the issue that the Agreement dated December 10, 1970 (Record p. 375, Exhibit
“4”) executed between DOMINGO and PATRICIO were excluded, we believe there is no need
to delve on the said Agreement since the same will not in any way give justification to the
forgery committed in the Deed of Absolute Sale. As explained by the court a quo, to which we
concur, appellees should not be faulted because they are not lawyers, and as such they may not
be able to appreciate the legal logic between Exhibits “3” and “4”.

Prescription did not bar respondents’ action to recover ownership of the subject property.

Citing Article 1454 of the Civil Code, petitioners assert that since the respondents admit that there was a
mortgage transaction between Julian and herein petitioners involving the subject property there is no
dispute that an implied trust was created by operation of law. In which case, respondents’ right to
reconveyance had already prescribed when they filed the annulment case on April 3, 1992, or more than
10 years after petitioners’ repudiated such implied trust.

On the other hand, respondents assert that the element of consent is totally wanting in the assailed Deed
of Absolute Sale because the signatures of Julian and Guillerma, which is equivalent to their consent,
were forged by the petitioners. They maintain that the absence of consent made the said document null
and void. Hence, this case falls under the purview of Article 1410 of the Civil Code which provides that
an action to declare the inexistence of void contracts does not prescribe.

We agree with the respondents. The supposed vendor's signature having been proved to be a forgery, the
instrument is totally void or inexistent as "absolutely simulated or fictitious" under Article 1409 of the
Civil Code. According to Article 1410, "the action or defense for the declaration of the inexistence of a
contract does not prescribe”. The inexistence of a contract is permanent and incurable which cannot be
cured either by ratification or by prescription.

The award of moral damages and attorney’s fees is proper.

On this aspect, we must consider the blood relations among the parties. One of the respondents, Emma
S. Felicilda, testified on cross examination that they had high regard for Myrna, their eldest sister. The
same was echoed by respondent Anita Sambaan on cross examination. They could not believe that
Myrna would keep and appropriate the land for herself and transfer the title exclusively to her name. On
direct examination, respondent Emma S. Felicilda likewise testified that the forgery caused them anger
and bad emotions.

Moreover, it was Julian’s dying wish for the property to be redeemed from the petitioners. Hence, it is
not unexpected that the sentimental significance of the property and the anger and emotions caused by the
unlawful transfer of the same have moved the respondents to recover the same through the instant action.
We therefore hold that the award of P20,000.00 as moral damages is proper.

In addition, in view of the complexity of the instant case and the multiple levels of appeal that this case
had gone through, we also affirm the award of attorney’s fees of P20,000.00 as well as the actual
damages of P1,671.00 incurred by the prevailing party which was substantiated during trial.

On a final note, it bears stressing that the arguments raised by the petitioners are essentially the
same issues they put forward before the CA which have been duly passed upon and considered by the
appellate court in affirming the RTC Decision in toto.

WHEREFORE, the petition is DENIED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
 WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

ARTURO D. BRION ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE P. PEREZ

Associate Justice
 ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO

Chief Justice
 Records, p. 374.

Penned by Judge Edgardo T. Lloren.

Penned by Associate Justice Mercedes Gozo-Dadole and concurred in by Associate Justices

Delilah Vidallon-Magtolis and Rosmari D. Carandang.

Rollo, pp. 45-64.

Id. at 10-43.

Records, pp. 5-6.

Id. at 1-4.

Id. at 7.

Id. at 34-40.

Id. at 41-42.

Id. at 372-373.

Id. at 374.

Id. at 375.

Id. at 73-74.

Id. at 84.

Id. at 538-547.

Rollo, pp. 265-266.

Id. at 64.

CA rollo, pp. 144-155.

Id. at 186.

315 Phil. 805, 820 (1995).

Id.

Xentrex Motors, Inc. v. Court of Appeals, 353 Phil. 258, 262 (1998).
 Judge Español v. Judge Mupas, 484 Phil. 636, 657 (2004).

Bascos, Jr. v. Tagahanan, G.R. No. 180666, February 18, 2009.

Rollo, pp. 369-372.

Emphasis supplied.

Rollo, p. 53.

TSN, April 13, 1994, p. 7.

124 Phil. 444, 447-448 (1966).

Sec. 22. How genuineness of handwriting proved. – The handwriting of a person may be
proved by any witness who believes it to be the handwriting of such person because he has
seen the person write, or has seen writing purporting to be his upon which the witness has
acted or been charged, and has thus acquired knowledge of the handwriting of such person.
Evidence [in respect to] the handwriting may also be given by a comparison, made by the
witness or the court, with writings admitted or treated as genuine by the party against whom
the evidence is offered, or proved to be genuine to the satisfaction of the judge.

Rollo, p. 47.

TSN, February 11, 1997, p. 33.

Rollo, p. 362.

TSN, July 5, 1996, p. 20 reads on cross-examination:

Q: But you were not present when the alleged signature was affixed. Is that correct?

A: I was not present.

TSN, August 21, 1995, p. 16 reads on direct examination:

Q: Did you know who were the witnesses to the signing of this document?

A: No, sir.

Records, p. 59.

Id.

Chase v. Buencamino, Sr., 221 Phil. 65, 78 (1985).

395 Phil 791, 801 (2000).

341 Phil. 624, 633 (1997).

Republic v. Court of Appeals, 373 Phil. 1, 13 (1999).

Alba Vda. De Raz v. Court of Appeals, 372 Phil. 710, 725 (1999).

252 Phil. 223, 231 (1989).

395 Phil 791, 801 (2000).

Rollo, pp. 60-61.

Article 1454. If an absolute conveyance of property is made in order to secure the performance of an
obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfilment of
the obligation is offered by the grantor when it becomes due, he may demand reconveyance of the
property to him.

Rollo, p. 425.

Id. at 427.

Id. at 425.

Villanueva v. Court of Appeals, G.R. No. 84464, June 21, 1991, 198 SCRA 472, 479.

Arturo M. Tolentino, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF

THE PHILIPPINES Volume IV, p. 633.

TSN, April 13, 1994, p. 26.

TSN, March 28, 1995, p. 13.

TSN, April 13, 1994, p.26; March 28, 1995, p. 13.

Id at 8.

Id. at 47.

SECOND DIVISION
HEIRS OF PAULINO ATIENZA, G.R. No. 180665

namely, RUFINA L. ATIENZA,

ANICIA A. IGNACIO, ROBERTO

ATIENZA, MAURA A. DOMINGO,

AMBROCIO ATIENZA, MAXIMA

ATIENZA, LUISITO ATIENZA,

CELESTINA A. GONZALES,

REGALADO ATIENZA and

MELITA A. DELA CRUZ

Petitioners, Present:

CARPIO, J., Chairperson,

- versus - NACHURA,

PERALTA,

ABAD, and

MENDOZA, JJ.

DOMINGO P. ESPIDOL,

Respondent. Promulgated:

August 11, 2010

x --------------------------------------------------------------------------------------- x
 DECISION

ABAD, J.:

This case is about the legal consequences when a buyer in a contract to sell on installment
fails to make the next payments that he promised.

The Facts and the Case

Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza, Anicia A. Ignacio,

Roberto Atienza, Maura A. Domingo, Ambrocio Atienza, Maxima Atienza, Luisito Atienza,
Celestina A. Gonzales, Regalado Atienza and Melita A. Dela Cruz (collectively, the Atienzas)
own a 21,959 square meters of registered agricultural land at Valle Cruz, Cabanatuan City. They
acquired the land under an emancipation patent through the government’s land reform program.

On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a
contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract to sell land
with a down payment) covering the property. They agreed on a price of P130.00 per square
meter or a total of P2,854,670.00, payable in three installments: P100,000.00 upon the signing of
the contract; P1,750,000.00 in December 2002, and the remaining P974,670.00 in June 2003.
Respondent Espidol paid the Atienzas P100,000.00 upon the execution of the contract and paid
P30,000.00 in commission to the brokers.
 When the Atienzas demanded payment of the second installment of P1,750,000.00 in
December 2002, however, respondent Espidol could not pay it. He offered to pay the Atienzas
P500.000.00 in the meantime, which they did not accept. Claiming that Espidol breached his
obligation, on February 21, 2003 the Atienzas filed a complaint for the annulment of their
agreement with damages before the Regional Trial Court (RTC) of Cabanatuan City in Civil
Case 4451.

In his answer, respondent Espidol admitted that he was unable to pay the December 2002
second installment, explaining that he lost access to the money which he shared with his wife
because of an injunction order issued by an American court in connection with a domestic
violence case that she filed against him. In his desire to abide by his obligation, however,
Espidol took time to travel to the Philippines to offer P800,000.00 to the Atienzas.

Respondent Espidol also argued that, since their contract was one of sale on installment,
his failure to pay the installment due in December 2002 did not amount to a breach. It was
merely an event that justified the Atienzas’ not to convey the title to the property to him. The
non-payment of an installment is not a legal ground for annulling a perfected contract of sale.
Their remedy was to bring an action for specific performance. Moreover, Espidol contended that
the action was premature since the last payment was not due until June 2003.

