G.R. No. 107372 January 23, 1997 RAFAEL S. ORTAES, petitioner, vs.

THE COURT OF APPEALS, OSCAR INOCENTES AND ASUNCION LLANES INOCENTES, respondents. On September 30, 1982, private respondents sold to petitioner two (2) parcels of registered land in Quezon City for a consideration of P35,000.00 and P20,000.00, respectively. The first deed of absolute sale covering Transfer Certificate of Title (TCT) No. 258628 provides in part: That for and in consideration of the sum of THIRTY FIVE THOUSAND (P35,000.00) PESOS, receipt of which in full is hereby acknowledged, we have sold, transferred and conveyed, as we hereby sell, transfer and convey, that subdivided portion of the property covered by TCT No. 258628 known as Lot No. 684-G-1-B-2 in favor of RAFAEL S. ORTAEZ, of legal age, Filipino, whose marriage is under a regime of complete separation of property, and a resident of 942 Aurora Blvd., Quezon City, his heirs or assigns. 1 while the second deed of absolute sale covering TCT. No. 243273 provides: That for and in consideration of the sum of TWENTY THOUSAND (P20,000.00) PESOS receipt of which in full is hereby acknowledged, we have sold, transferred and conveyed, as we hereby sell, transfer and convey, that consolidated-subdivided portion of the property covered by TCT No. 243273 known as Lot No. 5 in favor of RAFAEL S. ORTANEZ, of legal age, Filipino, whose marriage is under a regime of complete separation of property, and a resident of 942 Aurora Blvd., Cubao, Quezon City his heirs or assigns. 2 Private respondents received the payments for the above-mentioned lots, but failed to deliver the titles to petitioner. On April 9, 1990 the latter demanded from the former the delivery of said titles. 3 Private respondents, however, refused on the ground that the title of the first lot is in the possession of another person, 4 and petitioner's acquisition of the title of the other lot is subject to certain conditions. Offshoot, petitioner sued private respondents for specific performance before the RTC. In their answer with counterclaim private respondents merely alleged the existence of the following oral conditions 5 which were never reflected in the deeds of sale: 6 3.3.2 Title to the other property (TCT No. 243273) remains with the defendants (private respondents) until plaintiff (petitioner) shows proof that all the following requirements have been met: (i) Plaintiff will cause the segregation of his right of way amounting to 398 sq. m.; (ii) Plaintiff will submit to the defendants the approved plan for the segregation; (iii) Plaintiff will put up a strong wall between his property and that of defendants' lot to segregate his right of way; (iv) Plaintiff will pay the capital gains tax and all other expenses that may be incurred by reason of sale. . . During trial, private respondent Oscar Inocentes, a former judge, orally testified that the sale was subject to the above conditions, 7 although such conditions were not incorporated in the deeds of sale. Despite petitioner's timely objections on the ground that the introduction of said oral conditions was barred by the parol evidence rule, the lower court nonetheless, admitted them and eventually dismissed the complaint as well as the counterclaim. On appeal, the Court of Appeals (CA) affirmed the court a quo. Hence, this petition. We are tasked to resolve the issue on the admissibility of parol evidence to establish the alleged oral conditions-precedent to a contract of sale, when the deeds of sale are silent on such conditions. The parol evidence herein introduced is inadmissible. First, private respondents' oral testimony on the alleged conditions, coming from a party who has an interest in the outcome of the case, depending exclusively on human memory, is not as reliable as written or documentary evidence. 8 Spoken words could be notoriously unreliable unlike a written contract which speaks of a uniform

language. 9 Thus, under the general rule in Section 9 of Rule 130 10 of the Rules of Court, when the terms of an agreement were reduced to writing, as in this case, it is deemed to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents thereof. 11 Considering that the written deeds of sale were the only repository of the truth, whatever is not found in said instruments must have been waived and abandoned by the parties. 12 Examining the deeds of sale, we cannot even make an inference that the sale was subject to any condition. As a contract, it is the law between the parties. 13 Secondly, to buttress their argument, private respondents rely on the case of Land Settlement Development, Co.vs. Garcia Plantation 14 where the Court ruled that a condition precedent to a contract may be established by parol evidence. However, the material facts of that case are different from this case. In the former, the contract sought to be enforced 15 expressly stated that it is subject to an agreement containing the conditions-precedent which were proven through parol evidence. Whereas, the deeds of sale in this case, made no reference to any pre-conditions or other agreement. In fact, the sale is denominated as absolute in its own terms. Third, the parol evidence herein sought to be introduced would vary, contradict or defeat the operation of a valid instrument, 16 hence, contrary to the rule that: The parol evidence rule forbids any addition to . . . the terms of a written instrument by testimony purporting to show that, at or before the signing of the document, other or different terms were orally agreed upon by the parties. 17 Although parol evidence is admissible to explain the meaning of a contract, "it cannot serve the purpose of incorporating into the contract additional contemporaneous conditions which are not mentioned at all in the writing unless there has been fraud or mistake." 18 No such fraud or mistake exists in this case. Fourth, we disagree with private respondents' argument that their parol evidence is admissible under the exceptions provided by the Rules, specifically, the alleged failure of the agreement to express the true intent of the parties. Such exception obtains only in the following instance: [W]here the written contract is so ambiguous or obscure in terms that the contractual intention of the parties cannot be understood from a mere reading of the instrument. In such a case, extrinsic evidence of the subject matter of the contract, of the relations of the parties to each other, and of the facts and circumstances surrounding them when they entered into the contract may be received to enable the court to make a proper, interpretation of the instrument. 19 In this case, the deeds of sale are clear, without any ambiguity, mistake or imperfection, much less obscurity or doubt in the terms thereof. Fifth, we are not persuaded by private respondents' contention that they "put in issue by the pleadings" the failure of the written agreement to express the true intent of the parties. Record shows 20 that private respondents did notexpressly plead that the deeds of sale were incomplete or that it did not reflect the intention 21 of the buyer (petitioner) and the seller (private respondents). Such issue must be, "squarely presented." 22 Private respondents merely alleged that the sale was subject to four (4) conditions which they tried to prove during trial by parol evidence. 23 Obviously, this cannot be done, because they did not plead any of the exceptions mentioned in the parol evidence rule. 24 Their case is covered by the general rule that the contents of the writing are the only repository of the terms of the agreement. Considering that private respondent Oscar Inocentes is a lawyer (and former judge) he was "supposed to be steeped in legal knowledge and practices" and was "expected to know the consequences" 25 of his signing a deed of absolute sale. Had he given an iota's attention to scrutinize the deeds, he would have incorporated important stipulations that the transfer of title to said lots were conditional. 26 One last thing, assuming arguendo that the parol evidence is admissible, it should nonetheless be disbelieved as no other evidence appears from the record to sustain the existence of the alleged conditions. Not even the other seller, Asuncion Inocentes, was presented to testify on such conditions. ACCORDINGLY, the appealed decision is REVERSED and the records of this case REMANDED to the trial court for proper disposition in accordance with this ruling. SO ORDERED.

[G.R. No. 149750. June 16, 2003] AURORA ALCANTARA-DAUS, petitioner, vs. Spouses HERMOSO and SOCORRO DE LEON, respondents. While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired only upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the obligation to transfer ownership and to deliver the thing sold, but the real right of ownership is transferred only by tradition or delivery thereof to the buyer. The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the February 9, 2001 Decision and the August 31, 2001 Resolution of the Court of Appeals(CA) in CA-GR CV No. 47587. The dispositive portion of the assailed Decision reads as follows: WHEREFORE, premises considered, the decision of the trial court is hereby REVERSED, and judgment rendered: 1. Declaring null and void and of no effect, the [D]eed of [A]bsolute [S]ale dated December 6, 1975, the [D]eed of [E]xtra-judicial [P]artition and [Q]uitclaim dated July 1, 1985, and T.C.T. No. T-31262; 2. Declaring T.C.T. No. 42238 as valid and binding; 3. Eliminating the award of P5,000.00 each to be paid to defendants-appellees. The assailed Resolution denied petitioners Motion for Reconsideration. The Facts The antecedents of the case were summarized by the Regional Trial Court (RTC) and adopted by the CA as follows: This is a [C]omplaint for annulment of documents and title, ownership, possession, injunction, preliminary injunction, restraining order and damages. [Respondents] alleged in their [C]omplaint that they are the owners of a parcel of land hereunder described as follows, to wit: A parcel of land (Lot No. 4786 of the Cadastral Survey of San Manuel) situated in the Municipality of San Manuel, Bounded on the NW., by Lot No. 4785; and on the SE., by Lot Nos. 11094 & 11096; containing an area of Four Thousand Two Hundred Twelve (4,212) sq. m., more or less. Covered by Original Certificate of Title No. 22134 of the Land Records of Pangasinan. which [Respondent] Hermoso de Leon inherited from his father Marcelino de Leon by virtue of a [D]eed of [E]xtra-judicial [P]artition. Sometime in the early 1960s, [respondents] engaged the services of the late Atty. Florencio Juan to take care of the documents of the properties of his parents. Atty. Juan let them sign voluminous documents. After the death of Atty. Juan, some documents surfaced and most revealed that their properties had been conveyed by sale or quitclaim to [Respondent] Hermosos brothers and sisters, to Atty. Juan and his sisters, when in truth and in fact, no such conveyances were ever intended by them. His signature in the [D]eed of [E]xtra-judicial [P]artition with [Q]uitclaim made in favor of x x x Rodolfo de Leon was forged. They discovered that the land in question was sold by x x x Rodolfo de Leon to [Petitioner] Aurora Alcantara. They demanded annulment of the document and reconveyance but defendants refused x x x. xxx x xx xxx

In reversing the RTC, the CA held that laches did not bar respondents from pursuing their claim. Notwithstanding the delay, laches is a doctrine in equity and may not be invoked to resist the enforcement of a legal right. The appellate court also held that since Rodolfo de Leon was not the owner of the land at the time of the sale, he could not transfer any land rights to petitioner. It further declared that the signature of Hermoso de Leon on the Deed of Extrajudicial Partition and Quitclaim -- upon which petitioner bases her claim -- was a forgery. It added that under the above circumstances, petitioner could not be said to be a buyer in good faith. Hence, this Petition. The Issues Petitioner raises the following issues for our consideration: 1. Whether or not the Deed of Absolute Sale dated December 6, 1975 executed by Rodolfo de Leon (deceased) over the land in question in favor of petitioner was perfected and binding upon the parties therein? 2. Whether or not the evidentiary weight of the Deed of Extrajudicial Partition with Quitclaim, executed by [R]espondent Hermoso de Leon, Perlita de Leon and Carlota de Leon in favor of Rodolfo de Leon was overcome by more than [a] preponderance of evidence of respondents? 3. Whether or not the possession of petitioner including her predecessor-ininterest Rodolfo de Leon over the land in question was in good faith? 4. And whether or not the instant case initiated and filed by respondents on February 24, 1993 before the trial court has prescribed and respondents are guilty of laches? The Courts Ruling The Petition has no merit. First Issue: Validity of the Deed of Absolute Sale Petitioner argues that, having been perfected, the Contract of Sale executed on December 6, 1975 was thus binding upon the parties thereto. A contract of sale is consensual. It is perfected by mere consent, upon a meeting of the minds on the offer and the acceptance thereof based on subject matter, price and terms of payment. At this stage, the sellers ownership of the thing sold is not an element in the perfection of the contract of sale. The contract, however, creates an obligation on the part of the seller to transfer ownership and to deliver the subject matter of the contract. It is during the delivery that the law requires the seller to have the right to transfer ownership of the thing sold. In general, a perfected contract of sale cannot be challenged on the ground of the sellers non-ownership of the thing sold at the time of the perfection of the contract. Further, even after the contract of sale has been perfected between the parties, its consummation by delivery is yet another matter. It is through tradition or delivery that the buyer acquires the real right of ownership over the thing sold. Undisputed is the fact that at the time of the sale, Rodolfo de Leon was not the owner of the land he delivered to petitioner. Thus, the consummation of the contract and the consequent transfer of ownership would depend on whether he subsequently acquired ownership of the land in accordance with Article 1434 of the Civil Code. Therefore, we need to resolve the issue of the authenticity and the due execution of the Extrajudicial Partition and Quitclaim in his favor. Second Issue: Authenticity of the Extrajudicial Partition Petitioner contends that the Extrajudicial Partition and Quitclaim is authentic, because it was notarized and executed in accordance with law. She claims that there is no clear and convincing evidence to set aside the presumption of regularity in the issuance of such public document. We disagree. As a general rule, the due execution and authenticity of a document must be reasonably established before it may be admitted in evidence. Notarial documents, however, may be presented in evidence without further proof of their authenticity, since the certificate of acknowledgment is prima facie evidence of the execution of the instrument or document involved. To contradict facts in a notarial document and the presumption of regularity in its favor, the evidence must be clear, convincing and more than merely preponderant. The CA ruled that the signature of Hermoso de Leon on the Extrajudicial Partition and Quitclaim was forged. However, this factual finding is in conflict with that of the RTC. While normally this Court does not review factual issues,

[Petitioner] Aurora Alcantara-Daus [averred] that she bought the land in question in good faith and for value on December 6, 1975. [She] has been in continuous, public, peaceful, open possession over the same and has been appropriating the produce thereof without objection from anyone. On August 23, 1994, the RTC (Branch 48) of Urdaneta, Pangasinan rendered its Decision in favor of herein petitioner. It ruled that respondents claim was barred by laches, because more than 18 years had passed since the land was sold. It further ruled that since it was a notarial document, the Deed of Extrajudicial Partition in favor of Rodolfo de Leon was presumptively authentic. Ruling of the Court of Appeals

this rule does not apply when there is a conflict between the holdings of the CA and those of the trial court, as in the present case. After poring over the records, we find no reason to reverse the factual finding of the appellate court. A comparison of the genuine signatures of Hermoso de Leon with his purported signature on the Deed of Extrajudicial Partition with Quitclaim will readily reveal that the latter is a forgery. As aptly held by the CA, such variance cannot be attributed to the age or the mechanical acts of the person signing. Without the corroborative testimony of the attesting witnesses, the lone account of the notary regarding the due execution of the Deed is insufficient to sustain the authenticity of this document. He can hardly be expected to dispute the authenticity of the very Deed he notarized. For this reason, his testimony was -- as it should be --minutely scrutinized by the appellate court, and was found wanting. Third Issue: Possession in Good Faith Petitioner claims that her possession of the land is in good faith and that, consequently, she has acquired ownership thereof by virtue of prescription. We are not persuaded. It is well-settled that no title to registered land in derogation of that of the registered owner shall be acquired by prescription or adverse possession. Neither can prescription be allowed against the hereditary successors of the registered owner, because they merely step into the shoes of the decedent and are merely the continuation of the personality of their predecessor in interest. Consequently, since a certificate of registration covers it, the disputed land cannot be acquired by prescription regardless of petitioners good faith. Fourth Issue: Prescription of Action and Laches Petitioner also argues that the right to recover ownership has prescribed, and that respondents are guilty of laches. Again, we disagree. Article 1141 of the New Civil Code provides that real actions over immovable properties prescribe after thirty years. This period for filing an action is interrupted when a complaint is filed in court. Rodolfo de Leon alleged that the land had been allocated to him by his brother Hermoso de Leon in March 1963, but that the Deed of Extrajudicial Partition assigning the contested land to the latter was executed only on September 16, 1963. In any case, the Complaint to recover the land from petitioner was filed on February 24, 1993, which was within the 30-year prescriptive period. On the claim of laches, we find no reason to reverse the ruling of the CA. Laches is based upon equity and the public policy of discouraging stale claims. Since laches is an equitable doctrine, its application is controlled by equitable considerations. It cannot be used to defeat justice or to perpetuate fraud and injustice. Thus, the assertion of laches to thwart the claim of respondents is foreclosed, because the Deed upon which petitioner bases her claim is a forgery. WHEREFORE, the Petition is DENIED and Decision AFFIRMED. Costs against petitioner. SO ORDERED. the assailed

2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-256394 executed on 7 June 1979, in favor of defendant Clarita Joaquin, for a consideration of P1[2],000.00(Exh. D), pursuant to which TCT No. S109772 was issued in her name (Exh. D-1); 3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-256394 executed on 12 May 1988, in favor of defendant spouses Fidel Joaquin and Conchita Bernardo, for a consideration of P54,[3]00.00 (Exh. E), pursuant to which TCT No. 155329 was issued to them (Exh. E-1); 4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-256394 executed on 12 May 1988, in favor of defendant spouses Artemio Joaquin and Socorro Angeles, for a consideration of P[54,3]00.00 (Exh. F), pursuant to which TCT No. 155330 was issued to them (Exh. F-1); and 5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan (LRC) Psd-256395 executed on 9 September 1988, in favor of Tomas Joaquin, for a consideration ofP20,000.00 (Exh. G), pursuant to which TCT No. 157203 was issued in her name (Exh. G-1). [6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-256395 executed on 7 October 1988, in favor of Gavino Joaquin, for a consideration of P25,000.00 (Exh. K), pursuant to which TCT No. 157779 was issued in his name (Exh. K-1).] In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in their complaint, aver: - XXThe deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are, are NULL AND VOID AB INITIO because a) Firstly, there was no actual valid consideration for the deeds of sale xxx over the properties in litis; Secondly, assuming that there was consideration in the sums reflected in the questioned deeds, the properties are more than three-fold times more valuable than the measly sums appearing therein; Thirdly, the deeds of sale do not reflect and express the true intent of the parties (vendors and vendees); and Fourthly, the purported sale of the properties in litis was the result of a deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime. - XXI Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos. 36113/T-172, S-109772, 155329, 155330, 157203 [and 157779] issued by the Registrar of Deeds over the properties inlitis xxx are NULL AND VOID AB INITIO. Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action against them as well as the requisite standing and interest to assail their titles over the properties in litis; (2) that the sales were with sufficient considerations and made by defendants parents voluntarily, in good faith, and with full knowledge of the consequences of their deeds of sale; and (3) that the certificates of title were issued with sufficient factual and legal basis.

b)

c)

d)

[G.R. No. 126376. November 20, 2003] SPOUSES BERNARDO BUENAVENTURA vs. COURT OF APPEALS, The Facts The Court of Appeals summarized the facts of the case as follows: Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The married Joaquin children are joined in this action by their respective spouses. Sought to be declared null and void ab initio are certain deeds of sale of real property executed by defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children and the corresponding certificates of title issued in their names, to wit: 1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-256395 executed on 11 July 1978, in favor of defendant Felicitas Joaquin, for a consideration of P6,000.00 (Exh. C), pursuant to which TCT No. [36113/T-172] was issued in her name (Exh. C-1);

[4] (Emphasis in the original)

The Ruling of the Trial Court Before the trial, the trial court ordered the dismissal of the case against defendant spouses Gavino Joaquin and Lea Asis.[5] Instead of filing an Answer with their co-defendants, Gavino Joaquin and Lea Asis filed a Motion to Dismiss.[6] In granting the dismissal to Gavino Joaquin and Lea Asis, the trial court noted that compulsory heirs have the right to a legitime but such right is contingent since said right commences only from the moment of death of the decedent pursuant to Article 777 of the Civil Code of the Philippines.[7] After trial, the trial court ruled in favor of the defendants and dismissed the complaint. The trial court stated:

In the first place, the testimony of the defendants, particularly that of the xxx father will show that the Deeds of Sale were all executed for valuable consideration. This assertion must prevail over the negative allegation of plaintiffs. And then there is the argument that plaintiffs do not have a valid cause of action against defendants since there can be no legitime to speak of prior to the death of their parents. The court finds this contention tenable. In determining the legitime, the value of the property left at the death of the testator shall be considered (Art. 908 of the New Civil Code). Hence, the legitime of a compulsory heir is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an impairment of their legitime while their parents live. All the foregoing considered, this case is DISMISSED. In order to preserve whatever is left of the ties that should bind families together, the counterclaim is likewise DISMISSED. No costs. SO ORDERED. Issues Petitioners assign the following as errors of the Court of Appeals: 1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE IN QUESTION HAD NO VALID CONSIDERATION. 2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING THAT THERE WAS A CONSIDERATION, THE SAME IS GROSSLY INADEQUATE. 3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF SALE DO NOT EXPRESS THE TRUE INTENT OF THE PARTIES. 4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE WAS PART AND PARCEL OF A CONSPIRACY AIMED AT UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF THE SPOUSES LEONARDO JOAQUIN AND FELICIANA LANDRITO OF THEIR INTEREST OVER THE SUBJECT PROPERTIES. 5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE A GOOD, SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE PRIVATE RESPONDENTS.[10] The Ruling of the Court We find the petition without merit. We will discuss petitioners legal interest over the properties subject of the Deeds of Sale before discussing the issues on the purported lack of consideration and gross inadequacy of the prices of the Deeds of Sale.

[T]he question as to real party-in-interest is whether he is the party who would be benefitted or injured by the judgment, or the party entitled to the avails of the suit. xxx In actions for the annulment of contracts, such as this action, the real parties are those who are parties to the agreement or are bound either principally or subsidiarily or are prejudiced in their rights with respect to one of the contracting parties and can show the detriment which would positively result to them from the contract even though they did not intervene in it (Ibaez v. Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx. These are parties with a present substantial interest, as distinguished from a mere expectancy or future, contingent, subordinate, or consequential interest. The phrase present substantial interest more concretely is meant such interest of a party in the subject matter of the action as will entitle him, under the substantive law, to recover if the evidence is sufficient, or that he has the legal title to demand and the defendant will be protected in a payment to or recovery by him.[13] Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As the appellate court stated, petitioners right to their parents properties is merely inchoate and vests only upon their parents death. While still living, the parents of petitioners are free to dispose of their properties. In their overzealousness to safeguard their future legitime, petitioners forget that theoretically, the sale of the lots to their siblings does not affect the value of their parents estate. While the sale of the lots reduced the estate, cash of equivalent value replaced the lots taken from the estate.

Whether the Deeds of Sale are void for lack of consideration

Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds of Sale to their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void. A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. If the real price is not stated in the contract, then the contract of sale is valid but subject to reformation. If there is no meeting of the minds of the parties as to the price, because the price stipulated in the contract is simulated, then the contract is void.

[14] Article 1471 of the Civil Code states that if the price in a contract of sale
is simulated, the sale is void. It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract.[15] Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To prove simulation, petitioners presented Emma Joaquin Valdozs testimony stating that their father, respondent Leonardo Joaquin, told her that he would transfer a lot to her through a deed of sale without need for her payment of the purchase price.[16] The trial court did not find the allegation of absolute simulation of price credible. Petitioners failure to prove absolute simulation of price is magnified by their lack of knowledge of their respondent siblings financial capacity to buy the questioned lots.[17] On the other hand, the Deeds of Sale which petitioners presented as evidence plainly showed the cost of each lot sold. Not only did respondents minds meet as to the purchase price, but the real price was also stated in the Deeds of Sale. As of the filing of the complaint, respondent siblings have also fully paid the price to their respondent father.[18]

Whether Petitioners have a legal interest over the properties subject of the Deeds of Sale

Petitioners Complaint betrays their motive for filing this case. In their Complaint, petitioners asserted that the purported sale of the properties in litis was the result of a deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime. Petitioners strategy was to have the Deeds of Sale declared void so that ownership of the lots would eventually revert to their respondent parents. If their parents die still owning the lots, petitioners and their respondent siblings will then co-own their parents estate by hereditary succession.[11] It is evident from the records that petitioners are interested in the properties subject of the Deeds of Sale, but they have failed to show any legal right to the properties. The trial and appellate courts should have dismissed the action for this reason alone. An action must be prosecuted in the name of the real party-in-interest.[12]

Whether the Deeds of Sale are void for gross inadequacy of price

Petitioners ask that assuming that there is consideration, the same is grossly inadequate as to invalidate the Deeds of Sale. Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (Emphasis supplied) Article 1470 of the Civil Code further provides: Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. (Emphasis supplied) Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the price be equal to the exact value of the subject matter of sale. All the respondents believed that they received the commutative value of what they gave. As we stated in Vales v. Villa:[19] Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate not because one person has been defeated or overcome by another, but because he has been defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by them indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of the law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it. (Emphasis in the original) Moreover, the factual findings of the appellate court are conclusive on the parties and carry greater weight when they coincide with the factual findings of the trial court. This Court will not weigh the evidence all over again unless there has been a showing that the findings of the lower court are totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion.

Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of lack of cause of action. After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision states: WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily dismissing the complaint subject to the aforementioned condition that if the defendants subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the property or of first refusal, otherwise, defendants need not offer the property to the plaintiffs if the purchase price is higher than Eleven Million Pesos. SO ORDERED. Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification the lower court's judgment, holding: In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable. WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs. SO ORDERED. The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H, Petition). On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation, subject to the following terms and conditions: 1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs, executors, administrators or assigns, the above-described property with all the improvements found therein including all the rights and interest in the said property free from all liens and encumbrances of whatever nature, except the pending ejectment proceeding; 2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for

[20]

In the instant case, the trial court found that the lots were sold for a valid consideration, and that the defendant children actually paid the purchase price stipulated in their respective Deeds of Sale. Actual payment of the purchase price by the buyer to the seller is a factual finding that is now conclusive upon us. WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto. SO ORDERED. ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents. VITUG, J.: Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058. The antecedents are recited in good detail by the appellate court thusly: On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that since defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them.

the transfer of title in his favor and other expenses incidental to the sale of abovedescribed property including capital gains tax and accrued real estate taxes. As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990. On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises. On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs. The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123. On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows: Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's consideration of the motion as evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution. The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals in its decision in CA G.R. CV21123, and elevated to the Supreme Court upon the petition for review and that the same was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No. L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision had already become final and executory. It is the observation of the Court that this property in dispute was the subject of theNotice of Lis Pendens and that the modified decision of this Court promulgated by the Court of Appeals which had become final to the effect that should the defendants decide to offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market economy today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos or more. WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer. All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith. SO ORDERED. On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of Execution ordering the defendants among others to comply with the aforesaid Order of this Court within a period of one (1) week from receipt of this Order and for defendants to execute the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to cancel and set aside the title already issued in favor of Buen Realty Corporation which was previously executed between the latter and defendants and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go. SO ORDERED. On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was issued. 1 On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force and effect the above questioned orders of the court a quo. In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs. We affirm the decision of the appellate court. A not too recent development in real estate transactions is the adoption of such arrangements as the right of first refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental precepts that may find some relevance to this discussion. An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations (law, contracts, quasicontracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects. Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummationbegins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof. Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4 An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5 An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract ofoption. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz: Art. 1479. . . . An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (1451a) 6 Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 8 Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern: (1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." (2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance(exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code). In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an

option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an offer would require, among other things, 10 a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct. Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for damages. The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose. Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court. We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed: Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by this Court. As already stated, there was nothing in said decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885). It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners. WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against petitioners. SO ORDERED.

JORGE SALAZAR, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. It appears that Skiva International, Inc. ("Skiva") is a New Yorkbased corporation which imports clothes from the Philippines through its buying agent, Olivier (Philippines) Inc. ("Olivier"). Aurora Manufacturing & Development Corporation ("Aurora") and Uni-Group Inc. ("Uni-Group") are domestic corporations which supply finished clothes to Skiva. Mr. Werner Lettmayr is the President of both Aurora and Uni-Group while the petitioner, Jorge Salazar, is the Vice-President and Treasurer of Uni-Group and a consultant of Aurora.