In a decision dated January 24, 2005, the RTC ruled that, inasmuch as the non-payment
of the purchase price was not considered a breach in a contract to sell on installment but only an
event that authorized the vendor not to convey title, the proper issue was whether the Atienzas
were justified in refusing to accept respondent Espidol’s offer of an amount lesser than that
agreed upon on the second installment.
 The trial court held that, although respondent’s legal problems abroad cannot justify his
failure to comply with his contractual obligation to pay an installment, it could not be denied that
he made an honest effort to pay at least a portion of it. His traveling to the Philippines from
America showed his willingness and desire to make good on his obligation. His good faith
negated any notion that he intended to renege on what he owed. The Atienzas brought the case
to court prematurely considering that the last installment was not then due.

Furthermore, said the RTC, any attempt by the Atienzas to cancel the contract would have
to comply with the provisions of Republic Act (R.A.) 6552 or the Realty Installment Buyer
Protection Act (R.A. 6552), particularly the giving of the required notice of cancellation, that
they omitted in this case. The RTC thus declared the contract between the parties valid and
subsisting and ordered the parties to comply with its terms and conditions.

On appeal, the Court of Appeals (CA) affirmed the decision of the trial court. Not
satisfied, the Atienzas moved for reconsideration. They argued that R.A. 6552 did not apply to
the case because the land was agricultural and respondent Espidol had not paid two years worth
of installment that the law required for coverage. And, in an apparent shift of theory, the
Atienzas now also impugn the validity of their contract to sell, claiming that, since the property
was covered by an emancipation patent, its sale was prohibited and void. But the CA denied the
motion for reconsideration, hence, the present petition.

Questions Presented

The questions presented for resolution are:

 1. Whether or not the Atienzas could validly sell to respondent Espidol the subject
land which they acquired through land reform under Presidential Decree 27 (P.D. 27);

2. Whether or not the Atienzas were entitled to the cancellation of the contract to sell
they entered into with respondent Espidol on the ground of the latter’s failure to pay the second
installment when it fell due; and

3. Whether or not the Atienzas’ action for cancellation of title was premature absent
the notarial notice of cancellation required by R.A. 6552.

The Court’s Rulings

One. That the Atienzas brought up the illegality of their sale of subject land only when
they filed their motion for reconsideration of the CA decision is not lost on this Court. As a rule,
no question will be entertained on appeal unless it was raised before the court below. This is but
a rule of fairness.

Nonetheless, in order to settle a matter that would apparently undermine a significant

policy adopted under the land reform program, the Court cannot simply shirk from the issue.
The Atienzas’ title shows on its face that the government granted title to them on January 9, 1990
by virtue of P.D. 27. This law explicitly prohibits any form of transfer of the land granted under
it except to the government or by hereditary succession to the successors of the farmer
beneficiary.
 Upon the enactment of Executive Order 228 in 1987, however, the restriction ceased to
be absolute. Land reform beneficiaries were allowed to transfer ownership of their lands
provided that their amortizations with the Land Bank of the Philippines (Land Bank) have been
paid in full. In this case, the Atienzas’ title categorically states that they have fully complied
with the requirements for the final grant of title under P.D. 27. This means that they have
completed payment of their amortization with Land Bank. Consequently, they could already
legally transfer their title to another.

Two. Regarding the right to cancel the contract for non-payment of an installment, there
is need to initially determine if what the parties had was a contract of sale or a contract to sell. In
a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold.
In a contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and
is not to pass to the vendee until full payment of the purchase price. In the contract of sale, the
buyer’s non-payment of the price is a negative resolutory condition; in the contract to sell, the
buyer’s full payment of the price is a positive suspensive condition to the coming into effect of
the agreement. In the first case, the seller has lost and cannot recover the ownership of the
property unless he takes action to set aside the contract of sale. In the second case, the title
simply remains in the seller if the buyer does not comply with the condition precedent of making
payment at the time specified in the contract. Here, it is quite evident that the contract involved
was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the
land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no
question that the parties understood this to be the case.

Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell
due in December 2002. That payment, said both the RTC and the CA, was a positive suspensive
condition failure of which was not regarded a breach in the sense that there can be no rescission
of an obligation (to turn over title) that did not yet exist since the suspensive condition had not
taken place. And this is correct so far. Unfortunately, the RTC and the CA concluded that
should Espidol eventually pay the price of the land, though not on time, the Atienzas were bound
to comply with their obligation to sell the same to him.

But this is error. In the first place, since Espidol failed to pay the installment on a day
certain fixed in their agreement, the Atienzas can afterwards validly cancel and ignore the
contract to sell because their obligation to sell under it did not arise. Since the suspensive
condition did not arise, the parties stood as if the conditional obligation had never existed.

Secondly, it was not a pure suspensive condition in the sense that the Atienzas made no
undertaking while the installments were not yet due. Mr. Justice Edgardo L. Paras gave a fitting
example of suspensive condition: “I’ll buy your land for P1,000.00 if you pass the last bar
examinations.” This he said was suspensive for the bar examinations results will be awaited.
Meantime the buyer is placed under no immediate obligation to the person who took the
examinations.

Here, however, although the Atienzas had no obligation as yet to turn over title pending
the occurrence of the suspensive condition, it was implicit that they were under immediate
obligation not to sell the land to another in the meantime. When Espidol failed to pay within the
period provided in their agreement, the Atienzas were relieved of any obligation to hold the
property in reserve for him.

The ruling of the RTC and the CA that, despite the default in payment, the Atienzas
remained bound to this day to sell the property to Espidol once he is able to raise the money and
pay is quite unjustified. The total price was P2,854,670.00. The Atienzas decided to sell the
land because petitioner Paulino Atienza urgently needed money for the treatment of his daughter
who was suffering from leukemia. Espidol paid a measly P100,000.00 in down payment or
about 3.5% of the total price, just about the minimum size of a broker’s commission. Espidol
failed to pay the bulk of the price, P1,750,000.00, when it fell due four months later in December
2002. Thus, it was not such a small default as to justify the RTC and the CA’s decision to
continue to tie up the Atienzas to the contract to sell upon the excuse that Espidol tried his honest
best to pay.

Although the Atienzas filed their action with the RTC on February 21, 2003, four months
before the last installment of P974,670.00 fell due in June 2003, it cannot be said that the action
was premature. Given Espidol’s failure to pay the second installment of P1,750,000.00 in
December 2002 when it was due, the Atienzas’ obligation to turn over ownership of the property
to him may be regarded as no longer existing. The Atienzas had the right to seek judicial
declaration of such non-existent status of that contract to relieve themselves of any liability
should they decide to sell the property to someone else. Parenthetically, Espidol never offered to
settle the full amount of the price in June 2003, when the last installment fell due, or during the
whole time the case was pending before the RTC.

Three. Notice of cancellation by notarial act need not be given before the contract
between the Atienzas and respondent Espidol may be validly declare non-existent. R.A. 6552
which mandated the giving of such notice does not apply to this case. The cancellation
envisioned in that law pertains to extrajudicial cancellation or one done outside of court, which is
not the mode availed of here. The Atienzas came to court to seek the declaration of its obligation
under the contract to sell cancelled. Thus, the absence of that notice does not bar the filing of
their action.

Since the contract has ceased to exist, equity would, of course, demand that, in the absence
of stipulation, the amount paid by respondent Espidol be returned, the purpose for which it was
given not having been attained; and considering that the Atienzas have consistently expressed
their desire to refund the P130,000.00 that Espidol paid.
 WHEREFORE, the Court GRANTS the petition and REVERSES and SETS ASIDE the
August 31, 2007 decision and November 5, 2007 resolution of the Court of Appeals in CA-G.R.
CV 84953. The Court declares the Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad
between petitioner Heirs of Paulino Atienza and respondent Domingo P. Espidol dated August
12, 2002 cancelled and the Heirs’ obligation under it non-existent. The Court directs petitioner
Heirs of Atienza to reimburse the P130,000.00 down payment to respondent Espidol.

SO ORDERED.

ROBERTO A. ABAD

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice
ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice
 Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

Petitioners are the heirs of Paulino Atienza, the original plaintiff in this case, who died on
September 7, 2007. Please see: Certificate of Death, rollo, p. 84 and October 13, 2008
Resolution of this Court, id. at 97.

Covered by Transfer Certificate of Title T-3971.

Emancipation Patent 416698.

Records, pp. 73-74.

Id. at 5-7.

Respondent claimed that the amount offered was P800,000.00.

Rollo, pp. 56-59.

 Id. at 60-66.

TSN, June 4, 2004, pp. 7-8.

Rollo, pp. 70-79.

Docketed as CA-G.R. CV 84953.

Rollo, pp. 34-44. Penned by Associate Justice Myrna Dimaranan Vidal, with Associate Justices
Jose L. Sabio, Jr. and Jose C. Reyes, Jr. concurring.

Id. at 45-51.

Id. at 9-33.

Decreeing the Emancipation of Tenants From the Bondage of the Soil, Transferring to Them the
Ownership of the Land They Till and Providing the Instruments and Mechanism Therefor.