Skiva, through its buying agent, Olivier, has been purchasing finished clothes from Aurora and Uni-Group. When an order is procured for the delivery of clothes, Olivier, issues to the local supplier, Aurora/Uni-Group, a "Purchase Contract" and Olivier issues to Skiva a "Sales Contract." In these transactions, payment is usually made by way of a letter of credit wherein the supplier is paid only upon the presentation of the proper shipping documents to the designated bank.5 In December 1985, Skiva informed Olivier that it needs ladies jeans to be delivered sometime in January 1986. Olivier, in turn, through its Officer-in-Charge, Ms. Teresita Tujan, contacted Aurora and UniGroup to supply the jeans.6 Thus, a Purchase Contract dated December 18, 1985 was issued by Olivier to Uni-Group wherein Uni-Group was to supply 700 dozens of three (3) different designs of "Ladies Basic 5 Pockets Stretch Twill Jeans" payable by means of a letter of credit at sight.7 The Purchase Contract was confirmed by Mr. Lettmayr on December 30, 1985.8 A Sales Contract was also issued by Olivier to Skiva containing the same terms and conditions as the Purchase Contract and was confirmed by Mr. Jack Chehebar of Skiva.9 On January 7, 1986, the parties agreed that Skiva will advance to Aurora/Uni-Group the amount of US$41,300.00 (then equivalent to P850,370.00 at the exchange rate of P20.59 to US$1.00) as Aurora/Uni-Group did not have sufficient funds to secure raw materials to manufacture the jeans.10 It was also agreed that the amount advanced by Skiva represents advance payment of its order of 700 dozens of ladies jeans.11 Skiva then issued a check in the said amount payable to Uni-Group.12 However, due to the length of time needed for the check to be cleared, the parties made arrangements to remit the funds instead by way of telegraphic transfer.13 Thus, the check issued by Skiva was returned by Mr. Lettmayr14 and as agreed, the funds were remitted by Skiva from its bank in New York, the Israel Discount Bank, to the joint account of Mr. and Mrs. Jorge Salazar and Mr. and Mrs. Werner Lettmayr at Citibank N.A.15 On January 16, 1986, petitioner, who had possession and control of the passbook of the said joint account, withdrew the amount of US$21,675.2116 and on January 22, 1986, petitioner withdrew the amount of US$20,000.00.17 The prosecution also presented evidence that subsequent to said withdrawals, the amounts of US$71.70 and US$63.99 were deducted from the joint account as telegraphic transfer fee and commission for the remittance of the funds to another account.18 In the meantime, Ms. Tujan contacted Aurora/Uni-Group to follow up on the production of the jeans. She learned that only 3,000 meters out of the 10,000 meters of Litton fabrics required for the order were purchased from Litton Mills by the petitioner.19 3,000 meters of Litton fabrics are enough to produce only 200 dozens of ladies jeans - an amount insufficient to satisfy the order of Skiva of 700 dozens of ladies twill jeans.20 Upon inquiry with Mr. Lettmayr, the latter advised Ms. Tujan that the query be directed to petitioner as petitioner is in charge of securing the materials.21 However, Ms. Tujan could not locate the petitioner.22 Consequently, in a letter dated March 13, 1986, demand was made upon Aurora/Uni-Group through its President, Mr. Lettmayr, to return the money advanced in the amount of US$41,300.00.23 For failure of Aurora/Uni-Group to deliver the ladies jeans or to account for the US$41,300.00 despite demand, Skiva, through its local agent represented by Ms. Tujan, filed a criminal complaint for estafa against Mr. Lettmayr and petitioner. After preliminary investigation, the Public Prosecutor dismissed the complaint against Mr. Lettmayr and an information was filed against petitioner.24 After trial, the lower court convicted herein petitioner of estafa under Article 315, paragraph 1 (b) of the Revised Penal Code, sentencing him to suffer the indeterminate penalty of imprisonment of eight (8) years and one (1) day of prision mayor as the minimum to fourteen (14) years, eight (8) months and one (1) day of reclusion temporal as the maximum and to pay Uni-Group and Aurora the amount of P595,259.00.25 On March 13, 1997, the lower court denied petitioner's Motion for Reconsideration.26 On appeal, the Court of

Appeals affirmed in toto the decision of the trial court and denied petitioner's Motion for Reconsideration.27 The Court denied petitioner's motion for reconsideration in a Resolution dated December 18, 2002. In his Second Motion for Reconsideration, petitioner raises the following arguments: I. In a pure contract of sale, failure of the seller to deliver the goods purchased will not give rise to criminal liability. II. The assailed Decision states that the property rights of Aurora was disturbed by the petitioner and that the trust and confidence that Aurora reposed on the petitioner were betrayed despite the fact that Aurora never claimed so. III. The demand made by Skiva to Aurora could never be treated as a demand to the petitioner because such demand was not relayed to the petitioner. IV. The case of Saddul, Jr. vs. CA (192 SCRA 277) squarely applies to the instant case.28 On the other hand, the OSG, in its Manifestation in Lieu of Comment, contends: I. The transaction between Skiva and Aurora was one of sale. Thus, if the transaction fails, the obligation to return the advance payment is of civil nature only. Moreover, as correctly held, petitioner had no obligation to account to Skiva. II. Aurora/Uni-Group never claimed it was damaged by the petitioner simply because funds were duly accounted for. Raw materials were bought and the jeans were manufactured. Delivery was delayed because of circumstances beyond the control of petitioner. Moreover, petitioner turned over the rest of the money to Uni-Group/Aurora. III. No evidence to prove that petitioner defrauded Aurora; prosecution witness, Mr. Lettmayr, admitted that all the required raw materials had been purchased; jeans were not shipped on account of intervening events. IV. Testimonial and documentary evidence confirm that Aurora asked for offsetting, Skiva having unpaid accounts with the former. V. Absent intent, no criminal act is committed. Likewise, without abuse of confidence, no estafa under paragraph 1(b) of Article 315 of the Revised Penal Code is committed. VI. The evidence presented does not prove petitioner's guilt beyond reasonable doubt.29 We find merit in the new motion. The elements of estafa under Article 315, par. 1 (b) of the Revised Penal Code are the following: (a) that money, goods or other personal property is received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same; (b) that there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt; (c) that such misappropriation or conversion or denial is to the prejudice of another; and (d) there is demand by the offended party to the offender. We reiterate that the contract between Skiva and Aurora was one of sale. After the perfection of the contract of sale, Mr. Werner Lettmayr, representing Aurora/Uni-Group, requested Skiva for advance payment in order to procure the raw materials needed for the 700-dozen ladies' jeans. It was also Mr. Lettmayr who suggested that the advance payment be made to the joint account of himself and his wife, together with petitioner and his wife. As requested, $41,300.00 was transmitted by Skiva as advance payment. Despite the payment, there was delay in the performance of contract on the part of Aurora/Uni-Group. Petitioner and the OSG contend that under these facts, Skiva has no cause to complain that petitioner committed estafa. We agree. In Abeto vs. People,30 we held that "an advance payment is subject to the disposal of the vendee. If the transaction fails, the obligation to return the advance payment ensues but this obligation is civil and not of criminal nature." In fine, the remedy of Skiva against Aurora/Uni-Group for breaching its contract is a civil, not a criminal suit.

The next question is the liability of petitioner, if any, to Aurora/Uni-Group. We shall now re-examine the specific acts of petitioner alleged to be constitutive of estafa by the prosecution. The evidence shows that petitioner is a part owner of Aurora, and its Vice President and Treasurer. Its President was Mr. Lettmayr. Petitioner and his wife, and Mr. and Mrs. Lettmayr maintained a joint account. The facts reveal that it was Mr. Lettmayr who suggested to Skiva that its advance payment should be transmitted to this joint account in order to facilitate payment.31Petitioner was able to withdraw from the joint account $21,675.21 on January 16, 198632 and $20,000.00 on January 22, 1986.33 The dollars were remitted abroad, converted into pesos and transmitted to petitioner. According to the OSG, the rationale behind the exchange of dollars into pesos was to pay local salaries and Litton Mills in pesos as per their contract.34 It appears that petitioner used part of the money when he purchased 3,000 meters of textile from Litton Mills, which was good for the production of 200 dozens of ladies' jeans. Petitioner claimed that he returned the balance of the money to the accountant of Aurora.35 Given these facts, we cannot hold that the acts of petitioner constitute misappropriation or conversion of the advance payment to Aurora/Uni-Group. First, petitioner had nothing to do with the transmittal of the advance payment to the joint account held by him and his wife together with Mr. and Mrs. Lettmayr. It was Mr. Lettmayr himself who suggested the transmittal to the joint account in order to facilitate payment. The transmittal to the joint account cannot therefore be considered as a scheme to get the money and later misappropriate it. Second, the remittance abroad of the money and its conversion into pesos were also properly explained by the parties. Petitioner stated that the dollars were converted into pesos "because that was the contract with Litton Mills."36Petitioner claims his act was done with the authority of Aurora/UniGroup and in line with his duty as Vice- President and Treasurer of Uni-Group. The Solicitor General affirmed the claim of petitioner.37 Third, the evidence also shows that petitioner used part of the advance money to purchase 3,000 meters of textile from Litton Mills and returned its balance to the accountant of Aurora. There is no question that the use of the money to purchase textile materials from Litton Mills is in accord with the contract of sale by and between Skiva and Aurora/Uni-Group. The evidence, however, is not too certain on whether petitioner returned the remainder of the money to Aurora/Uni-Group, thru its accountant. Petitioner stated that he could not produce the receipt of its turn over as he no longer had access to the records of Aurora/Uni-Group after the labor strike in 1986 and after he fell out of the graces of Mr. Lettmayr. We note that the prosecution could have easily rebutted these claims of petitioner thru the presentation of the accountant or other officers of Aurora/Uni-Group. Unfortunately, the prosecution utterly failed to make this rebuttal. With this failure, the evidence of the prosecution that petitioner misappropriated for himself the advance money to the prejudice of Aurora/Uni-Group stands on sinking sand. In truth, the evidence shows that Aurora/Uni-Group has not claimed that it was damaged by the acts of petitioner. It did not even blame petitioner for their delay in delivering the complete order of Skiva. In his Counter-Affidavit,38Mr. Lettmayr himself enumerated the following causes that brought about the delay, viz: b. When mass production started, Skiva/Olivier changed the styling and assembly of the waist band, and consequently, mass production had to be stopped and 50% of the work force had to go on [un]scheduled leave, and when Skiva/Olivier approved the corrected samples, 90% of the work force could not immediately come back because of the snap presidential election and Aurora was given an extension of the delivery date to February 25, 1986; c. On February 21 to 25, the revolution took place, the employees did not return to work until March 3, but this was followed by a strike without notice which remains unresolved up to the present; d. Also, Mr. Salazar informed that Litton Mills had sold part of the fabrics for Aurora/Uni-Group, no fabrics were immediately available for production.39 In light of these facts, we hold that petitioner could not be held guilty of estafa under Article 315, par. 1 (b) of the Revised Penal Code. In joining petitioner's plea for acquittal, the OSG deserves commendation for once again, it has shown fealty to the ideal that its duty is to prosecute but to prosecute only those whose guilt can be established beyond reasonable doubt. Indeed, its greatest victory is achieved not only in securing the conviction of the guilty but in preventing the incarceration of the innocent when the evidence is scarce. IN VIEW WHEREOF, the Court's Decision of December 18, 2002 is set aside and petitioner is acquitted of the charge of violation of Article 315, par. 1 (b) of the Revised Penal Code. SO ORDERED.

PEDRO MOLINA, petitioner-appellant, vs. HON. COURT OF APPEALS and SPOUSES MARGARITO M. FLORES and NERISA HERRERA, respondents-appellees. Petitioner Pedro Molina and his siblings Felisa, Felix and Tomas Molina were co-owners of a parcel of land in Naic, Cavite registered in their names under TCT No. T-44010 of the Registry of Deeds of Cavite.3 On April 23, 1984, petitioner, by Deed of Absolute Sale,4 conveyed to his sister Felisa his share in the co-owned property. The sale was not, however, registered. The siblings subsequently entered into an agreement wherein they partitioned the property as follows: Lot No. 98-A-1 with an area of 92 square m. for FELIX MOLINA; Lot No. 98-A-2 with an area of 92 square m. for PEDRO MOLINA; Lot No. 98-A-3 with an area of 92 square m. for FELISA MOLINA; Lot No. 98-A-4 with an area of 92 square m. for TOMAS MOLINA; Lot No. 98-A-5 with an area of 43 square m. as the RIGHT OF WAY;5 More than four years after petitioner executed the Deed of Sale conveying his share of the property to his sister Felisa or on June 13, 1988, upon the request of Felisa, he executed another Deed of Absolute Sale6 in lieu of the first covering the same share in favor of Felisas son private respondent Margarito Flores and his wife private respondent Nerisa Herrera. The pertinent provisions of the second Deed are reproduced hereunder: That the Vendor is the absolute owner in fee simple of a portion of a parcel of land, situated in the Poblacion, Naic, Cavite, Philippines, known as and more specifically described as follows: That for and in consideration of the sum of EIGHT THOUSAND PESOS ONLY (P8,000.00) Philippine Currency,receipt of which in full is hereby acknowledged by the Vendor from the Vendee, the Vendor hereby sells, transfers and conveys and by these presents have (sic) sold, transferred and conveyed unto the above named Vendee, her (sic) heirs and assigns the (1/4) square meters (sic) portion of the above described parcel of land, free from all kinds of liens and encumbrances whatsoever. (Underscoring supplied). TCT No. T-1705857 in the name of respondent spouses covering petitioners share in the co-owned property was accordingly issued. On September 5, 1990, petitioner filed an action for reformation of instrument and/or annulment of document and title with reconveyance and damages before the Regional Trial Court of Cavite, alleging that the Deed of Absolute Sale in favor of respondent spouses does not express the true will and intention of the parties.1a\^/phi1.net Respondent spouses maintained that their acquisition of petitioners share was valid, legal and binding.8 Upon recourse to the Court of Appeals, the trial courts decision was reversed and the complaint of petitioner was dismissed, hence the present petition anchored on the following assigned errors: I. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT HOLDING THAT THE DEED OF SALE DO (sic) NOT EXPRESS THE TRUE INTENT AND AGREEMENT OF THE PARTIES; II. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT FINDING THE TRANSACTION TO BE AN EQUITABLE MORTGAGE AND NOT A DEED OF SALE AND THEREFORE TRANSCENDS THE CORRECT APPLICATION OF ART. 1602 OF THE CIVIL CODE; III. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT HOLDING THAT THE ALLEGED SALE WAS NOT A CONSUMATED (sic) CONTRACT OF SALE;

IV. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT FINDING THAT THE PETITIONER WAS DEFRAUDED BY FELISA MOLINA IN SIGNING THE SIMULATED AND FICTITIOUS DEED OF SALE.10 Petitioner contends that he signed the Deed of Absolute Sale through the misrepresentations of his sister Felisa who made him believe that what he was signing was only a receipt evidencing his indebtedness to her11 which, by his own admission, he had incurred on several occasions; that Felisa took advantage of his lack of sufficient education and knowledge of English to defraud him into selling his property; and that parol evidence should be admitted to prove the real nature of the transaction which he claims was one of an equitable mortgage.1awphi1.nt Petitioner calls attention to the consideration given for his property, P8,000.00, which he claims is inadequate, and to his regular receipt of rentals being paid by the lessee of the premises, one Erlinda de Guzman which circumstances are allegedly badges of equitable mortgage. Thus he cites Articles 1602 and 1604 of the Civil Code which provide: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (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; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to usury laws (Emphasis supplied). Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. In issue then is whether the parties intended the Deed of Absolute Sale in favor of respondent to be an equitable mortgage. An equitable mortgage is defined as one which, although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.12 The intention of the parties to an agreement is shown not necessarily by the terminology used therein but by all the surrounding circumstances, such as the relative situation of the parties at the time, the attitude, acts, conduct, declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding.13 For the presumption of an equitable mortgage to arise under Art. 1602, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale, and (b) that their intention was to secure an existing debt by way of a mortgage.14 In the case at bar, the second requisite is conspicuously absent. Consider the following testimony of petitioner himself: Q: In connection with that issue, do you remember how much you owed your sister? A: Yes, your Honor.