Bacsasar v. Civil Service Commission, G.R. No. 180853, January 20, 2009, 576 SCRA 787, 793;
Jacot v. Dal, G.R. No. 179848, November 27, 2008, 572 SCRA 295, 311.

Declaring Full Land Ownership to Qualified Farmer Beneficiaries Covered by P.D. 27:
Determining the Value of Remaining Unvalued Rice and Corn Lands Subject to P.D. 27; and
Providing for the Manner of Payment by the Farmer Beneficiary and Mode of Compensation to
the Landowner, issued on July 17, 1987.

Section 6, E.O. 228.

Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564, 570, citing Sing
Yee v. Santos, 47 O.G. 6372; Chua v. Court of Appeals, 449 Phil. 25, 41-42 (2003).

Rollo, p. 67.

See: Valenzuela v. Kalayaan Development & Industrial Corporation, G.R. No. 163244, June
22, 2009, 590 SCRA 380, 389-390; Ayala Life Assurance, Inc. v. Ray Burton Development
Corporation, G.R. No. 163075, January 23, 2006, 479 SCRA 462, 470.

Paras IV, CIVIL CODE OF THE PHILIPPINES ANNOTATED, 179-180 (1994 Edition).

TSN, December 16, 2003, p. 36.

See: Ong v. Court of Appeals, 369 Phil. 243, 253-254 (1999); Cordero v. F.S. Management &
Development Corporation, G.R. No. 167213, October 31, 2006, 506 SCRA 451, 463.

Pagtalunan v. Dela Cruz Vda. de Manzano, G.R. No. 147695, September 13, 2007, 533 SCRA
242, 249, 253.
 See: Manuel v. Rodriguez, Sr., 109 Phil. 1, 12 (1960).

Rollo, pp. 17, 29; CA rollo, p. 26.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 187288 August 9, 2010

SPOUSES BRAULIO NAVARRO AND CESARIA SINDAO, Petitioners,

vs.
PERLA RICO GO, Respondent.

DECISION

CARPIO MORALES, J.:

Challenged via petition for review on certiorari is the Court of Appeals Decision of December
12, 20081 which disposed as follows:

. . . [T]he decision appealed from is MODIFIED, in that in lieu of decreeing the nullity of the
patent and titles, the defendants Navarro are ordered to reconvey the title to the plaintiff. The
case against Aurelia Caballero is dismissed. All other aspects of the decision are affirmed.

SO ORDERED.2 (emphasis and underscoring supplied)

By Deed of Sale of Real Property dated May 23, 1937, Emilia Samson (Emilia) conveyed to
Josefa Parras (Josefa), mother of Perla Rico Go (respondent), a 405 square meter parcel of land
situated in Domalandan West, Lingayen, Pangasinan.

On December 1971, Free Patent No. 51563 (OCT No. P-14822) was issued to the Heirs of
Emilia’s brother, Lorenzo Samson (the Samson heirs), covering the land.

After Josefa purchased the land in 1937, she allowed one Rufino Palma (Palma), nephew of
petitioner Cesaria, to stay there. In 1984, Josefa donated the land to respondent who allowed
Palma to remain on the land until 1989. Via two documents entitled "Paknaan," Palma
recognized respondent’s ownership of the land.3 Photographs of the execution of the documents
were in fact taken.4

When Palma vacated the land, respondent constructed fences made of galvanized roofing sheets
and wooden posts on which was posted a "Private Property, No Trespass" sign.
On April 27, 1990, the Samson heirs transferred their rights to the land by a Deed of Extra-
Judicial Partition with Sale to Spouses Braulio Navarro and Cesaria Sindao (petitioners). After
11 years or on May 2001, Transfer Certificate of Title No. 254853 was issued in petitioners’
name.

Petitioner Braulio thereupon destroyed the fences of, and cut all the trees in the land, drawing
respondent to file a complaint for annulment of documents ─ Deed of Extra-Judicial Partition
with Sale, Free Patent, Original Certificate of Title, Tax Declarations, Declaration of Ownership
of Real Property and Damages against petitioners before the Regional Trial Court (RTC) of
Lingayen, Pangasinan. Petitioner Braulio passed away on March 22, 2002 and was substituted in
the action by his heirs.5

Before the RTC, petitioners invoked good faith in purchasing the land from the Samson heirs in
1990, no encumbrances on the title to the land on file at the Register of Deeds having been
annotated.

By Decision of April 1, 2003, Branch 38 of the Lingayen RTC upheld respondent’s possession
and that of her predecessors-in-interest in the concept of an owner, and declared that the issuance
of a free patent title in favor of the Samson heirs is a nullity for "the land is beyond the
jurisdiction of the Bureau of Lands to bestow . . ."6 Held the trial court:

The land in suit was already sold in 1937 by Emilia Samson to Josefa Paras Rico, mother of the
plaintiff. (respondent) Since 1937 up to May 2001, the possession of Perla Rico Go in the
concept of owner was never disturbed although the Heirs of Lorenzo Samson were able to secure
OCT No. P-14822 in 1971. They never asserted their rights to the property, instead, they
surreptitiously sold it to the defendant-Navarros. Thus, the Heirs of Lorenzo Samson have no
more property to be titled and sold because Emilia Samson already sold what they are claiming
as their own way back in 1937. It is also surprising why, Lorenzo Samson did not file any case to
recover the property knowing fully well that it was already sold by his sister.7 (underscoring
supplied)

Brushing aside petitioners’ claim of good faith, the trial court noted the fact that petitioners live
not more than 200 meters away from the land on which Josefa constructed noticeable
improvements.

On appeal, the Court of Appeals, by Decision of December 12, 2008, affirmed with modification
the trial court’s decision. Instead of nullifying the OCT of petitioners’ predecessor-in-interest
and the title of petitioners, it ordered petitioners to reconvey the title to respondent.

We cannot deny the plaintiff the legal remedy that is proper to a proven cause of action even if it
was not expressly prayed for in the complaint. Chacon Enterprises vs. Court of Appeals, supra,
at 793. We can rightly say in this respect that an action for reconveyance falls within the ambit of
general prayer against the defendants to relinquish all claims to the property to the plaintiff. x x x

IN VIEW OF THE FOREGOING, the decision appealed from is MODIFIED, in that in lieu of
decreeing the nullity of the patent and titles, the defendants Navarro are ordered to reconvey the
title to the plaintiff. The case against Aurelia Caballero is dismissed. All other aspects of the
decision are affirmed.8 (underscoring supplied

Petitioners’ motion for reconsideration was denied by Resolution of March 4, 2009, hence, the
present petition.

Maintaining that they purchased the land in good faith, petitioners cite Barstowe Philippines
Corporation v. Republic9 and Republic v. Mendoza, Sr.10 which held that "one who deals with
property registered under the Torrens System need not go beyond the same but only has to rely
on the certificate of title."11

The petition fails.

A person dealing with registered land may safely rely on the correctness of its certificate of title
and the law will not oblige him to go beyond what appears on the face thereof to determine the
condition of the property.12

The indefeasibility of the Torrens title should not, however, be used as a means to perpetuate
fraud against the rightful owner of real property.13

A person is considered an innocent purchaser in good faith when he buys the property of another,
without notice that some other person has a right or an interest in such property, and pays a full
price for the same at the time of such purchase, or before he has notice of the claims or interest
of some other person in the property. 14

Whether petitioners were in good faith when they bought the property from the Samson heirs is a
question of fact that will not be disturbed in a petition for review under Rule 45 of the Rules of
Court, save for meritorious exceptions.15 None of these exceptions is present, however, in the
case at bar. There is thus no compelling reason to overturn the factual findings of the trial court,
which was affirmed by the Court of Appeals, respecting petitioners’ notice of respondent’s
possession.1avvphi1

As reflected earlier, Palma, a relative of petitioner Cesaria, acknowledged via two documents
having been allowed by Josefa, respondent’s mother, to occupy the land. His testimony,
therefore, that he sought the permission of the Samson heirs, and not from Josefa, must give way
to documentary evidence.

In another vein, as noted above, petitioners live in the vicinity of the land which was fenced and
planted to fruit bearing trees. As such, they were put on notice that the land was possessed by
someone. Where the land subject of sale is in possession of a person other than the vendor,
prudence dictates that the vendee should go beyond the certificate of title. Absent such
investigation, good faith cannot be presumed.16

WHEREFORE, the petition is DENIED. The Court of Appeals Decision of December 12, 2008
is hereby AFFIRMED.
SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

WE CONCUR:

ARTURO D. BRION LUCAS P. BERSAMIN

Associate Justice Associate Justice

ROBERTO A. ABAD* MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes
*
Designated as Additional Member, per Special Order No. 843 (May 17, 2010), in view
of the vacancy occasioned by the retirement of Chief Justice Reynato S. Puno.
1
Penned by Associate Justice Mario L. Guariña III with the concurrence of Associate
Justices Celia Librega-Leagogo and Sesinando E. Villon, rollo, pp. 36-44.
2
Id. at 43.
3
Offered in evidence as "Exhibits E – E1," and "Exhibit "F," records, pp. 116-118.
4
Offered in evidence as "Exhibits G – G1," id. at 123.
5
Braulio Navarro’s Certificate of Death, id. at 68.
6
Rollo, p. 66.
7
Id. at 66-67.
8
Id. at 43.
9
G.R. No. 133110, March 28, 2007, 519 SCRA 148
10
G.R. Nos. 153726 and 154014, March 28, 2007, 519 SCRA 203.
11
Vide petitioners’ petition for review on certiorari, rollo, p. 28.
12
San Roque Realty and Development Corporation v. Republic, G.R. No. 163130,
September 7, 2007, 532 SCRA 493, 511.
13
Heirs of Julian Tiro v. Philippine Estates Corporation, G.R. No. 170528, August 26,
2008, 563 SCRA 309, 318.
14
Id. at 318-319.
15
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of fact are conflicting; (6) when in making its findings the Court of
Appeals went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the 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) when the
findings of fact are premised on the supposed absence of evidence and contradicted by
the evidence on record; and (11) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion. (emphasis omitted) [Chua v. Soriano, G.R. No. 150066,
April 13, 2007, 521 SCRA 68, 77-78].
16
Tio v. Abayata, G.R. No. 160898, June 27, 2008, 556 SCRA 175.

Republic of the Philippines

SUPREME COURT
Manila
 SECOND DIVISION

G.R. No. 179743 August 2, 2010

HADJA FATIMA GAGUIL MAGOYAG, joined by her husband, HADJI HASAN

MADLAWI MAGOYAG, Petitioners,
vs.
HADJI ABUBACAR MARUHOM, Respondent.

DECISION

NACHURA, J.:

Hadja Fatima Gaguil Magoyag and her husband Hadji Hasan Madlawi Magoyag (petitioners),
appeal by certiorari under Rule 45 of the Rules of Court the April 28, 2006 Decision1 of the
Court of Appeals (CA) in CA-G.R. CV No. 75765, and the August 28, 2007 Resolution2 denying
its reconsideration.

The antecedents:

On December 20, 1982, respondent Hadji Abubacar Maruhom (respondent) was awarded a
market stall at the Reclamation Area by the Islamic City of Marawi.3

On December 1, 1985, respondent orally sold his stall to petitioner for P20,000.00. Later, on
December 10, 1985, respondent executed a Deed of Assignment,4 confirming the oral sale;
assigning, selling, transferring, and conveying his market stall to petitioners for a consideration
of P20,000.00. In the same Deed of Assignment, petitioners leased the subject stall to respondent
for a monthly rental of P250.00, beginning December 1, 1985, renewable every year at the
option of petitioners. Respondent undertook to pay in advance the rentals for six months
amounting to P1,500.00 on or before December 1, 1985.

Respondent religiously paid the monthly rentals of P250.00, which was increased to P300.00 on
December 1, 1988; and to P400.00 beginning December 1, 1991. However, on June 1, 1993,
respondent simply stopped paying the rentals. Respondent promised to settle his unpaid account,
but he failed to make good his promise. Petitioner then demanded that respondent vacate the
property, but the demand just fell on deaf ears.

Accordingly, on August 22, 1994, petitioners filed a complaint5 for recovery of possession and
damages, with prayer for issuance of a temporary restraining order (TRO), with the Regional
Trial Court (RTC) of Marawi City.

In his Answer,6 respondent admitted selling the subject stall for P20,000.00 to petitioners, but
averred that the sale was with right to repurchase; and on condition that he would remain in
possession of the subject stall as long as he wants. He signed the Deed of Assignment on
petitioners’ assurance that the conditions they earlier agreed upon were contained in the deed.
Being illiterate, he just relied on petitioners’ assurances. Respondent denied that he refused to
pay the agreed monthly rentals; alleging that petitioners were the ones who refused to receive the
rental payments and instead demanded payment of P150,000.00. The Deed of Assignment, he
added, failed to express the true intent and agreement of the parties; and his signature thereon
was procured by fraud, deceit, and misrepresentation; hence, void ab initio. Respondent further
averred that the complaint failed to state a cause of action, as petitioners failed to comply with
the provisions of Presidential Decree (P.D.) No. 1508, or the Katarungang Pambarangay Law,
and the Local Government Code of 1991. He also assailed the jurisdiction of the RTC over the
complaint, claiming the jurisdiction falls with the Municipal Trial Court (MTC). Finally, he
averred that the complaint lacked the required verification and certification against forum
shopping. Respondent, therefore, prayed for the dismissal of the complaint.

On June 10, 2002, the RTC rendered a Decision,7 viz.:

After a careful examination of the foregoing facts and pieces of evidence as presented by the
parties, this court is convinced that [petitioners] spouses has (sic) proved and duly established
that indeed [respondent] have (sic) agreed to sell to [petitioners] spouses whatever rights that he
has over the disputed stall. Their transaction was even admitted by the [respondent] when he
signed the acknowledgment receipt (Exhs. "B" & "B-1") for P20,000.00 which is the agreed
purchase price and the notarized Deed of Assignment (Exh. "A" to "A-6). [Respondent],
however, claimed that the contents of the Deed of Assignment was (sic) not even read &
translated to him, he being illiterate (sic).

The transaction was further supported by [respondent’s] counter-offer to buy the stall for
P80,000.00 (Exh. "D") and the acknowledgment receipts of [respondent] on the payment of
rentals to the [petitioners] (Exhs. "H" to "H-6", Exh(s). "I-1" to "I-6" and Exh(s) "J" to "J-3".

The only evidence presented by the [respondent] is his lone testimony and Exh. "1" awarding
[the] subject stall by the City Government to him.

The [respondent] did not present any evidence on his alleged ownership over [the] subject stall
except a certification (Exh. "1") dated December 20, 1982 from the City Government awarding
[the] same to him and subject even to the condition that he cannot sell, donate or otherwise
alienate the same without the consent of the City Government.

It appears therefore that [the] subject stall is owned by the City Government of Marawi and that
[respondent] cannot even sell or dispose of the same.

Not being the owner, the principle NEMO DAT QUOD NON HABET which means ONE
CANNOT GIVE WHAT ONE DOES NOT HAVE squarely applies in this case.

At most, what [respondent] can sell is whatever rights that he has over the disputed stalls like his
continued possession over the same for his business purposes. This is what [petitioner-spouses]
acquired in the interest of justice.8

The RTC disposed, thus:

WHEREFORE, judgment is hereby rendered in favor of [petitioner-spouses] and against the
[respondent] as follows:

1. Whatever rights that [respondent] Hadji Abubacar Maruhom has over stall No. CTD
1583 as described in the complaint as lessee or grantee or even as the alleged owner are
hereby transferred to [petitioner-spouses] Hadji Fatima Gaguil Magoyag and Hadji Hasan
Madlawi Mangoyag. Said [respondent] is ordered to vacate the stall in favor of
[petitioners];

2. Ordering [respondent] to pay unto petitioner the following:

(a) The unpaid rentals from June 1, 1993 up to May 31, 2002 at Three Hundred
Pesos (P300.00) a month or a total of P24,900.00;

(b) Ten Thousand (P10,000.00) pesos – moral and [e]xemplary [d]amages;

(c) Twenty Thousand (P20,000.00) pesos – Attorney’s fees.

SO ORDERED.9

Respondent appealed to the CA faulting the RTC for not dismissing the complaint. He argued
that the complaint was filed in brazen violation of Supreme Court Circular No. 04-94 and the
Rules of Court requiring a certification of non-forum shopping. He added that the subject stall is
owned by the City Government of Marawi that cannot be leased or alienated. The Deed of
Assignment that he executed in favor of the petitioners is, therefore, null and void. He urged the
CA to apply the civil law rule on pari delicto.

On April 28, 2006, the CA rendered the assailed Decision reversing the RTC. The decretal
portion of the CA Decision reads:

WHEREFORE, the assailed decision of the Regional Trial Court is hereby REVERSED AND
SET ASIDE and another one entered declaring the Deed of Assignment dated December 10,
1985 void and [of] no effect and ordering [respondent] to pay the loan amount of P20,000.00
plus P250.00 as monthly interest thereon from the date of demand or August 1, 1994 until the
same shall have been fully paid. No pronouncement as to costs.

SO ORDERED.10

Petitioners filed a motion for reconsideration, but the CA denied it on August 28, 2007.11

Hence, this appeal by petitioners, ascribing reversible error on the part of the CA for reversing
the RTC. Specifically, they argue that the CA erred in declaring that the transaction they had
with respondent was a loan with mortgage; and invalidating the Deed of Assignment. They insist
that respondent already transferred his entire interest over the subject stall in their favor. Thus,
they are entitled to the possession of the property.
In declaring the transaction as loan with mortgage, the CA explains in this wise:

x x x [t]he evidence overwhelmingly showed that the real intention of the [respondent] was to
have the subject market stall mortgaged, in order to secure the payment of the loan of P20,000.00
from [petitioners]. There was no genuine intention on his part to sell the property. In fact, even
after the execution of the Deed of Assignment, [respondent] remained in possession of the said
property and paid religiously the so-called "monthly rentals" in the amount of two hundred fifty
(P250.00) which, in reality, was the amount they had agreed upon as interest on the loan. For
these reasons, We find and so hold that the purported assignment was really meant to be a
contract of loan in the amount of P20,000.00 with interest thereon at the rate of P250.00 per
month. The property was intended to serve as a collateral for the loan. It is firmly ensconced in
jurisprudence that neither clarity of contract terms nor explicitness of the name given to it can
bar Us from determining the true intent of the parties.

x x x x12

We find the finding of the CA contrary to the evidence on record, if not outright preposterous.