Q: How much? A: Ten thousand (P10,000.00) pesos, your Honor. Q: Do you have any copy of that agreement of your loan? A: None, sir. Q: How did you receive that amount of money? A: Little by little, sir. Month by month (buwan buwan), sir. Q: And how long did you receive that amount of ten thousand (P10,000.00) pesos? A: Ten months. Every month, I was allowed to received (sic) P1,000.00. Q: You did not put up any collateral to your loan? Did you? A: None, your Honor. (Emphasis and underscoring supplied).15 That the alleged loan was received in installments of P1,000.00 per month for ten months or a total of P10,000.00 in fact indicates that the transaction was not one of a loan but of sale on installment. The alleged inadequacy of the price harped upon by petitioner does not by itself support the conclusion that the property was not at all sold or that the contract was one of a loan.16 In any event, no proof was presented to show that the value of the 92 sq. m. property located in Naic, Cavite was, at the time the Deed was executed in 1988, considerably higher than the therein stated purchase price P8,000.00. As for petitioners continued receipt of rentals due on the property from its current lessee this Court finds the same as did the appellate court, to be a gesture of generosity, kinship and leniency from his relatives, he being jobless and without visible means of support.17 Petitioner argues, nevertheless, that assuming arguendo that a contract of sale was entered into, it was not consummated as the entire purchase price was not paid.18 Assuming that to be so albeit, by the Deed in question petitioner acknowledged receipt of the P8,000.00 purchase price, it does not by itself bar the transfer of the ownership or possession of the property, much less dissolve the contract of sale.19 The contract remains but the payment of the price is a resolutory condition, and the remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the contract under Article 1191 of the Civil Code20 which provides: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. That petitioner, prior to the execution of the impugned Deed, signed receipts identically denominated as "Kasunduan" under which he acknowledged receiving sums of money as payment for his property, whichreceipts were worded in the vernacular and could not have been mistaken or misunderstood for anything else other than as evidence of the sale of his property, seals the case against him. It confirms this Courts earlier observation that the transaction indicated was one of sale on installment. Thus each of the receipts Kasunduan21 provides: Ako si PEDRO MOLINA, balo, may sapat na gulang, Pilipino, naninirahan sa Naik, Kabite, ay tumanggap ng halagang one thousand (P1,000) sa aking kapatid

10

na si FELISA S. MOLINA bilang tanda na ipinagbibili ko sa kanya ang aking kaparte sa lupang minana naming sa aming mga magulang, nakilala bilang Lote Numero 98-A na may titulo Numero T-44010 na nasa Kalye ZAMORA NAIK, KABITE, x x x Additionally, petitioner affixed his signature on the Deed after its contents were sufficiently explained to him in the vernacular, which was witnessed by two other persons of legal age and duly acknowledged before a notary public. Ironically, petitioners own witness, Nemecio Molina, who was likewise a witness to the execution of the Deed, belied his claim of having no knowledge of the contents of the subject instrument when he took the witness stand: Q: Now, before the said document was signed by the parties, do you know what was done by the Notary Public, Mariano Villanueva? A: Yes, sir. Q: What was done by Notary Public Mariano Villanueva before the parties signed the document? A: He read the document to Pedro Molina. Q: In what vernacular did Atty. Villanueva use the reading of the document, Tagalog or English? A: In English, your Honor. Q: You mean to say that Notary Public Mariano Villanueva was reading the contents of the sale of the document which is in English? A: Yes, sir. Q: And that is all what (sic) Atty. Villanueva did before he required the parties to sign? A: He told her secretary to translate it in Tagalog.22 (Underscoring supplied). More. Another witness to the document, Atty. Edwina Mendoza, testified that prior to the execution of the Deed, the parties thereto approached her "to tell [her] that sometime in the future, they will have to execute a deed of conveyance because they are entering to (sic) this kind of transaction,"23 adding that when petitioner was informed that he would actually be selling his property, the latter readily acceded.24 In fine, this Court finds that the parties to the Deed were fully aware of its contents and meaning, and that there were no acts done or events that occurred prior to, simultaneous to, or after the execution of the Deed that would indicate the intention of any of the parties to have been otherwise than to sell the property to respondent spouses. WHEREFORE, the Petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 46107 dated April 30, 1996 is hereby AFFIRMED. SO ORDERED.

Further, the sheriff's certificate of sale, Exhibit 4; 4-A; Sheriff's deed of final conveyance, Exhibit 5, 5-A; Tax Declarations No. 71211, Exhibit 7, and any and all instrument, record, claim, encumbrance or proceeding in favor of the defendant, as against the plaintiffs, and their predecessor-in-interest, which may be extant in the office of the Register of Deeds of Province of Misamis Oriental, and of Cagayan de Oro City, and in the City Assessor's Office of Cagayan de Oro City, are declared as invalid and ineffective as against the plaintiffs' title. "The counterclaim is dismissed for lack of merit. "SO ORDERED."3 The facts of the case, as culled from the records, are as follows: On April 30, 1988, a certain Guillermo Comayas offered to sell to private respondent-spouses Alfredo and Annabelle Lumo, a house and lot measuring 340 square meters located at Pinikitan, Camaman-an, Cagayan de Oro City. Wanting to buy said house and lot, private respondents made inquiries at the Office of the Register of Deeds of Cagayan de Oro City where the property is located and the Bureau of Lands on the legal status of the vendor's title. They found out that the property was mortgaged for P8,000 to a certain Mrs. Galupo and that the owner's copy of the Certificate of Title to said property was in her possession. Private respondents directed Guillermo Comayas to redeem the property from Galupo at their expense, giving the amount of P10,000 to Comayas for that purpose. On May 30, 1988, a release of the adverse claim of Galupo was annotated on TCT No. T-41499 which covered the subject property. In the meantime, on May 17, 1988, even before the release of Galupo's adverse claim, private respondents and Guillermo Comayas, executed a deed of absolute sale. The subject property was allegedly sold for P125,000 but the deed of sale reflected the amount of only P30,000 which was the amount private respondents were ready to pay at the time of the execution of said deed, the balance payable by installment. On June 9, 1988, the deed of absolute sale was registered and inscribed on TCT No. T-41499 and, on even date, TCT No. T-50134 was issued in favor of private respondents. After obtaining their TCT, private respondents requested the issuance of a new tax declaration certificate in their names. However, they were surprised to learn from the City Assessor's Office that the property was also declared for tax purposes in the name of petitioner Naawan Community Rural Bank Inc. Records in the City Assessor's Office revealed that, for the lot covered by TCT No. T50134, Alfredo Lumo's T/D # 83324 bore the note: "This lot is also declared in the name of Naawan Community Rural Bank Inc. under T/D # 71210". Apparently, on February 7, 1983, Guillermo Comayas obtained a P15,000 loan from petitioner Bank using the subject property as security. At the time said contract of mortgage was entered into, the subject property was then an unregistered parcel of residential land, tax-declared in the name of a certain Sergio A. Balibay while the residential one-storey house was tax-declared in the name of Comayas. Balibay executed a special power of attorney authorizing Comayas to borrow money and use the subject lot as security. But the Deed of Real Estate Mortgage and the Special Power of Attorney were recorded in the registration book of the Province of Misamis Oriental, not in the registration book of Cagayan de Oro City. It appears that, when the registration was made, there was only one Register of Deeds for the entire province of Misamis Oriental, including Cagayan de Oro City. It was only in 1985 when the Office of the Register of Deeds for Cagayan de Oro City was established separately from the Office of the Register of Deeds for the Province of Misamis Oriental. For failure of Comayas to pay, the real estate mortgage was foreclosed and the subject property sold at a public auction to the mortgagee Naawan Community Rural Bank as the highest bidder in the amount of P16,031.35. Thereafter, the sheriff's certificate of sale was issued and registered under Act 3344 in the Register of Deeds of the Province of Misamis Oriental. On April 17, 1984, the subject property was registered in original proceedings under the Land Registration Act. Title was entered in the registration book of the Register of Deeds of Cagayan de Oro City as Original Certificate of Title No. 0820, pursuant to Decree No. N-189413.

NAAWAN COMMUNITY RURAL BANK INC., petitioner, vs. THE COURT OF APPEALS and SPOUSES ALFREDO AND ANNABELLE LUMO, respondents. Under the established principles of land registration, a person dealing with registered land may generally rely on the correctness of a certificate of title and the law will in no way oblige him to go beyond it to determine the legal status of the property. Before us is a Petition for Review on Certiorari challenging the February 7, 1997 Decision1 of the Court of Appeals in CA-G.R. CV No. 55149, which in turn affirmed the decision2 of the Regional Trial Court of Misamis Oriental, Branch 18 as follows: "WHEREFORE, the plaintiffs-spouses are adjudged the absolute owners and possessors of the properties in question (Lot 18583, under TCT No. T-50134, and all improvements thereon) and quieting title thereto as against any and all adverse claims of the defendant.

11

On July 23, 1984, Transfer Certificate of Title No. T-41499 in the name of Guillermo P. Comayas was entered in the Register of Deeds of Cagayan de Oro City. Meanwhile, on September 5, 1986, the period for redemption of the foreclosed subject property lapsed and the MTCC Deputy Sheriff of Cagayan de Oro City issued and delivered to petitioner bank the sheriff's deed of final conveyance. This time, the deed was registered under Act 3344 and recorded in the registration book of the Register of Deeds of Cagayan de Oro City. By virtue of said deed, petitioner Bank obtained a tax declaration for the subject house and lot. Thereafter, petitioner Bank instituted an action for ejectment against Comayas before the MTCC which decided in its favor. On appeal, the Regional Trial Court affirmed the decision of the MTCC in a decision dated April 13, 1988. On January 27, 1989, the Regional Trial Court issued an order for the issuance of a writ of execution of its judgment. The MTCC, being the court of origin, promptly issued said writ. However, when the writ was served, the property was no longer occupied by Comayas but herein private respondents, the spouses Lumo who had, as earlier mentioned, bought it from Comayas on May 17, 1988. Alarmed by the prospect of being ejected from their home, private respondents filed an action for quieting of title which was docketed as Civil Case No. 89138. After trial, the Regional Trial Court rendered a decision declaring private respondents as purchasers for value and in good faith, and consequently declaring them as the absolute owners and possessors of the subject house and lot. Petitioner appealed to the Court of Appeals which in turn affirmed the trial court's decision. Hence, this petition. Petitioner raises the following issues: I. WHETHER OR NOT THE SHERIFF'S DEED OF FINAL CONVEYANCE WAS DULY EXECUTED AND REGISTERED IN THE REGISTER OF DEEDS OF CAGAYAN DE ORO CITY ON DECEMBER 2, 1986; II. WHETHER OR NOT REGISTRATION OF SHERIFF'S DEED OF FINAL CONVEYANCE IN THE PROPER REGISTRY OF DEEDS COULD BE EFFECTIVE AS AGAINST SPOUSES LUMO. Both parties cite Article 1544 of the Civil Code which governs the double sale of immovable property. Article 1544 provides: ". . . . Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property." Petitioner bank contends that the earlier registration of the sheriff's deed of final conveyance in the day book under Act 3344 should prevail over the later registration of private respondents' deed of absolute sale under Act 496,4 as amended by the Property Registration Decree, PD 1529. This contention has no leg to stand on. It has been held that, where a person claims to have superior proprietary rights over another on the ground that he derived his title from a sheriff's sale registered in the Registry of Property, Article 1473 (now Article 1544) of the Civil Code will apply only if said execution sale of real estate is registered under Act 496.5 Unfortunately, the subject property was still untitled when it was already acquired by petitioner bank by virtue of a final deed of conveyance. On the other hand, when private respondents purchased the same property, it was covered by the Torrens System. Petitioner also relies on the case of Bautista vs. Fule6 where the Court ruled that the registration of an instrument involving unregistered land in the Registry of Deeds creates constructive notice and binds third person who may subsequently deal with the same property. However, a close scrutiny of the records reveals that, at the time of the execution and delivery of the sheriff's deed of final conveyance on September 5, 1986, the disputed property was already covered by the Land Registration Act and

Original Certificate of Title No. 0-820 pursuant to Decree No. N189413 was likewise already entered in the registration book of the Register of Deeds of Cagayan De Oro City as of April 17, 1984. Thus, from April 17, 1984, the subject property was already under the operation of the Torrens System. Under the said system, registration is the operative act that gives validity to the transfer or creates a lien upon the land. Moreover, the issuance of a certificate of title had the effect of relieving the land of all claims except those noted thereon. Accordingly, private respondents, in dealing with the subject registered land, were not required by law to go beyond the register to determine the legal condition of the property. They were only charged with notice of such burdens on the property as were noted on the register or the certificate of title. To have required them to do more would have been to defeat the primary object of the Torrens System which is to make the Torrens Title indefeasible and valid against the whole world. Private respondents posit that, even assuming that the sheriff's deed of final conveyance in favor of petitioner bank was duly recorded in the day book of the Register of Deeds under Act 3344, ownership of the subject real property would still be theirs as purchasers in good faith because they registered the sale first under the Property Registration Decree. The rights created by the above-stated statute of course do not and cannot accrue under an inscription in bad faith. Mere registration of title in case of double sale is not enough; good faith must concur with the registration.7 Petitioner contends that the due and proper registration of the sheriff's deed of final conveyance on December 2, 1986 amounted to constructive notice to private respondents. Thus, when private respondents bought the subject property on May 17, 1988, they were deemed to have purchased the said property with the knowledge that it was already registered in the name of petitioner bank. Thus, the only issue left to be resolved is whether or not private respondents could be considered as buyers in good faith. The "priority in time" principle being invoked by petitioner bank is misplaced because its registration referred to land not within the Torrens System but under Act 3344. On the other hand, when private respondents bought the subject property, the same was already registered under the Torrens System. It is a wellknown rule in this jurisdiction that persons dealing with registered land have the legal right to rely on the face of the Torrens Certificate of Title and to dispense with the need to inquire further, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.8 Did private respondents exercise the required diligence in ascertaining the legal condition of the title to the subject property so as to be considered as innocent purchasers for value and in good faith? We answer in the affirmative. Before private respondents bought the subject property from Guillermo Comayas, inquiries were made with the Registry of Deeds and the Bureau of Lands regarding the status of the vendor's title. No liens or encumbrances were found to have been annotated on the certificate of title. Neither were private respondents aware of any adverse claim or lien on the property other than the adverse claim of a certain Geneva Galupo to whom Guillermo Comayas had mortgaged the subject property. But, as already mentioned, the claim of Galupo was eventually settled and the adverse claim previously annotated on the title cancelled. Thus, having made the necessary inquiries, private respondents did not have to go beyond the certificate of title. Otherwise, the efficacy and conclusiveness of the Torrens Certificate of Title would be rendered futile and nugatory. Considering therefore that private respondents exercised the diligence required by law in ascertaining the legal status of the Torrens title of Guillermo Comayas over the subject property and found no flaws therein, they should be considered as innocent purchasers for value and in good faith. Accordingly, the appealed judgment of the appellate court upholding private respondents Alfredo and Annabelle Lumo as the true and rightful owners of the disputed property is affirmed. WHEREFORE, petition is hereby DENIED. SO ORDERED.