The Deed of Assignment13 reads in full:

DEED OF ASSIGNMENT

Know all men by these presents:

This DEED OF ASSIGNMENT made and executed by and between:

The FIRST PARTY: Hadji Abubacar Maruhom, of legal age, married,

businessman by occupation and a resident of Marawi City

-and-

The SECOND PARTY: Hadji Fatima Gaguil-Magoyag, also of legal age, married
and a government employee with postal address at Moriatao Balindong, Taraka,
Lanao del Sur

WITNESSETH

That for and in consideration of the sum of TWENTY THOUSAND PESOS: (P20,000.00),
Philippine Currency which amount has been paid by the Second Party and receipt hereof has
been acknowledge[d] by the First Party, the said First [P]arty does hereby assign, [sell] transfer
and convey unto the Second Party that certain two-storey Market Stall No. CTD 1583 situated in
the Reclamation Area, Marawi City which is made of cement, and lumber and more particularly
described as follows:

Stall No. - - - - - - - - - - - - - - - - - - CTD 1583

 Length - - - - - - - - - - - - - - - - - - - - 3 meters

Width - - - - - - - - - - - - - - - - - - - - 2 meters

Adjacent Stall Owner - - - - - - - - - - Rakim Bayabao

Fronting - - - - - - - - - - - - - - - - - - Hadji Cosain Saripada

Back - - - - - - - - - - - - - - - - - - - - - Hadji Alawi Pacati

of which market stall the First Party is the registered holder/owner under the
following terms and conditions:

1. The FIRST PARTY is authorize[d] and empower[ed] to continue engaging in business

in his own sole account on the said stall N[o]. CTD 1583 on a monthly rental of TWO
HUNDRED FIFTY PESOS: (P250.00) to be paid by said FIRST PARTY to SECOND
PARTY six months in advance the monthly rental to start on December 1, 1985
renewable every year at the option of the SECOND PARTY.

2. The FIRST PARTY agrees to pay the SECOND PARTY the first six-month advance
rental in the amount of One Thousand Five Hundred Pesos: (P1,500.00) on or before
December 1, 1985, [a]nd the succeeding monthly rental shall always be payable six-
month[s] in advance on a progressive rate reckoned from the future rental of adjoining
stall holder/owner.

3. The FIRST PARTY shall not directly or indirectly lease, assign or mortgage or [in]
any way encumber said Market Stall N[o]. 1583 or any portion thereof without the
written permission of the Second Party; any contract or agreement made in violation
thereof shall be null and void.

4. The FIRST PARTY shall turnover the Market Stall No. CTD 1583 to the SECOND
PARTY should the FIRST PARTY decide to abandon the said Market Stall No. CTD
1583;

5. All repairs within the premises shall be at the sole account and expense of the FIRST
PARTY without right to reimbursement.

6. The FIRST PARTY shall use the said Market Stall No. 1583 exclusively for business
and shall not bring into the said stall any inflammable or explosive goods or materials nor
any article which may expose the said stall from fire or increase the fire hazard.

7. That all charges for water, light, gas, telephone within the stall shall be at the sole
account of the FIRST without right to reimbursement;

8. The FIRST PARTY shall be responsible for the payment of all taxes on the said [S]tall
No. CTD 1583 and the compliance of all laws, ordinances and regulations or order of the
 National or City Government authorities arising from or requiring the use, occupation
and utilization of the said Market Stall No. CTD 1583. Failure to comply with said laws,
ordinances, regulations or order shall be at the exclusive risk and expense of the FIRST
PARTY.

By no stretch of imagination can we construe the provisions of the Deed of Assignment as a

contract of loan with mortgage. Crystal clear in the Deed of Assignment are unambiguous
provisions that respondent assigned, sold, transferred, and conveyed the subject market stall to
petitioners. Nowhere in the Deed does it say that respondent obtained a loan of P20,000.00, and
mortgaged the subject stall as security.

The most fundamental rule in the interpretation of contracts is that, if the terms are clear and
leave no doubt as to the intention of the contracting parties, the literal meaning of the contract
provisions shall control.14 Its meaning should be determined without reference to extrinsic facts
or aids. The intention of the parties must be gathered from that language, and from that language
alone. Stated differently, where the language of a written contract is clear and unambiguous, the
contract must be taken to mean that which, on its face, it purports to mean, unless some good
reason can be assigned to show that the words should be understood in a different sense. Courts
cannot make for the parties better or more equitable agreements than they themselves have been
satisfied to make, or rewrite contracts because they operate harshly or inequitably as to one of
the parties, or alter them for the benefit of one party and to the detriment of the other, or by
construction, relieve one of the parties from the terms which he voluntarily consented to, or
impose on him those which he did not.15

That respondent sold the subject stall for P20,000.00 to petitioners was admitted by respondent
in his Answer,16 although he averred that the sale was with a right to repurchase. Even the
testimony17 of respondent points to no other transaction than a sale in favor of petitioners. The
CA, therefore, committed a serious blunder in making a new contract for the parties, and
declaring the Deed of Assignment as a contract of loan with mortgage.

Indubitably, the transaction between petitioners and respondent was a sale. As such, under
ordinary circumstances, petitioners could recover possession of the property from respondent.
Unfortunately in this case, the Court cannot grant petitioners the relief that they are praying for –
recovery of possession of the subject stall.

The records show that Market Stall No. CTD 1583 is owned by the City Government of
Marawi.1avvphi1 Indeed, the RTC and the CA correctly held that it was the City Government of
Marawi, not respondent, that owned Market Stall No. CTD 1583. Respondent, as a mere grantee
of the subject stall, was prohibited from selling, donating, or otherwise alienating the same
without the consent of the City Government; violation of the condition shall automatically render
the sale, donation, or alienation null and void.18 Thus, we sustain the CA in declaring the Deed of
Assignment null and void, but we cannot abide by the CA’s final disposition.

A void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or
extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are deemed in pari delicto or in equal fault.19 To this
rule, however, there are exceptions that permit the return of that which may have been given
under a void contract. One of the exceptions is found in Article 1412 of the Civil Code, which
states:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he
has given by virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised him.
The other, who is not at fault, may demand the return of what he has given without any
obligation to comply with his promise.

Respondent was well aware that as mere grantee of the subject stall, he cannot sell it without the
consent of the City Government of Marawi. Yet, he sold the same to petitioners. The records,
however, are bereft of any allegation and proof that petitioners had actual knowledge of the
status of respondent’s ownership of the subject stall. Petitioners can, therefore, recover the
amount they had given under the contract.

In Cavite Development Bank v. Spouses Lim,20 and Castillo, et al. v. Abalayan,21 we held that in
case of a void sale, the seller has no right whatsoever to keep the money paid by virtue thereof,
and should refund it, with interest at the legal rate, computed from the date of filing of the
complaint until fully paid. Petitioners can, therefore, recover the amount of P20,000.00 from
respondent with interest at 6% per annum from the time of the filing of the complaint until the
finality of this Decision, and 12% per annum thereafter until full payment.

WHEREFORE, the petition is PARTLY GRANTED. The April 28, 2006 Decision and August
28, 2007 Resolution of the Court of Appeals in CA G.R. CV No. 75765 are AFFIRMED with
MODIFICATION. The Deed of Assignment dated December 10, 1985 is declared VOID AB
INITIO. Respondent Hadji Abubacar Maruhom is ordered to return to petitioners Hadja Fatima
Gaguil Magoyag and Hadji Hasan Madlawi Magoyag the amount of P20,000.00 with interest at
6% per annum from the time of the filing of the complaint until the finality of this Decision and
12% per annum thereafter until full payment.

No pronouncement as to costs.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:
 ANTONIO T. CARPIO
Associate Justice
Chairperson

DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes
1
Penned by Associate Justice Edgardo A. Camello, with Associate Justices Normandie
B. Pizarro and Ricardo R. Rosario, concurring; rollo, pp. 33-44.
2
Id. at 45-46.
3
See Exhibit "1", record, p. 207.
4
Exhibit "A", id. at 131-132.
5
Id. at 1-5.
6
Id. at 14-17.
7
Id. at 245-252.
 8
Id. at 251.
9
Id. at 251-252.
10
Rollo, at 43.
11
Id. at 45.
12
Id. at 40.
13
Supra note 3, at 131-132.
14
Continental Cement Corp. v. Filipinas (PREFAB) Systems, Inc., G.R. No. 176917,
August 4, 2009, 595 SCRA 215, 225.
15
Benguet Corporation v. Cabildo, G.R. No. 151402. August 22, 2008, 563 SCRA 25,
38.
16
See Answer, record, p. 14.
17
TSN, August 16, 2000 and March 6, 2001.
18
Supra note 3.
19
Menchavez v. Teves, Jr., 490 Phil. 268, 280 (2005).
20
381 Phil 355, 371 (2000).
21
141 Phil. 57, 63 (1969)

THIRD DIVISION

SPOUSES JESUS FAJARDO and EMER

FAJARDO,
G.R. No. 167891
Petitioners,

Present:
 - versus - CORONA, J.,

Chairperson,

VELASCO, JR.,

NACHURA,

PERALTA, and

ANITA R. FLORES, assisted by her MENDOZA, JJ.

husband, BIENVENIDO FLORES,

Respondent.

Promulgated:

January 15, 2010

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:
 Before us is a petition for review of the Decision of the Court of
Appeals (CA) dated October 28, 2004 and its Resolution dated April 19, 2005,
denying the motion for reconsideration thereof.

The facts are as follows:

Leopoldo delos Reyes owned a parcel of land, denominated as Lot No.

2351 (Cad. 320-D), with an area of 25,513 square meters (sq m), located in
Barangay Sumandig in Hacienda Buenavista, San Ildefonso, Bulacan. In
1963, he allowed petitioner Jesus Fajardo to cultivate said land. The net
harvests were divided equally between the two until 1975 when the
relationship was converted to leasehold tenancy. Per Order from the
Department of Agrarian Reform (DAR), Regional Office, Region III, San
Fernando, Pampanga, rent was provisionally fixed at 27.42 cavans per year,
which Jesus Fajardo religiously complied with. From the time petitioner
cultivated the land, he was allowed by Leopoldo delos Reyes to erect a house
for his family on the stony part of the land, which is the subject of
controversy.

On January 26, 1988, Leopoldo delos Reyes died. His daughter and
sole heir, herein respondent Anita Flores, inherited the property. On June 28,
1991, Anita Flores and Jesus Fajardo executed an agreement, denominated
as “KASUNDUAN NG PAGHAHATI NG LUPA AT PAGTATALAGA NG DAAN UKOL
SA MAGKABILANG PANIG.” This was followed by another agreement,
“KASUNDUAN SA HATIAN SA LUPA,” executed on July 10, 1991, wherein the
parties agreed to deduct from Lot No. 2351 an area of 10,923 sq m, allotting
the same to petitioner. Apparently, there was a conflict of claims in the
interpretation of the Kasunduan between Anita Flores and Jesus Fajardo,
which was referred to the DAR, Provincial Agrarian Reform Office, Baliuag,
Bulacan. In the Report and Recommendation dated May 3, 2000, the Legal
Officer advised the parties to ventilate their claims and counterclaims with
the Department of Agrarian Reform Adjudication Board (DARAB), Malolos,
Bulacan.

On December 22, 2000, a complaint for ejectment was filed by herein

respondent Anita Flores, assisted by her husband Bienvenido Flores, against
petitioners with the Municipal Trial Court (MTC), San Ildefonso, Bulacan. In
the complaint, she alleged that, as the sole heir of the late Leopoldo delos
Reyes, she inherited a parcel of land consisting of stony land, not devoted to
agriculture, and land suitable and devoted to agriculture located in Barangay
Sumandig, San Ildefonso, Bulacan; that, sometime in the 1960s, during the
lifetime of Leopoldo delos Reyes, Jesus Fajardo requested the former to allow
him to work and cultivate that portion of land devoted to agriculture; that
Jesus Fajardo was then allowed to erect a house on the stony part of the
land, and that the use and occupation of the stony part of the land was by
mere tolerance only; and that the land, which was divided equally between
the two parties, excluded the stony portion. In February 1999, respondent
approached petitioners and verbally informed them of her intention to
repossess the stony portion, but petitioners refused to heed the request.

Petitioners filed a Motion to Dismiss, alleging that Lot No. 2351, with an
area of 25,513 sq m, was agricultural land; that they had been continuously,
uninterruptedly, and personally cultivating the same since 1960 up to the
present; that the MTC had no jurisdiction over the case, considering that the
dispute between the parties, regarding the Kasunduan, was referred to the
DARAB; and that the assumption by the DARAB of jurisdiction over the
controversy involving the lot in question therefore precluded the MTC from
exercising jurisdiction over the case.

Resolving the Motion to Dismiss, the MTC ruled that, while at first
glance, the court did not have jurisdiction over the case, considering that it
was admitted that petitioner was allowed to cultivate the land, a closer look
at the Kasunduan, however, revealed that what was divided was only the
portion being tilled. By contrast, the subject matter of the complaint was the
stony portion where petitioners’ house was erected. Thus, the court ruled
that it had jurisdiction over the subject matter.

On April 25, 2001, the MTC rendered judgment in favor of respondent.

The dispositive portion reads as follows:

WHEREFORE, premises considered, judgment is hereby

rendered in favor of plaintiff (respondent), ORDERING
defendants (petitioners) –

1) and all persons claiming rights under

them to VACATE the subject premises where they
have erected their house, which is a portion of
Lot No. 2351, Cad-320-D situated [in] Barangay
Sumandig, San Ildefonso, Bulacan;

2) to DEMOLISH their house on the subject

premises;
 3) to PAY plaintiff the sum of P400.00 a
month by way of reasonable compensation for
their use and occupation of the subject premises
starting [in] June 2000 and every month
thereafter until they finally vacate the same; and

4) to PAY attorney’s fees of P10,000.00 and

the cost of suit.

On appeal, the Regional Trial Court (RTC), Branch 16, Third Judicial
Region, Malolos, Bulacan, affirmed the MTC Decision in toto upon a finding
that no reversible error was committed by the court a quo in its Decision
dated August 29, 2002.

On motion for reconsideration, however, the RTC issued an Order on

December 10, 2002, reversing its decision dated August 29, 2002. The RTC
found that the issue involved appeared to be an agrarian dispute, which fell
within the contemplation of Republic Act (R.A.) No. 6657, otherwise known
as the Comprehensive Agrarian Reform Law of 1988, and thus ordered the
dismissal of the case for lack of jurisdiction.

A petition for review was then filed by respondents with the CA to

annul the Order of the RTC dated December 10, 2002.

On October 28, 2004, the CA rendered the assailed decision, which

reinstated the MTC decision. It disagreed with the findings of the RTC and
ruled that the part of Lot No. 2351 where petitioners’ house stood was stony
and residential in nature, one that may not be made to fall within the ambit
of the operation of Philippine agrarian laws, owing to its non-agriculture
character. The CA explained that, on the strength of the two instruments, the
parties made a partition and divided the agricultural portion of Lot No. 2351
equally among themselves. By virtue of said division, the parties effectively
severed and terminated the agricultural leasehold/tenancy relationship
between them; thus, there was no longer any agrarian dispute to speak of.
Fajardo had already acquired the benefits under the Comprehensive Agrarian
Reform Law when one-half of the agricultural portion of Lot No. 2351 was
allotted to him. Petitioners cannot, therefore, be allowed to continue
possession of a part of the stony portion, which was not included in the land
he was cultivating. The dispositive portion of the CA Decision reads as
follows:

WHEREFORE, premises considered, finding that the

court a quo seriously erred when it reversed itself, its Order
dated December 10, 2002 is REVERSED and SET ASIDE.
Accordingly, the Decision dated April 25, 2001 of the MTC of
San Ildefonso, Bulacan is hereby REINSTATED.

The subsequent motion for reconsideration was denied; hence, this

petition.

The issue in this case is whether it is MTC or the DARAB which has
jurisdiction over the case.
 There is no dispute that, on June 28, 1991, the parties executed an
agreement, denominated as “KASUNDUAN NG PAGHAHATI NG LUPA AT
PAGTATALAGA NG DAAN UKOL SA MAGKABILANG PANIG.” Therein, it was
admitted that Jesus Fajardo was the tiller of the land. This Kasunduan was
subsequently followed by another agreement, “KASUNDUAN SA HATIAN SA
LUPA,” whereby an area of 10,923 sq m of Lot No. 2351 was given to
petitioners. The portion of the land where petitioners’ house is erected is the
subject of the instant case for unlawful detainer. Respondent argues that this
portion is not included in the deed of partition, while petitioners insist that it
is.

We agree with the RTC when it clearly pointed out in its Order dated
December 10, 2002 that the resolution of this case hinges on the correct
interpretation of the contracts executed by the parties. The issue of who has
a better right of possession over the subject land cannot be determined
without resolving first the matter as to whom the subject property was
allotted. Thus, this is not simply a case for unlawful detainer, but one that is
incapable of pecuniary estimation, definitely beyond the competence of the
MTC.