12

SPOUSES ALBERTO GARRIDO AND COLOMA DAGURO, petitioners, vs. THE COURT OF APPEALS, SPOUSES RUFINO AND CONRADA SUPLEMENTO, respondents. Tomas Hingco, a widower, originally owned Lot 209 of the Dingle Cadastre, Iloilo. He married Consolacion Rondael, a widow, who had a daughter Magdalena Rondael. In 1947 he donated one half (1/2) of Lot 209 to his stepdaughter Magdalena subject to the condition that she could not sell, transfer or cede the same. When he died, Consolacion inherited the remaining half of Lot 209 which, in turn, was inherited by Magdalena upon the death of Consolacion. Consequently, the entire Lot 209 was registered in the name of Magdalena Rondael, married to Lorenzo Daguro, under Transfer Certificate of Title No. T-13089. In 1973 Magdalena sold a portion of Lot 209 (Lot 209-B) to Mariano Platinos and Florida Macahilo. The remaining portion (Lot 209-A) with an area of 343 square meters is the subject of this litigation. In 1976 Lorenzo Daguro died. Magdalena then filed before the Court of First Instance of Iloilo a petition to cancel the lien prohibiting her from disposing of Lot 209-A because she needed money for her subsistence and medical expenses as she was then in her 80's. Besides, she was sickly. 1 He deposition on oral examination in connection with her petition was taken on 24 January 1979. 2 On 17 August 1978, during the pendency of her petition, Magdalena executed a Conditional Deed of Sale of Lot 209-A in favor of respondent spouses Rufino and Conrada Suplemento "subject to the lien subsisting and annotated on the face of the Certificate of Title." 3 Magdalena agreed to bear the cost of the cancellation of the lien and respondents to be bound thereby as long as it subsisted, with the understanding that in the event the lien was not cancelled, the amount already paid would be refunded. It was further stipulated that "out of the Nineteen Thousand (P19,000.00) consideration . . . only Three Thousand (P3,000.00) pesos . . . shall be paid pro ratamonthly for ten (10) years and to convene (commence?) one (1) year from the date of this Deed." 4 On 24 January 1979 the petition for cancellation of encumbrance was denied for the reason that the ground cited for the cancellation was not one of those allowed by Sec. 112 of Act 496 and that Magdalena failed to produce the deed of donation which contained the alleged restriction. Nonetheless, on 19 July 1979 Magdalena executed with the conformity of her husband a Deed of Absolute Sale covering Lot 209-A in favor of respondents, spouses Rufino and Conrada Suplemento. 5 The deed was notarized on the same date. On 13 April 1982, Magdalena died. On 2 December 1982 TCT No. T-108689 was issued in the name of the Suplementos. 6 Magdalena had two (2) daughters but only one is still living, Coloma Daguro, married to Alberto Garrido, the spouses being the petitioners herein. They were based in Davao City and would visit Magdalena only on occasions. In February 1984, Alberto Garrido visited the Suplementos in the house where Magdalena used to live.7 He wanted to find out if the taxes on the house were being paid. In reply, respondents showed him the Deed of Absolute Sale signed by his parentsin-law and it was only then that he came to know that Lot 209-A no longer belonged to his in-laws. On 28 October 1985 petitioners Coloma Daguro and Alberto Garrido filed a complaint before the Regional Trial Court of Iloilo City for annulment of the Deed of Absolute Sale of Lot 209-A, reconveyance and damages claiming that the deed was fictitious since Magdalena's signature thereon "appears to have been traced" and Lorenzo Daguro's signature was likewise a forgery since he died prior to the execution thereof, or on 9 October 1976. 8 The trial court, relying on the deposition of Magdalena on 24 January 1979, found that she wanted to sell and did in fact sell Lot 209-A to the Suplementos. In addition, the court found that the genuineness of Lorenzo Daguro's signature was not germane to the validity of the Deed of Absolute Sale as said signature was not necessary to convey title to the paraphernal property of Magdalena. To petitioners' credit, it held that no evidence was adduced by respondents to show payment of any installment of the balance of the purchase price to Magdalena before her death or to her heir, Coloma. Thus, judgment was rendered on 19 October 1988 declaring the sale of 19 July 1979 valid but ordering the Suplementos to pay petitioners P16,000.00 with legal rate of interest until fully paid. 9 On appeal, respondent Court of Appeals affirmed the ruling of the Iloilo trial court in its decision of 27 February 1991 10 and denied reconsideration on 29 July 1991. 11 Petitioners contend that the appellate court erred in holding that they have no personality to assail the Absolute Deed of Sale and the genuineness of the signature of Magdalena Rondael. Petitioners assert that the issue raised in the trial court was whether Magdalena Rondael could sell the property despite the prohibition in the deed of donation.

In ruling that they were incapacitated to question the non-observance of the condition, respondent court went beyond the issue, hence, exceeded its jurisdiction. We find for respondents. Petitioners have no personality to question the violation of the restriction because they are not heirs of the donor. When the donee fails to comply with any of the conditions imposed by the donor, it is the donor who has the right to impugn the validity of the transaction affecting the donated property, conformably with Art. 764 of the Civil Code, which provides that the right to revoke may be transmitted to the heirs of the donor and may be exercised against the heirs of the donee, and the action prescribes four years after the violation of the condition. Petitioners' lack of capacity to question the non-compliance with the condition is intimately connected with the issue regarding the validity of the sale on account of the prohibition in the deed of donation. Thus, we have established the rule that an unassigned error closely related to an error properly assigned, or upon which the determination of the question properly assigned is dependent, may be considered by the appellate court. 12 Petitioners also submit that the finding of the appellate court that the signature of Magdalena Rondael in the Deed of Absolute Sale is genuine has been overtaken by events. In a letter dated 1 August 1991, the Regional Director of the NBI, Iloilo City, furnished the Iloilo City Prosecutor with a copy of NBI Questioned Document Report No. 413-791 dated 23 July 1991, purporting to show that the questioned signature as well as the standard/sample signatures of the deceased Magdalena Rondael were not written by one and the same person, 13 hence, a forgery. Admittedly, the NBI report was never adduced before the lower courts; in fact, it is presented for the first time and only before this Court. Obviously, this is not a newly discovered evidence within the purview of Sec. 1, par. (b), Rule 37, of the Rules of Court. Petitioners should have thought of having the signature of Magdalena Rondael on the deed of sale examined when the case was still with the trial court. Nothing would have stopped them from doing so. Hence, it is now late, too late in fact, to present it before this Court. Petitioners' reliance on the NBI report as basis for new trial on the ground of "newly discovered evidence" is a mistake. In the first place, the rule is explicit that a motion for new trial should be filed before the trial court and within the period for appeal. In the second place, in order that a particular piece of evidence may be properly regarded as "newly discovered" for the purpose of granting new trial, the following requisites must concur: (a) the evidence had been discovered after trial; (b) the evidence could not have been discovered and produced during trial even with the exercise of reasonable diligence; and, (c) the evidence is material and not merely corroborative, cumulative or impeaching and is of such weight that if admitted would probably alter the result. 14 At the pitch of these requirements is that what is essential is not so much the time when the evidence offered first sprang into existence nor the time when it first came to the knowledge of the party now submitting it; rather, that the offering party had exercised reasonable diligence in producing or locating such evidence before or during trial but had nonetheless failed to secure it. The NBI report does not qualify as newly discovered evidence because the second requirement was not complied with. Petitioners did not exercise reasonable diligence in procuring such evidence before or during trial. By their own admission, the Fiscal sought NBI assistance only after the trial of the case. They could have done so themselves when their case was tried. Besides, when the City Prosecutor requested the NBI for a handwriting examination in connection with petitioners' criminal complaint for falsification against respondents, the initial response of the NBI was: "no definite opinion can be rendered on the matter due to lack of sufficient basis necessary for a scientific comparative examination." 15 From there it can be deduced that petitioners did not submit adequate documents before the NBI at the first instance, thus showing their want of reasonable diligence in procuring the evidence they needed for a new trial. We accord finality to the finding of respondent court, supported as it is by substantial evidence, that the alleged discrepancy between the signature of Magdalena Rondael appearing on the Deed of Absolute Sale and her signatures on the Conditional Deed of Sale, petition to cancel the annotation prohibiting the sale of the donated property, petitioners' reply to opposition, 16 transcript of her deposition dated 24 January 1979, and the deed of sale of Lot 209-B, does not exist. Having alleged forgery, petitioners had the burden of proof. Here, they utterly failed. They even attached to their complaint five receipts purportedly signed by Magdalena but, except for one which was signed "Magdalena Rondael," said receipts were signed "Magdalena Daguro." 17 Besides, there is not showing that the signatures presented as bases for comparison are themselves genuine. On the other hand, the Deed of Absolute Sale is a notarized document which carries the evidentiary weight conferred upon such public document with respect to its due execution. WHEREFORE, the petition is DENIED. The decision of the Court of Appeals of 27 February 1991 as well as its resolution denying reconsideration thereof is AFFIRMED. SO ORDERED.

13

DESAMPARADOS M. SOLIVA, Substituted by Sole Heir PERLITA SOLIVA GALDO, petitioner, vs. The INTESTATE ESTATE of MARCELO M. VILLALBA and VALENTA BALICUA VILLALBA, respondents. There is a valid sale even though the purchase price is not paid in full. The unpaid sellers remedy is an action to collect the balance or to rescind the contract within the time allowed by law. In this case, laches barring the claim of petitioner to recover the property has already set in. However, in the interest of substantial justice, and pursuant to the equitable principle proscribing unjust enrichment, she is entitled to receive the unpaid balance of the purchase price plus legal interest thereon. The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the November 9, 2001 Decision[2] and the May 23, 2002[3] Resolution of the Court of Appeals (CA) in CA-GR CV No. 42024. The assailed Decision disposed as follows: WHEREFORE, the Decision appealed from is AFFIRMED.[4] The assailed Resolution denied petitioners Motion for Reconsideration. The Facts The facts are narrated by the CA, as follows: On May 5, 1982, [Petitioner] Desamparados M. Soliva filed a complaint for recovery of ownership, possession and damages against [Respondent] Valenta Balicua Villalba x x x alleging that she is the owner of a parcel of agricultural land situated at Hinaplanan, Claveria, Misamis Oriental, containing an area of 16,542 square meters and covered by Original Certificate of Title No. 8581; that on January 4, 1966, the late Capt. Marcelo Villalba asked her permission to occupy her house on said land, promised to buy the house and lot upon receipt of his money from Manila and gave her P600.00 for the occupation of the house; that Capt. Villalba died in 1978 without having paid the consideration for the house and lot; and that after [the] death of Capt. Villalba, his widow, [Respondent Valenta], refused to vacate the house and lot despite demands, destroyed the house thereon and constructed a new one. For failure to file an answer, [Respondent Valenta] was declared in default and [petitioner] was allowed to present her evidence ex-parte. On March 26, 1984, the court a quo rendered judgment restoring to [petitioner] her right of ownership and possession of the property and ordering [Respondent Valenta] to pay [her] P25,000.00 as actual damages and P5,000.00 as attorneys fees. Said decision became final and [petitioner] was placed in possession of the subject property. A petition for relief from judgment was filed by [Respondent Valenta] on June 5, 1984 alleging that her failure to file an answer to the complaint was caused by her confusion as to whether the property formed part of the estate of her late husband, Marcelo Villalba; that she referred the matter to Atty. Eleno Kabanlit, the administrator of the estate, but the latter informed her that the property was not included in the inventory of the estate; and that she has a meritorious defense as her late husband had already paid the amount of P2,250.00 out of the purchase price of P3,500.00 for the house and lot. The petition for relief was denied by the court a quo in an Order dated September 3, 1984 on the grounds that the failure of [Respondent Valenta] to file an answer was not due to excusable negligence and that she does not seem to have a valid and meritorious defense. [Respondent Valenta] appealed to [the CA], which rendered a Decision on February 21, 1990 finding that the failure of [Respondent Valenta] to file an answer to the complaint was due to excusable negligence; that she has a meritorious defense, and that the complaint should have been filed not against her but against the administrator of the estate of deceased Marcelo Villalba. The dispositive portion of said Decision reads: WHEREFORE, the order appealed from is hereby REVERSED; the judgment by default in Civil Case No. 8515, subject matter of the petition for relief, is SET ASIDE; the trial court is ORDERED to continue with the proceedings in said case; and [Petitioner] Desamparados M. Soliva x x x is ORDERED to amend [her] complaint by substituting the administrator of the intestate testate (sic) of the late Marcelo M. Villalba for Valenta Baricua-Villalba [respondent] as defendant in said amended complaint. No pronouncement as to costs. SO ORDERED.