More importantly, the controversy involves an agricultural land, which

petitioners have continuously and personally cultivated since the 1960s. In
the Kasunduan, it was admitted that Jesus Fajardo was the tiller of the land.
Being agricultural lessees, petitioners have a right to a home lot and a right
to exclusive possession thereof by virtue of Section 24, R.A. No. 3844 of the
Agricultural Land Reform Code. Logically, therefore, the case involves an
agrarian dispute, which falls within the contemplation of R.A. No. 6657, or
the Comprehensive Agrarian Reform Law.
 An agrarian dispute refers to any controversy relating to tenurial
arrangements, whether leasehold, tenancy, stewardship, or otherwise, over
lands devoted to agriculture, including disputes concerning farmworkers’
associations or representation of persons in negotiating, fixing, maintaining,
changing, or seeking to arrange terms or conditions of such tenurial
arrangements. It includes any controversy relating to compensation of lands
acquired under this Act and other terms and conditions of transfer of
ownership from landowner to farmworkers, tenants, and other agrarian
reform beneficiaries, whether the disputants stand in the proximate relation
of farm operator and beneficiary, landowner and tenant, or lessor and
lessee. It relates to any controversy relating to, inter alia, tenancy over lands
devoted to agriculture.

Undeniably, the instant case involves a controversy regarding tenurial

arrangements. The contention that the Kasunduans, which allegedly
terminated the tenancy relationship between the parties and, therefore,
removed the case from the ambit of R.A. No. 6657, is untenable. There still
exists an agrarian dispute because the controversy involves the home lot of
petitioners, an incident arising from the landlord-tenant relationship.

.Amurao v. Villalobos is quite instructive:

The instant case undeniably involves a controversy

involving tenurial arrangements because the Kasulatan will
definitely modify, nay, terminate the same. Even assuming
that the tenancy relationship between the parties had
ceased due to the Kasulatan, there still exists an agrarian
dispute because the action involves an incident arising from
the landlord and tenant relationship.

In Teresita S. David v. Agustin Rivera, this Court held that:

[I]t is safe to conclude that the existence of prior

agricultural tenancy relationship, if true, will divest
the MCTC of its jurisdiction the previous juridical tie
compels the characterization of the controversy as
an “agrarian dispute.” x x x Even if the tenurial
arrangement has been severed, the action still
involves an incident arising from the landlord and
tenant relationship. Where the case involves the
dispossession by a former landlord of a former
tenant of the land claimed to have been given as
compensation in consideration of the renunciation of
the tenurial rights, there clearly exists an agrarian
dispute. On this point the Court has already ruled:

“Indeed, section 21 of the

Republic Act No. 1199, provides that
‘all cases involving the dispossession
of a tenant by the landlord or by a
third party and/or the settlement and
disposition of disputes arising from
the relationship of landlord and
tenant . . . shall be under the original
and exclusive jurisdiction of the Court
of Agrarian Relations.’ This
jurisdiction does not require the
continuance of the relationship of
landlord and tenant—at the time of
the dispute. The same may have
arisen, and often times arises,
precisely from the previous
termination of such relationship. If
the same existed immediately, or
shortly, before the controversy and
the subject-matter thereof is whether
or not said relationship has been
 lawfully terminated, or if the dispute
springs or originates from the
relationship of landlord and tenant,
the litigation is (then) cognizable by
the Court of Agrarian Relations . . .”

In the case at bar, petitioners’ claim that the tenancy

relationship has been terminated by the Kasulatan is of no
moment. As long as the subject matter of the dispute is the
legality of the termination of the relationship, or if the dispute
originates from such relationship, the case is cognizable by the
DAR, through the DARAB. The severance of the tenurial
arrangement will not render the action beyond the ambit of an
agrarian dispute.

Furthermore, the records disclose that the dispute between the parties,
regarding the interpretation of the Kasunduan, was, in fact, raised and
referred to the DAR, which in turn referred the case to the DARAB. In view of
the foregoing, we reiterate Hilario v. Prudente, that:

The doctrine of primary jurisdiction precludes the courts from

resolving a controversy over which jurisdiction has initially been
lodged with an administrative body of special competence. For
agrarian reform cases, jurisdiction is vested in the Department of
Agrarian Reform (DAR); more specifically, in the Department of
Agrarian Reform Adjudication Board (DARAB).

WHEREFORE, the Decision dated October 28, 2004 of the Court of

Appeals is REVERSED and SET ASIDE. The Order of the Regional Trial
Court dated December 10, 2002 is REINSTATED.
 SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

RENATO C. CORONA

Associate Justice

Chairperson
 PRESBITERO J. VELASCO, JR. DIOSDADO M. PERALTA Associate
Justice
Associate Justice

JOSE C. MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.

RENATO C. CORONA

Associate Justice

Chairperson, Third Division

CERTIFICATION
 Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer
of the opinion of the Court’s Division.

REYNATO S. PUNO

Chief Justice

Penned by Associate Justice Rosmari D. Carandang, with Associate Justices Andres B.

Reyes, Jr. and Monina Arevalo-Zenarosa, concurring; rollo, pp. 71-80.

Records, pp. 54-55.

Id. at 6.

Id. at 15.

Id.

Id. at 33.

Rollo, pp. 58-59.

Id. at 60-63.

Id. at 77-78.

Supra note 1, at 79.

Rollo, p. 65.

R.A. No. 3844, Sec. 24, provides that:

Sec. 24, Right to a Home Lot. – The agricultural lessee shall have the right to continue in
the exclusive possession and enjoyment of any home lot he may have occupied upon the
effectivity of this Code, which shall be considered as included in the leasehold.
 R.A. No. 6657, Sec. 3(d).

Amurao v.Villalobos, G.R. No. 157491, June 20, 2006, 491 SCRA 464.

Id. at 474-475.

Rollo, p. 66.

G.R. No. 150635, September 11, 2008, 564 SCRA 485.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 169438 January 21, 2010

ROMEO D. MARIANO, Petitioner,

vs.
PETRON CORPORATION, Respondent.

DECISION

CARPIO, J.:

The Case

For review1 is the Decision2 of the Court of Appeals upholding the lease contract between
petitioner Romeo D. Mariano and respondent Petron Corporation.

The Facts

On 5 November 1968,3 Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo (Aure
Group), owners of a 2,064 square meter parcel of land in Tagaytay City4 (Property), leased the
Property to ESSO Standard Eastern, Inc., (ESSO Eastern), a foreign corporation doing business
in the country through its subsidiary ESSO Standard Philippines, Inc. (ESSO Philippines). The
lease period is 90 years5 and the rent is payable monthly for the first 10 years, and annually for
the remaining period.6 The lease contract (Contract) contained an assignment veto clause barring
the parties from assigning the lease without prior consent of the other.7 Excluded from the
prohibition were certain corporations to whom ESSO Eastern may unilaterally assign its
leasehold right.8
On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National Oil
Corporation (PNOC).9 Apparently, the Aure Group was not informed of the sale. ESSO
Philippines, whose corporate name was successively changed to Petrophil Corporation then to
Petron Corporation (Petron), took possession of the Property.

On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the Property from the
Aure Group and obtained title to the Property issued in his name bearing an annotation of ESSO
Eastern’s lease.10

On 17 December 1998, petitioner sent to Petron a notice to vacate the Property. Petitioner
informed Petron that Presidential Decree No. 471 (PD 471),11 dated 24 May 1974, reduced the
Contract’s duration from 90 to 25 years, ending on 13 November 1993.12 Despite receiving the
notice to vacate on 21 December 1998, Petron remained on the Property.

On 18 March 1999, petitioner sued Petron in the Regional Trial Court of Tagaytay City, Branch
18, (trial court) to rescind the Contract and recover possession of the Property. Aside from
invoking PD 471, petitioner alternatively theorized that the Contract was terminated on 23
December 1977 when ESSO Eastern sold ESSO Philippines to PNOC, thus assigning to PNOC
its lease on the Property, without seeking the Aure Group’s prior consent.

In its Answer, Petron countered that the Contract was not breached because PNOC merely
acquired ESSO Eastern’s shares in ESSO Philippines, a separate corporate entity. Alternatively,
Petron argued that petitioner’s suit, filed on 18 March 1999, was barred by prescription under
Article 1389 and Article 1146(1) of the Civil Code as petitioner should have sought rescission
within four years from PNOC’s purchase of ESSO Philippines on 23 December 197713 or before
23 December 1981.14

To dispense with the presentation of evidence, the parties submitted a Joint Motion for Judgment
(Joint Motion) containing the following stipulation:

5. On December 23, 1977, the Philippine National Oil Co. (PNOC), a corporation wholly owned
by the Philippine Government, acquired ownership of ESSO Standard Philippines, Inc.,
including its leasehold right over the land in question, through the acquisition of its shares of
stocks.15 (Emphasis supplied)

The Ruling of the Trial Court

In its Decision dated 30 May 2000, the trial court ruled for petitioner, rescinded the Contract,
ordered Petron to vacate the Property, and cancelled the annotation on petitioner’s title of
Petron’s lease.16 The trial court ruled that ESSO Eastern’s sale to PNOC of its interest in ESSO
Philippines included the assignment to PNOC of ESSO Eastern’s lease over the Property, which,
for lack of the Aure Group’s consent, breached the Contract, resulting in its termination.
However, because the Aure Group (and later petitioner) tolerated ESSO Philippines’ continued
use of the Property by receiving rental payments, the law on implied new lease governs the
relationship of the Aure Group (and later petitioner) and Petron, creating for them an implied
new lease terminating on 21 December 1998 upon Petron’s receipt of petitioner’s notice to
vacate.17

Petron appealed to the Court of Appeals, distancing itself from its admission in the Joint Motion
that in buying ESSO Philippines from ESSO Eastern, PNOC also acquired ESSO Eastern’s
leasehold right over the Property. Petron again invoked its separate corporate personality to
distinguish itself from PNOC.

The Ruling of the Court of Appeals

In its Decision dated 29 October 2004, the Court of Appeals found merit in Petron’s appeal, set
aside the trial court’s ruling, declared the Contract subsisting until 13 November 205818 and
ordered petitioner to pay Petron P300,000 as attorney’s fees. The Court of Appeals found no
reason to pierce ESSO Philippines’ corporate veil, treating PNOC’s buy-out of ESSO Philippines
as mere change in ESSO Philippines’ stockholding. Hence, the Court of Appeals rejected the
trial court’s conclusion that PNOC acquired the leasehold right over the Property. Alternatively,
the Court of Appeals found petitioner’s suit barred by the four-year prescriptive period under
Article 1389 and Article 1146 (1) of the Civil Code, reckoned from PNOC’s buy-out of ESSO
Philippines on 23 December 1977 (for Article 1389) or the execution of the Contract on 13
November 196819 (for Article 1146 [1]).20

Petitioner sought reconsideration but the Court of Appeals denied his motion in its Resolution of
26 August 2005.

Hence, this petition.

The Issue

The question is whether the Contract subsists between petitioner and Petron.

The Ruling of the Court

We hold in the affirmative and thus sustain the ruling of the Court of Appeals.
ESSO Eastern Assigned to PNOC its
Leasehold Right over the Property, Breaching the Contract

PNOC’s buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to
ESSO Eastern. Logically, this change of ownership carried with it the transfer to PNOC of any
proprietary interest ESSO Eastern may hold through ESSO Philippines, including ESSO
Eastern’s lease over the Property. This is the import of Petron’s admission in the Joint Motion
that by PNOC’s buy-out of ESSO Philippines "[PNOC], x x x acquired ownership of ESSO
Standard Philippines, Inc., including its leasehold right over the land in question, through the
acquisition of its shares of stocks." As the Aure Group gave no prior consent to the transaction
between ESSO Eastern and PNOC, ESSO Eastern violated the Contract’s assignment veto
clause.
Petron’s objection to this conclusion, sustained by the Court of Appeals, is rooted on its reliance
on its separate corporate personality and on the unstated assumption that ESSO Philippines (not
ESSO Eastern) initially held the leasehold right over the Property. Petron is wrong on both
counts.

Courts are loathe to pierce the fictive veil of corporate personality, cognizant of the core doctrine
in corporation law vesting on corporations legal personality distinct from their shareholders
(individual or corporate) thus facilitating the conduct of corporate business. However, fiction
gives way to reality when the corporate personality is foisted to justify wrong, protect fraud, or
defend crime, thwarting the ends of justice.21 The fiction even holds lesser sway for subsidiary
corporations whose shares are wholly if not almost wholly owned by its parent company. The
structural and systems overlap inherent in parent and subsidiary relations often render the
subsidiary as mere local branch, agency or adjunct of the foreign parent corporation.22

Here, the facts compel the conclusion that ESSO Philippines was a mere branch of ESSO Eastern
in the execution and breach of the Contract. First, by ESSO Eastern’s admission in the Contract,
it is "a foreign corporation organized under the laws of the State of Delaware, U.S.A., duly
licensed to transact business in the Philippines, and doing business therein under the business
name and style of ‘Esso Standard Philippines’ x x x". In effect, ESSO Eastern was ESSO
Philippines for all of ESSO Eastern’s Philippine business.1avvphi1

Second, the Contract was executed by ESSO Eastern, not ESSO Philippines, as lessee, with the
Aure Group as lessor. ESSO Eastern leased the Property for the use of ESSO Philippines, acting
as ESSO Eastern’s Philippine branch. Consistent with such status, ESSO Philippines took
possession of the Property after the execution of the Contract. Thus, for purposes of the Contract,
ESSO Philippines was a mere alter ego of ESSO Eastern.

The Lessor’s Continued Acceptance of Lease Payments

Despite Breach of Contract Amounted to Waiver

The breach of contract notwithstanding, we hold that the Contract subsists. Contrary to the trial
court’s conclusion that ESSO Eastern’s violation of the assignment veto clause extinguished the
Contract, replaced by a new implied lease with a monthly term,23 we hold that the breach merely
gave rise to a cause of action for the Aure Group to seek the lessee’s ejectment as provided under
Article 1673, paragraph 3 of the Civil Code.24 Although the records do not show that the Aure
Group was formally notified of ESSO Philippines’ sale to PNOC, the successive changes in the
lessee’s name (from ESSO Philippines to Petrophil Corporation then to Petron) suffice to alert
the Aure Group of a likely change in the personality of the lessee, which, for lack of the Aure
Group’s prior consent, was in obvious breach of the Contract. Thus, the continued receipt of
lease payments by the Aure Group (and later by petitioner) despite the contractual breach
amounted to a waiver of their option to eject the lessee.

Petitioner’s Suit Barred by Prescription

Petitioner’s waiver of Petron’s contractual breach was compounded by his long inaction to seek
judicial redress. Petitioner filed his complaint nearly 22 years after PNOC acquired the leasehold
rights to the Property and almost six years after petitioner bought the Property from the Aure
Group. The more than two decades lapse puts this case well within the territory of the 10 year
prescriptive bar to suits based upon a written contract under Article 1144 (1) of the Civil Code.25

WHEREFORE, we DENY the petition. The Decision dated 29 October 2004 and the
Resolution dated 26 August 2005 of the Court of Appeals are AFFIRMED.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice

DIOSDADO M. PERALTA* MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

JOSE P. PEREZ
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes
*
Designated additional member per Raffle dated 18 January 2010.
1
Under Rule 45 of the 1997 Rules of Civil Procedure.
2
Penned by Associate Justice Eloy R. Bello, Jr., with Associate Justices Regalado E.
Maambong and Lucenito N. Tagle, concurring.
3
13 November 1968 is the date the lower courts used to place the execution of the lease
contract. However, the contract shows that it was signed on 5 November 1968 but
notarized on 13 November 1968 (see Records, p. 14).
4
Covered by Transfer Certificate of Title No. T-6190.
5
Ending on 5 November 2058.
6
P740 monthly rent for the first 10 years and P1 annual rent for the succeeding years
(Records, p. 13-A).
7
This is a modification of the statutory ban on unconsented assignment of lease under
Article 1649 of the Civil Code which provides: "The lessee cannot assign the lease
without the consent of the lessor, unless there is a stipulation to the contrary."
8
The stipulation provides (Records, p. 13-A):

This contract may not be assigned or transferred by either party without the prior
written consent of the other, provided, however, that the Lessee may assign and
transfer its rights and obligations under this contract to Standard Oil Company (a
New Jersey corporation) or any company 50% or more of whose capital stock is
owned or controlled directly or indirectly by Standard Oil Company, without need
of obtaining the consent of the Lessor.
9
Other parts of the record show the following alternative dates: 23 December 1979
(Records, p. 91); 23 December 1978 (id. at 92); and 23 December 1979 (Rollo, p. 27).
10
Transfer Certificate of Title No. T-29178.
11
Fixing a maximum period of 25 years for the lease of private lands to aliens.
12
This should be 5 November 1993, the 25th year after the Contract’s signing.
13
Petron erroneously indicated this date as 23 December 1973 (see Records, p. 36).
14
Petron also argued that PD 471, which carried penal clauses, cannot be retroactively
applied to shorten the term of the Contract without violating the constitutional ban on ex
post facto laws and on impairment of contracts.
15
Records, p. 91.
16
The dispositive portion of the trial court’s ruling provides (id. at 94):

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered

declaring the lease contract, subject matter of this case, be rescinded and ordering
the defendant to vacate and surrender possession of the leased premises to
plaintiff.

It is likewise ordered that the annotation of said lease agreement at the back of
TCT No. T-29178 be cancelled. Defendant is also ordered to pay the cost of the
suit.
17
Id. at 86-94.
18
See note 3.
19
But see note 3.
20
Rollo, pp. 19-33.
21
Koppel (Phils.), Inc. v. Yatco, 77 Phil. 496 (1946).
22
Id.
23
Records, pp. 91-93. The trial court gave no reason for its conclusion but deducing from
its finding that the Contract was replaced by an implied lease with a monthly term, it
could have only treated the unconsented assignment of lease as resulting in the Contract’s
novation. However, novation takes place only in two instances (1) by express agreement
or (2) when the old and the new obligations are incompatible on every point (Lim Tay v.
Court of Appeals, 355 Phil. 381 [1998]). None of these obtain here as the parties to the
contract did not expressly novate it and except for the term of lease and the personality of
the lessee, all the other contractual stipulations remained unchanged.
24
This provides: "The lessor may judicially eject the lessee for any of the following
causes:

xxx

(3) Violation of any of the conditions agreed upon in the contract;"

25
This provides: "The following actions must be brought within ten years from the time
the right of action accrues:

(1) Upon a written contract;"