Consequently, an amended complaint was filed in Civil Case No. 8515 by substituting the Intestate Estate of Marcelo M. Villalba, represented by its Administrator, Atty. Eleno M. Kabanlit, for [Respondent Valenta], as defendant therein. Answering the complaint, the Administrator alleged that the house and lot were sold to the late Marcelo Villalba by Magdaleno Soliva, the late husband of [petitioner], on December 18, 1965 for P3,500.00 on installment basis and that Marcelo Villalba had paid the total amount of P2,250.00; that no demands were made on [Respondent Valenta] to vacate the property prior to the filing of the original complaint in 1982; and that [Respondent Valenta] has been in continuous, public and uninterrupted possession of the property for seventeen (17) years, i.e., from 1965 to 1982, so that [petitioners] claim of ownership has already prescribed. An answer-in-intervention was filed by [Respondent Valenta] alleging that the original transaction between her late husband and the late husband of [petitioner] covered seventy [two] (72) hectares of land, twenty-nine (29) heads of cattle and the subject house and lot; that [petitioner] and her husband delivered to them only twenty-seven (27) hectares and twelve (12) heads of cattle and they had to pay separately for the house and lot; and that she renovated the house and lot at a cost of not less than P30,000.00 and planted numerous fruit trees and permanent crops, all valued at not less than P50,000.00. On March 11, 1993, the court a quo rendered a Decision, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered dismissing the complaint and the counterclaims without special pronouncement as to costs, and ordering the reconveyance of subject lot to [respondent] and intervenor.[5] Issues Petitioner submits the following issues for our consideration: 1. Whether or not Capt. Marcelo M. Villalba who died in 1978 after declaring that he would not pay anymore the full consideration of the price of the house and lot and after exhausting extrajudicial remedies would bar Desamparados M. Soliva or her successor-in-interest from asserting her claim over her titled property. Whether or not the Decision of the Court of Appeals affirming the Decision of the Regional Trial Court ordering the reconveyance of the subject lot to defendant and intervenor although Capt. Marcelo Villalba nor his wife Valenta Balicua Villalba had not yet paid the full consideration of the price of the house and lot would unjustly enrich spouses Marcelo and Valenta Villalba at the expense of Desamparados M. Soliva.[7] Simply put, the issues boil down to the following: (1) whether petitioner is barred from recovering the disputed property; and (2) whether the conveyance ordered by the court a quo would unjustly enrich respondents at her expense.

2.

The Courts Ruling

The Petition is partly meritorious.

First Issue: Petitioners Claim Already Barred

Petitioner contests the appellate courts finding that she slept on her rights for 16 years and thereby allowed prescription and laches to set in and bar her claim. She avers that she undertook extrajudicial measures to collect the unpaid balance of the purchase price from the Villalbas. She also emphasizes that as a result of her original action, the trial court restored her to the possession of the disputed house and lot on March 26, 1984. It is readily apparent that petitioner is raising issues of fact that have amply been ruled upon by the appellate court. The CAs findings of fact are generally binding upon this Court and will not be disturbed on appeal -especially when, as in this case, they are the same as those of the trial court.

[8] Petitioner has failed to show sufficient reason for us to depart from this
rule. Accordingly, we shall review only questions of law that have been distinctly set forth.[9]

14

No Invalidation of Sale Due to Nonpayment of Full Price

In general, laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which -- by the exercise of due diligence -- could or should have been done earlier.[19] It is the negligence or omission to assert a right within a reasonable period, warranting the presumption that the party entitled to assert it has either abandoned or declined to assert it.[20] Under this time-honored doctrine, relief has been denied to litigants who, by sleeping on their rights for an unreasonable length of time -- either by negligence, folly or inattention -- have allowed their claims to become stale.

Petitioner argues that the transaction between the parties was a contract to sell rather than a contract of sale. This argument was properly brushed aside by the appellate court, which held that she was bound by her admission in her Complaint[10] and during the hearings[11] that she had sold the property to the Villalbas. Petitioner further contends that the oral contract of sale between the parties was invalid, because the late Captain Marcelo Villalba and his wife had failed to comply with their obligation to pay in full the purchase price of the house and lot. She is mistaken. Under Article 1318 of the Civil Code, the following are the essential requisites of a valid contract: 1) the consent of the contracting parties, 2) the object certain which is the subject matter of the contract, and 3) the cause of the obligation which is established. When all the essential requisites are present, a contract is obligatory in whatever form it may have been entered into, save in cases where the law requires that it be in a specific form to be valid and enforceable.[12] With respect to real property, Article 1358(1) of the Civil Code specifically requires that a contract of sale thereof be in a public document. However, an otherwise unenforceable oral contract of sale of realty under Article 1403(2) of the Civil Code may be ratified by the failure to object to the presentation of oral evidence to prove it or by the acceptance of benefits granted by it.[13] All the essential elements of a valid contract are present in this case. No issue was raised by petitioner on this point. Moreover, while the contract between the parties might have been unenforceable under Article 1403(2) of the Civil Code, the admission [14] by petitioner that she had accepted payments under the oral contract of sale took the case out of the scope of the Statute of Frauds.[15] The ratification of the contract rendered it valid and enforceable. Furthermore, contrary to petitioners submission, the nonpayment of the full consideration did not invalidate the contract of sale. Under settled doctrine, nonpayment is a resolutory condition that extinguishes the transaction existing for a time and discharges the obligations created thereunder.[16] The remedy of the unpaid seller is to sue for collection[17] or, in case of a substantial breach, to rescind the contract.[18] These alternative remedies of specific performance and rescission are provided under Article 1191 of the Civil Code as follows: Art.1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible. The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. x x x xxx x x x.

[21]

Vigilantibus, sed non dormientibus, jura subveniunt. The laws aid the

vigilant, not those who slumber on their rights.[22] The following are the essential elements of laches: (1) Conduct on the part of the defendant that gave rise to the situation complained of; or the conduct of another which the defendant claims gave rise to the same; Delay by the complainant in asserting his right after he has had knowledge of the defendants conduct and after he has had an opportunity to sue; Lack of knowledge by or notice to the defendant that the complainant will assert the right on which he bases his suit; and Injury or prejudice to the defendant in the event relief is accorded to the complainant.[23] Petitioner complied with her obligation to deliver the property in 1966.

(2)

(3)

(4)

[24]

However, respondents husband failed to comply with his reciprocal obligation to pay, when the money he had been expecting from Manila never materialized.[25] He also failed to make further installments after May 13, 1966.[26] As early as 1966, therefore, petitioner already had the right to compel payment or to ask for rescission, pursuant to Article 1169 of the Civil Code, which reads: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: xxx xxx xxx

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (Italics supplied) Nonetheless, petitioner failed to sue for collection or rescission. Due to insufficiency of evidence, the lower courts brushed aside her assertions that she had availed herself of extrajudicial remedies to collect the balance or to serve an extrajudicial demand on Villalba, prior to her legal action in 1982. Meanwhile, respondent had spent a considerable sum in renovating the house and introducing improvements on the premises.[27] In view thereof, the appellate court aptly ruled that petitioners claim was already barred by laches. It has been consistently held that laches does not concern itself with the character of the defendants title, but only with the issue of whether or not the plaintiff -- by reason of long inaction or inexcusable neglect -- should be barred entirely from asserting the claim, because to allow such action would be inequitable and unjust to the defendant.[28] Likewise, it must be stressed that unlike prescription, laches is not concerned merely with the fact of delay, but even more with the effect of unreasonable delay.[29] In Vda. de Cabrera v. CA,[30] we explained: In our jurisdiction, it is an enshrined rule that even a registered owner of property may be barred from recovering possession of property by virtue of laches. Under the Land Registration Act (now the Property Registration Decree), no title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession. The same is not true with regard to laches. As we have stated earlier in Mejia de Lucas vs. Gamponia, while the defendant may not be considered as having acquired title by virtue of his and his predecessors long continued possession (37 years) the original owners right to recover x x x the possession of the property and the

The rescission of a sale of immovables, on the other hand, is governed by Article 1592 of the Civil Code as follows: Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or extrajudicially or by a notarial act. After the demand, the court may not grant him a new term. Upon the facts found by the trial and the appellate courts, petitioner did not exercise her right either to seek specific performance or to rescind the verbal contract of sale until May 1982, when she filed her complaint for recovery of ownership and possession of the property. This factual finding brings to the fore the question of whether by 1982, she was already barred from recovering the property due to laches and prescription.

Action Barred by Laches

15

title thereto from the defendant has, by the latters long period of possession and by patentees inaction and neglect, been converted into a stale demand.[31] The contention of petitioner that her right to recover is imprescriptible because the property was registered under the Torrens system[32] also fails to convince us. It was the finding of the trial court that the property was not yet covered by a free patent on January 4, 1966, when Captain Villalba acquired possession thereof. Indeed, the evidence shows that as of that date, the documents relating to the property were still in the name of Pilar Castrence, from whom petitioner purchased the property on April 27, 1966; [33] that she applied for a free patent therefor between January 4 and April 27, 1966;

WHEREFORE, the Petition is partly GRANTED. The Decision of the Court of Appeals is AFFIRMED, with the MODIFICATION that respondent is ordered to pay the balance of the purchase price of P1,250 plus 6 percent interest per annum, from May 5, 1982 until the finality of this judgment. Thereafter, interest of 12 percent per year shall then be imposed on that amount upon the finality of this Decision until the payment thereof. No costs. SO ORDERED.

[34] and that the original certificate of title over the lot was issued to her under Free Patent No. (x-1) 3732 only on August 16, 1974.[35]
It is apparent, then, that petitioner sold the house and lot to respondent on January 4, 1966, before she had even acquired the title to convey it. Moreover, she applied for a free patent after she lost, by operation of law,

G.R. No. 70484 January 29, 1988 ROMAN C. TUASON and REMEDIOS V. TUASON, by attorney-in-fact Trinidad S. Viado, petitioners, vs. REGISTER OF DEEDS, CALOOCAN City, MINISTRY OF JUSTICE, and the NATIONAL TREASURER, respondents. TOMASA BARTOLOME, in her own behalf and in behalf of the other members of the "Consuelo Heights Homeowners Association," petitioners-intervenors.

[36] the title she had belatedly acquired from Castrence. These circumstances
raise serious questions over the formers good faith in delaying the assertion of her rights to the property. They bar her from seeking relief under the principle that one who comes to court must come with clean hands.[37]

Action Barred by Prescription

NARVASA, J.: A more despotic, capricious, oppressive and unjustifiable exercise of government power than that manifested in this case can scarcely be found in the sordid annals of the martial law regime. Relief to the victims must be as it is hereby extended by the grant to them of the extraordinary writ of certiorari and prohibition condemning as unconstitutional, and annulling and perpetually enjoining the acts complained of. Petitioner spouses, the Tuasons, were retired public school teachers. On April 6, 1965, with funds pooled from their retirement benefits and savings, they bought from Carmel Farms, Inc. (hereafter simply, Carmel) a piece of land measuring about 8,756 square meters, in the latter's subdivision in Barrio Makatipo, Caloocan City. In virtue of this sale, Carmel's Torrens title (No. 64007) over the lot was cancelled and a new one (No. 8314) issued in the name of the Tuasons. The Tuasons took possession of their property. Some eight (8) years thereafter, the Tuasons' travails began. They woke up one morning to discover that by presidential flat, they were no longer the owners of the land they had purchased with their hard-earned money, and that their land and the other lots in the subdivision had been "declared open for disposition and sale to the members of the Malacanang Homeowners Association, Inc., the present bona fide occupants thereof." On September 14, 1973-a year almost to the day after the declaration of martial law Mr. Ferdinand Marcos, then president of the country, invoking his emergency powers, issued Presidential Decree No. 293 with immediate effect. The decree invalidated inter alia the title of the Tuasons' vendor, Carmel, which had earlier purchased from the Government the land it had subsequently subdivided into several lots for sale to the public (the Tuasons being among the buyers). The land bought by Carmel was part of the Tala Estate (one of the socalled "Friar Lands"). Carmel had bought the land under Act No. 1120 and C.A. No. 32, as amended. Under these statutes: 1) a bona fide settler or occupant was allowed to purchase (if he did not wish to lease) the portion occupied by him at the price fixed by the Government, in cash or on installment; the interested buyer was given a certificate of sale, which was regarded as an agreement by him to pay the purchase price in the and at the interest specified, the acceptance of such certificate making the occupant a debtor of the government; 2) until the price was fully paid however, title was reserved in the Government, and any sale or encumbrance made by the purchaser prior to such full payment was explicitly declared to 'be invalid as against the Government ... and ... in all respects subordinate to its prior claim;" 3) in the event of default by a purchaser to pay any installment of purchase money and interest thereon, the Chief of the Bureau of Public Lands (now Director of Lands) had the duty at once to protect the Government from loss by bringing suit to obtain judicial authority to enforce the Government's lien on the "and by selling it in the same manner as for foreclosure of mortgages, the purchaser at such sale being deemed to acquire a good and indefeasible title, and the proceeds of the sale being applied to the payment of the costs of the court and all installments due or to become due; and 4) in the event of completion of payment, the Government transferred title to the land to the purchaser "by proper instrument of conveyance," the certificate of

Moreover, we find that the RTC and the CA correctly appreciated the operation of ordinary acquisitive prescription in respondents favor. To acquire ownership and other real rights over immovables under Article 1134 of the Civil Code, possession must be for 10 years. It must also be in good faith and with just title.[38] Good faith consists of the reasonable belief that the person from whom the possessor received the thing was its owner, but could not transmit the ownership thereof.[39] On the other hand, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.[40] The RTC and the CA held that the Villalbas had continuously possessed the property from January 4, 1966 until May 5, 1982[41] or for a total of 16 years. Capt. Villalba came into possession through a sale by petitioner, whom he believed was the owner, though -- at the time of the sale -- she was not. Clearly, all the elements of ordinary acquisitive prescription were present. Petitioner is thus precluded from invoking the 30-year prescriptive period for commencing real action over immovables. Prescription of the action is without prejudice to acquisitive prescription, according to Article 1141 of the Civil Code, which we quote: Art. 1141. Real actions over immovables prescribe after thirty years. This provision is without prejudice to what is established for the acquisition of ownership and other real rights by prescription. (Italics supplied) Second Issue: Unjust Enrichment

While petitioner is now barred from recovering the subject property, all is not lost for her. By Respondent Villalbas own admission,[42] a balance of P1,250 of the total purchase price remains unpaid. Reason and fairness suggest that petitioner be allowed to collect this sum. It is a basic rule in law that no one shall unjustly enrich oneself at the expense of another. Niguno non deue enriquecerse tortizamente condao de otro. For indeed, to allow respondent to keep the property without paying fully for it amounts to unjust enrichment on her part. Since the obligation consists of the payment of a sum of money, and Respondent Villalba has incurred delay in satisfying that obligation, legal interest at six percent (6%) per annum[43] is hereby imposed on the balance of P1,250, to be computed starting May 5, 1982 -- when the claim was made judicially -- until the finality of this Courts judgment. Following our ruling in Eastern Shipping Lines, Inc. v. CA,[44] the sum so awarded shall likewise bear interest at the rate of 12 percent per annum from the time this judgment becomes final and executory until its satisfaction.

16

title over the land to issue and become effective in the manner provided by the Land Registration Act. 1 Said Presidential Decree No. 293 made the finding 2 that Carmel had failed to complete payment of the price. It adjudged that ... according to the records of the Bureau of Lands, neither the original purchasers nor their subsequent transferees have made full payment of all installments of the purchase money and interest on the lots claimed by the Carmel Farms, Inc., including those on which the dwellings of the members of said Association 3 stand. Hence, title to said land has remained with the Government, and the land now occupied by the members of said association has never ceased to form part of the property of the Republic of the Philippines, any and all acts affecting said land and purporting to segregate it from the said property of the Republic of the Philippines being therefore null and void ab initio as against the law and public policy. Upon this adjudgment, Mr. Marcos invalidated the titles of Carmel Farms, Inc. and all those derived therefrom, and declared as aforestated "the members of the Malacanang Homeowners Association, Inc. the present bona fide occupants" of the lots which, in consequence, thereby became open to them for "disposition and sale ... pursuant to Commonwealth Act No. 32, as amended." 4 It seems to have completely escaped Mr. Marcos' attention that his decree contained contradictory declarations. While acknowledging on the one hand that the lots in the Carmel Subdivision were occupied by the buyers thereof, and in fact the latter's dwellings stood thereon, he states on the other that the "members of the Malacanang Homeowners Association, Inc. (are) the present bona fide occupants" of all said lots. The latter averment is not only essentially inconsistent with the former but is both a physical and legal fallacy. Well known is the rule of physics that two objects cannot occupy the same space at the same time. And the absurdity of the subsumed proposition is self-evident for persons not in possession of land, who probably have not even set foot thereon, cannot be deemed "occupants" thereof, much less "bona fide" occupants. But this notwithstanding, and upon the factual premise already indicated, Mr. Marcos disposed of the land of the petitioner spouses and others similarly situated as they, in the following imperious manner: NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines, and pursuant to Proclamation 1081, dated September 21, 1972, and General Order No. 1, dated September 22, 1972, do hereby order and decree that any and all sales contracts between the government and the original purchasers, are hereby cancelled, and those between the latter and the subsequent transferees, and any and all transfers thereafter, covering lots 979, 981, 982, 985, 988, 989, 990, 991 new, 1226, 1228, 1230, and 980-C-2 (LRC PSD1730), all of Tala Estate, Caloocan City, are hereby declared invalid and null and void ab initio as against the Government; that Transfer Certificates of Title Nos. 62603, 62604, 62605, covering lots 1, 2 and 3, PCS-4383, all in the name of Carmel Farms, Inc., which are a consolidation and subdivision survey of the lots hereinbefore enumerated, are declared invalid and considered cancelled as against the Government; and that said lots are declared open for disposition and sale to the members of the Malacanang Homeowners Association, Inc., the present bona fide occupants thereof, pursuant to Commonwealth Act No. 32, as amended. On the strength of this presidential decree, the Register of Deeds of Caloocan City caused the inscription on the Tuasons' title, TCT No. 8314, of the following: MEMORANDUM. Pursuant to Presidential Decree No. 293, this certificate of title is declared invalid and null and void ab initio and considered cancelled as against the Government and the property described herein is declared open for disposition and sale to the members of the Malacanang Homeowners Association, Inc. The Tuason Spouses thereupon filed with this Court a petition for certiorari assailing the Marcos decree as an arbitrary measure which deprived them of their property in favor of a selected group, in violation not only of the constitutional provisions on due process and eminent domain 5 but also of the provisions of the Land Registration Act on the indefeasibility of Torrens titles; 6 and they prayed that the Register of Deeds be directed to cancel

the derogatory inscription on their title and restore its efficacy, or in the alternative, that they be compensated for the loss from the Assurance Fund. Mr. Marcos' Solicitor General sought to sustain the decree. In his comment on the petition, 7 he questioned the propriety of the remedy of certiorari resorted to by the petitioners, it not appearing that the public respondents were being sued as judicial or quasi-judicial officers who had acted without or in excess of their jurisdiction, or with grave abuse of discretion. He opined that the petitioner spouses had no cause to complain of unjust deprivation of property because in legal contemplation 8 they had never become owners thereof because of nonpayment of the purchase price by their predecessor-in-interest; and the decree was justifiable under the social justice clause of the Constitution and the police power, being in response to the pressing housing need of the employees of the Office of the President who were left homeless and landless after they were asked to vacate Malacanang Park where they had theretofore been residing. He expressed the view, too, that petitioner spouses were not entitled to recover anything from the Assurance Fund. Petitions for intervention have of late been filed by sixty-four (64) persons, members of the "Consuelo Heights Homeowners Association" headed by Tomasa Bartolome, on the claim that they, too, had been divested of their lands by the same Presidential Decree No. 293, adopting as their own the allegations and prayer embodied in the Tuasons' petition. The procedural issue is quite easily disposed of. It is true that the extraodinary writ of certiorari 9 may properly issue to nullify only judicial or quasi-judicial acts, unlike the writ of prohibition which may be directed against acts either judicial or ministerial. Section 1, Rule 65 of the Rules of Court deals with the writ of certiorari in relation to "any tribunal, board or officer exercising judicial functions, while Section 2 of the same Rule treats of the writ of prohibition in relation to "proceedings of any tribunal, corporation, board, or person ... exercising functions judicial or ministerial." But the petition will be shown upon analysis to be in reality directed against an unlawful exercise of judicial power. The decree reveals that Mr. Marcos exercised an obviously judicial function. He made a determination of facts, and applied the law to those facts, declaring what the legal rights of the parties were in the premises. These acts essentially constitute a judicial function, 10 or an exercise of jurisdiction which is the power and authority to hear or try and decide or determine a cause. 11 He adjudged it to be an established fact that neither the original purchasers nor their subsequent transferees have made full payment of all installments of the purchase money and interest on the lots claimed by Carmel Farms, Inc., including those on which the dwellings of the members of ... (the) Association (of homeowners) stand." And applying the law to that situation, he made the adjudication that "title to said land has remained with the Government, and the land now occupied by the members of said association has never ceased to form part of the property of the Republic of the Philippines," and that 'any and all acts affecting said land and purporting to segregate it from the said property of the Republic ... (were) null and void ab initio as against the law and public policy. These acts may thus be properly struck down by the writ of certiorari, because done by an officer in the performance of what in essence is a judicial function, if it be shown that the acts were done without or in excess of jurisdiction, or with grave abuse of discretion. Since Mr. Marcos was never vested with judicial power, such power, as everyone knows, being vested in the Supreme Court and such inferior courts as may be established by law 12 the judicial acts done by him were in the circumstances indisputably perpetrated without jurisdiction. The acts were completely alien to his office as chief executive, and utterly beyond the permissible scope of the legislative power that he had assumed as head of the martial law regime. Moreover, he had assumed to exercise power i.e. determined the relevant facts and applied the law thereto without a trial at which all interested parties were accorded the opportunity to adduce evidence to furnish the basis for a determination of the facts material to the controversy. He made the finding ostensibly on the basis of "the records of the Bureau of Lands." Prescinding from the fact that there is no indication whatever the nature and reliability of these records and that they are in no sense conclusive, it is undeniable that the petitioner Tuasons (and the petitioners in intervention) were never confronted with those records and afforded a chance to dispute their trustworthiness and present countervailing evidence. This is yet another fatal defect. The adjudication was patently and grossly violative of the right to due process to which the petitioners are entitled in virtue of the Constitution. Mr. Marcos, in other words, not only arrogated unto himself a power never granted to him by the Constitution or the laws but had in addition exercised it unconstitutionally. In any event, this Court has it in its power to treat the petition for certiorari as one for prohibition if the averments of the former sufficiently made out a case for the latter. 13 Considered in this wise, it will also appear that an executive officer had acted without jurisdiction exercised judicial power not granted to him by the Constitution or the laws and had furthermore performed the act in violation of the constitutional rights of the parties thereby affected. The Court will grant such relief as may be proper and efficacious in the premises even if not specifically sought or set out in the prayer of the appropriate pleading, the permissible relief being determined after all not by the prayer but by the basic averments of the parties' pleadings. 14

17

There is no dispute about the fact that title to the land purchased by Carmel was actually issued to it by the Government. This of course gives rise to the strong presumption that official duty has been regularly performed,15 that official duty being in this case the ascertainment by the Chief of the Bureau of Public Lands of the fulfillment of the condition prescribed by law for such issuance, i.e., the payment in full of the price, together with all accrued interest. Against this presumption there is no evidence. It must hence be accorded full sway in these proceedings. Furthermore, the title having been duly issued to Carmel, it became "effective in the manner provided in section one hundred and twenty-two of the Land Registration Act." 16 It may well be the fact that Carmel really did fail to make full payment of the price of the land purchased by it from the Government pursuant to the provisions of Act 1120. This is a possibility that cannot be totally discounted. If this be the fact, the Government may bring suit to recover the unpaid installments and interest, invalidate any sale or encumbrance involving the land subject of the sale, and enforce the lien of the Government against the land by selling the same in the manner provided by Act Numbered One Hundred and Ninety for the foreclosure of mortgages. 17 This it can do despite the lapse of a considerable period of time. Prescription does not lie against the Government. But until and unless such a suit is brought and results in a judgment favorable to the Government, the acquisition of title by Carmel and the purchases by the petitioners and the petitioners-intervenors from it of portions of the land covered by its original title must be respected. At any rate, the eventuation of that contingency will not and cannot in any manner affect this Court's conclusion, herein affirmed, of the unconstitutionality and invalidity of Presidential Decree No. 293, and the absolute lack of any right to the land or any portion thereof on the part of the members of the so-called "Malacanang Homeowners Association, Inc." The decree was not as claimed a licit instance of the application of social justice principles or the exercise of police power. It was in truth a disguised, vile stratagem deliberately resorted to favor a few individuals, in callous and disdainful disregard of the rights of others. It was in reality a taking of private property without due process and without compensation whatever, from persons relying on the indefeasibility of their titles in accordance with and as explicitly guaranteed by law. One last word, respecting the petitioners in intervention, Their petition to intervene substantially fulfilled the requirements laid down for a class suit 18 and was consequently given due course by the Court. They are therefore covered by this judgment. WHEREFORE, Presidential Decree No. 293 is declared to be unconstitutional and void ab initio in all its parts. The public respondents are commanded to cancel the inscription on the titles of the petitioners and the petitioners in intervention of the memorandum declaring their titles null and void and declaring the property therein respectively described open for disposition and sale to the members of the Malacanang Homeowners Association, Inc. to do whatever else is needful to restore the titles to full effect and efficacy; and henceforth to refrain, cease and desist from implementing any provision or part of said Presidential Decree No. 293. No pronouncement as to costs.

of 7,213 square meters, at a price and under such terms and conditions which he deemed most reasonable and advantageous to the corporation; and to execute, sign and deliver the pertinent sales documents and receive the proceeds of the sale for and on behalf of the company.3 Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2 covered by TCT No. 78086 on which it planned to construct its warehouse building, and a portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45foot container van would be able to readily enter or leave the property. In a Letter to Roxas dated June 21, 1991, WHI President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and conditions for P1,000 per square meter or at the price of P7,213,000.4 One of the terms incorporated in Dy's offer was the following provision: 5. This Offer to Purchase is made on the representation and warranty of the OWNER/SELLER, that he holds a good and registrable title to the property, which shall be conveyed CLEAR and FREE of all liens and encumbrances, and that the area of 7,213 square meters of the subject property already includes the area on which the right of way traverses from the main lot (area) towards the exit to the Sumulong Highway as shown in the location plan furnished by the Owner/Seller to the buyer. Furthermore, in the event that the right of way is insufficient for the buyer's purposes (example: entry of a 45-foot container), the seller agrees to sell additional square meter from his current adjacent property to allow the buyer to full access and full use of the property.5 Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President of WHI, as vendee, executed a contract to sell in which RECCI bound and obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for P7,213,000.6 On September 5, 1991, a Deed of Absolute Sale7 in favor of WHI was issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold for P5,000,000, receipt of which was acknowledged by Roxas under the following terms and conditions: The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of and a right of way from Sumulong Highway to the property herein conveyed consists of 25 square meters wide to be used as the latter's egress from and ingress to and an additional 25 square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for Vendee's vehicles. The Vendor agrees that in the event that the right of way is insufficient for the Vendee's use (ex entry of a 45-foot container) the Vendor agrees to sell additional square meters from its current adjacent property to allow the Vendee full access and full use of the property.

G.R. No. 140667

August 12, 2004

WOODCHILD HOLDINGS, INC., petitioner, vs. ROXAS ELECTRIC AND CONSTRUCTION COMPANY, INC., respondent. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 56125 reversing the Decision2 of the Regional Trial Court of Makati, Branch 57, which ruled in favor of the petitioner. The Antecedents The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas Electric and Construction Company, was the owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No. 78086. A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal. At a special meeting on May 17, 1991, the respondent's Board of Directors approved a resolution authorizing the corporation, through its president, Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area

The Vendor hereby undertakes and agrees, at its account, to defend the title of the Vendee to the parcel of land and improvements herein conveyed, against all claims of any and all persons or entities, and that the Vendor hereby warrants the right of the Vendee to possess and own the said parcel of land and improvements thereon and will defend the Vendee against all present and future claims and/or action in relation thereto, judicial and/or administrative. In particular, the Vendor shall eject all existing squatters and occupants of the premises within two (2) weeks from the signing hereof. In case of failure on the part of the Vendor to eject all occupants and squatters within the two-week period or breach of any of the stipulations, covenants and terms and conditions herein provided and that of contract to sell dated 1 July 1991, the Vendee shall have the right to cancel the sale and demand reimbursement for all payments made to the Vendor with interest thereon at 36% per annum.8 On September 10, 1991, the Wimbeco Builder's, Inc. (WBI) submitted its quotation for P8,649,000 to WHI for the construction of the warehouse building on a portion of the property with an area of 5,088 square meters.9 WBI proposed to start the project on October 1, 1991 and to turn over the building to WHI on February 29, 1992.10 In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc. confirmed its lease agreement with WHI of a 5,000-square-meter portion of the warehouse yet to be constructed at the rental rate of P65 per square meter. Ponderosa emphasized the need for the warehouse to be ready for occupancy before April 1, 1992.11 WHI accepted the offer. However, WBI failed to commence the construction of the warehouse in October 1, 1991 as planned because of the presence of squatters in the property and suggested a

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renegotiation of the contract after the squatters shall have been evicted.12 Subsequently, the squatters were evicted from the property. On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction of the warehouse building for P11,804,160.13 The contractor started construction in April 1992 even before the building officials of Antipolo City issued a building permit on May 28, 1992. After the warehouse was finished, WHI issued on March 21, 1993 a certificate of occupancy by the building official. Earlier, or on March 18, 1993, WHI, as lessor, and Ponderosa, as lessee, executed a contract of lease over a portion of the property for a monthly rental of P300,000 for a period of three years from March 1, 1993 up to February 28, 1996.14 In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI were parked on a portion of the property over which WHI had been granted a right of way. Roxas promised to look into the matter. Dy and Roxas discussed the need of the WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 as provided for in the deed of absolute sale. However, Roxas died soon thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to purchase a portion of the said lot as provided for in the deed of absolute sale, and complained about the latter's failure to eject the squatters within the three-month period agreed upon in the said deed. The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof, otherwise the appropriate action would be filed against it. RECCI rejected the demand of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There was no response from RECCI. On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial Court of Makati, for specific performance and damages, and alleged, inter alia, the following in its complaint: 5. The "current adjacent property" referred to in the aforequoted paragraph of the Deed of Absolute Sale pertains to the property covered by Transfer Certificate of Title No. N-78085 of the Registry of Deeds of Antipolo, Rizal, registered in the name of herein defendant Roxas Electric. 6. Defendant Roxas Electric in patent violation of the express and valid terms of the Deed of Absolute Sale unjustifiably refused to deliver to Woodchild Holdings the stipulated beneficial use and right of way consisting of 25 square meters and 55 square meters to the prejudice of the plaintiff. 7. Similarly, in as much as the 25 square meters and 55 square meters alloted to Woodchild Holdings for its beneficial use is inadequate as turning and/or maneuvering area of its 45-foot container van, Woodchild Holdings manifested its intention pursuant to para. 5 of the Deed of Sale to purchase additional square meters from Roxas Electric to allow it full access and use of the purchased property, however, Roxas Electric refused and failed to merit Woodchild Holdings' request contrary to defendant Roxas Electric's obligation under the Deed of Absolute Sale (Annex "A"). 8. Moreover, defendant, likewise, failed to eject all existing squatters and occupants of the premises within the stipulated time frame and as a consequence thereof, plaintiff's planned construction has been considerably delayed for seven (7) months due to the squatters who continue to trespass and obstruct the subject property, thereby Woodchild Holdings incurred substantial losses amounting to P3,560,000.00 occasioned by the increased cost of construction materials and labor. 9. Owing further to Roxas Electric's deliberate refusal to comply with its obligation under Annex "A," Woodchild Holdings suffered unrealized income of P300,000.00 a month or P2,100,000.00 supposed income from rentals of the subject property for seven (7) months. 10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric to comply with its obligations and warranties under the Deed of Absolute Sale but notwithstanding such demand, defendant Roxas Electric refused and failed and continue to refuse and fail to heed plaintiff's demand for compliance. Copy of the demand letter dated April 15, 1992 is hereto attached as Annex "B" and made an integral part hereof. 11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed to Roxas Electric to particularly annotate on

Transfer Certificate of Title No. N-78085 the agreement under Annex "A" with respect to the beneficial use and right of way, however, Roxas Electric unjustifiably ignored and disregarded the same. Copy of the letter request dated 29 May 1992 is hereto attached as Annex "C" and made an integral part hereof. 12. By reason of Roxas Electric's continuous refusal and failure to comply with Woodchild Holdings' valid demand for compliance under Annex "A," the latter was constrained to litigate, thereby incurring damages as and by way of attorney's fees in the amount of P100,000.00 plus costs of suit and expenses of litigation.15 The WHI prayed that, after due proceedings, judgment be rendered in its favor, thus: WHEREFORE, it is respectfully prayed that judgment be rendered in favor of Woodchild Holdings and ordering Roxas Electric the following: a) to deliver to Woodchild Holdings the beneficial use of the stipulated 25 square meters and 55 square meters; b) to sell to Woodchild Holdings additional 25 and 100 square meters to allow it full access and use of the purchased property pursuant to para. 5 of the Deed of Absolute Sale; c) to cause annotation on Transfer Certificate of Title No. N-78085 the beneficial use and right of way granted to Woodchild Holdings under the Deed of Absolute Sale; d) to pay Woodchild Holdings the amount of P5,660,000.00, representing actual damages and unrealized income; e) to pay attorney's fees in the amount of P100,000.00; and f) to pay the costs of suit. Other reliefs just and equitable are prayed for.16 In its answer to the complaint, the RECCI alleged that it never authorized its former president, Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-3-B-1, nor agreed to sell any portion thereof or create a lien or burden thereon. It alleged that, under the Resolution approved on May 17, 1991, it merely authorized Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086. As such, the grant of a right of way and the agreement to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said deed are ultra vires. The RECCI further alleged that the provision therein that it would sell a portion of Lot No. 491-A-3-B-1 to the WHI lacked the essential elements of a binding contract.17 In its amended answer to the complaint, the RECCI alleged that the delay in the construction of its warehouse building was due to the failure of the WHI's contractor to secure a building permit thereon.18 During the trial, Dy testified that he told Roxas that the petitioner was buying a portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the price of P1,000 per square meter. On November 11, 1996, the trial court rendered judgment in favor of the WHI, the decretal portion of which reads: WHEREFORE, judgment is hereby rendered directing defendant: (1) To allow plaintiff the beneficial use of the existing right of way plus the stipulated 25 sq. m. and 55 sq. m.; (2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m. to allow said plaintiff full access and use of the purchased property pursuant to Par. 5 of their Deed of Absolute Sale; (3) To cause annotation on TCT No. N-78085 the beneficial use and right of way granted by their Deed of Absolute Sale; (4) To pay plaintiff the amount of P5,568,000 representing actual damages and plaintiff's unrealized income;

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(5) To pay plaintiff P100,000 representing attorney's fees; and To pay the costs of suit. SO ORDERED.19 The trial court ruled that the RECCI was estopped from disowning the apparent authority of Roxas under the May 17, 1991 Resolution of its Board of Directors. The court reasoned that to do so would prejudice the WHI which transacted with Roxas in good faith, believing that he had the authority to bind the WHI relating to the easement of right of way, as well as the right to purchase a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085. The RECCI appealed the decision to the CA, which rendered a decision on November 9, 1999 reversing that of the trial court, and ordering the dismissal of the complaint. The CA ruled that, under the resolution of the Board of Directors of the RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, but not to grant right of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or to grant an option to the petitioner to buy a portion thereof. The appellate court also ruled that the grant of a right of way and an option to the respondent were so lopsided in favor of the respondent because the latter was authorized to fix the location as well as the price of the portion of its property to be sold to the respondent. Hence, such provisions contained in the deed of absolute sale were not binding on the RECCI. The appellate court ruled that the delay in the construction of WHI's warehouse was due to its fault. The Present Petition The petitioner now comes to this Court asserting that: I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE (EXH. "C") IS ULTRA VIRES. II. THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL USE OF THE EXISTING RIGHT OF WAY PLUS THE STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE THESE ARE VALID STIPULATIONS AGREED BY BOTH PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. "C"). III. THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF APPEALS TO RULE THAT THE STIPULATIONS OF THE DEED OF ABSOLUTE SALE (EXH. "C") WERE DISADVANTAGEOUS TO THE APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS PROPERTY WITHOUT DUE PROCESS. IV. IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE PROCESS BY THE ASSAILED DECISION. V. THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS AGREED IN THE DEED OF ABSOLUTE SALE (EXH. "C"). VI. THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO DIRECTING THE DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT OF P5,568,000.00 REPRESENTING ACTUAL DAMAGES AND PLAINTIFF'S UNREALIZED INCOME AS WELL AS ATTORNEY'S FEES.20

The threshold issues for resolution are the following: (a) whether the respondent is bound by the provisions in the deed of absolute sale granting to the petitioner beneficial use and a right of way over a portion of Lot No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the petitioner to buy a portion thereof, and, if so, whether such agreement is enforceable against the respondent; (b) whether the respondent failed to eject the squatters on its property within two weeks from the execution of the deed of absolute sale; and, (c) whether the respondent is liable to the petitioner for damages. On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the respondent authorized Roxas, then its president, to grant a right of way over a portion of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the respondent to buy a portion of the said property. The petitioner contends that when the respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it (respondent) was well aware of its obligation to provide the petitioner with a means of ingress to or egress from the property to the Sumulong Highway, since the latter had no adequate outlet to the public highway. The petitioner asserts that it agreed to buy the property covered by TCT No. 78085 because of the grant by the respondent of a right of way and an option in its favor to buy a portion of the property covered by TCT No. 78085. It contends that the respondent never objected to Roxas' acceptance of its offer to purchase the property and the terms and conditions therein; the respondent even allowed Roxas to execute the deed of absolute sale in its behalf. The petitioner asserts that the respondent even received the purchase price of the property without any objection to the terms and conditions of the said deed of sale. The petitioner claims that it acted in good faith, and contends that after having been benefited by the said sale, the respondent is estopped from assailing its terms and conditions. The petitioner notes that the respondent's Board of Directors never approved any resolution rejecting the deed of absolute sale executed by Roxas for and in its behalf. As such, the respondent is obliged to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 with an area of 500 square meters at the price of P1,000 per square meter, based on its evidence and Articles 649 and 651 of the New Civil Code. For its part, the respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence, the respondent was not bound by such provisions contained in the deed of absolute sale. Besides, the respondent contends, the petitioner cannot enforce its right to buy a portion of the said property since there was no agreement in the deed of absolute sale on the price thereof as well as the specific portion and area to be purchased by the petitioner. We agree with the respondent. In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,21 we held that: A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation's board of directors. Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides: "SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified." Indubitably, a corporation may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law. 22 Generally, the acts of the corporate officers within the scope of their authority are binding on the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them:

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Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation unless ratified by the corporation.23 In BA Finance Corporation v. Court of Appeals,24 we also ruled that persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. In this case, the respondent denied authorizing its then president Roberto B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or burden thereon. The petitioner was thus burdened to prove that the respondent so authorized Roxas to sell the same and to create a lien thereon. Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of the respondent, which is worded as follows: RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to any interested buyer, its 7,213-sq.-meter property at the Sumulong Highway, Antipolo, Rizal, covered by Transfer Certificate of Title No. N-78086, at a price and on terms and conditions which he deems most reasonable and advantageous to the corporation; FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the corporation, be, as he is hereby authorized to execute, sign and deliver the pertinent sales documents and receive the proceeds of sale for and on behalf of the company.25 Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way in favor of the petitioner on a portion of Lot No. 491-A-3B-1 or to agree to sell to the petitioner a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to sell a portion of the adjacent lot, Lot No. 491-A3-B-1, or to create or convey real rights thereon. Neither may such authority be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner "on such terms and conditions which he deems most reasonable and advantageous." Under paragraph 12, Article 1878 of the New Civil Code, a special power of attorney is required to convey real rights over immovable property.26 Article 1358 of the New Civil Code requires that contracts which have for their object the creation of real rights over immovable property must appear in a public document.27 The petitioner cannot feign ignorance of the need for Roxas to have been specifically authorized in writing by the Board of Directors to be able to validly grant a right of way and agree to sell a portion of Lot No. 491-A-3-B-1. The rule is that if the act of the agent is one which requires authority in writing, those dealing with him are charged with notice of that fact.28 Powers of attorney are generally construed strictly and courts will not infer or presume broad powers from deeds which do not sufficiently include property or subject under which the agent is to deal.29 The general rule is that the power of attorney must be pursued within legal strictures, and the agent can neither go beyond it; nor beside it. The act done must be legally identical with that authorized to be done.30 In sum, then, the consent of the respondent to the assailed provisions in the deed of absolute sale was not obtained; hence, the assailed provisions are not binding on it. We reject the petitioner's submission that, in allowing Roxas to execute the contract to sell and the deed of absolute sale and failing to reject or disapprove the same, the respondent thereby gave him apparent authority to grant a right of way over Lot No. 491-A-3-B-1 and to grant an option for the respondent to sell a portion thereof to the petitioner. Absent estoppel or ratification, apparent authority cannot remedy the lack of the written power required under the statement of frauds.31 In addition, the petitioner's fallacy is its wrong assumption of the unproved premise that the respondent had full knowledge of all the terms and conditions contained in the deed of absolute sale when Roxas executed it. It bears stressing that apparent authority is based on estoppel and can arise from two instances: first, the principal may knowingly permit the agent to so hold himself out as having such authority, and in this way, the principal becomes estopped to claim that the agent does not have such authority; second, the

principal may so clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that he actually has such authority.32 There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant and such must have produced a change of position to its detriment. The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent.33 For the principle of apparent authority to apply, the petitioner was burdened to prove the following: (a) the acts of the respondent justifying belief in the agency by the petitioner; (b) knowledge thereof by the respondent which is sought to be held; and, (c) reliance thereon by the petitioner consistent with ordinary care and prudence.34 In this case, there is no evidence on record of specific acts made by the respondent35 showing or indicating that it had full knowledge of any representations made by Roxas to the petitioner that the respondent had authorized him to grant to the respondent an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, or to create a burden or lien thereon, or that the respondent allowed him to do so. The petitioner's contention that by receiving and retaining the P5,000,000 purchase price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified the grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the petitioner an option to sell a portion thereof, is barren of merit. It bears stressing that the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and the latter had taken possession of the property. As such, the respondent had the right to retain the P5,000,000, the purchase price of the property it had sold to the petitioner. For an act of the principal to be considered as an implied ratification of an unauthorized act of an agent, such act must be inconsistent with any other hypothesis than that he approved and intended to adopt what had been done in his name.36 Ratification is based on waiver the intentional relinquishment of a known right. Ratification cannot be inferred from acts that a principal has a right to do independently of the unauthorized act of the agent. Moreover, if a writing is required to grant an authority to do a particular act, ratification of that act must also be in writing.37 Since the respondent had not ratified the unauthorized acts of Roxas, the same are unenforceable.38 Hence, by the respondent's retention of the amount, it cannot thereby be implied that it had ratified the unauthorized acts of its agent, Roberto Roxas. On the last issue, the petitioner contends that the CA erred in dismissing its complaint for damages against the respondent on its finding that the delay in the construction of its warehouse was due to its (petitioner's) fault. The petitioner asserts that the CA should have affirmed the ruling of the trial court that the respondent failed to cause the eviction of the squatters from the property on or before September 29, 1991; hence, was liable for P5,660,000. The respondent, for its part, asserts that the delay in the construction of the petitioner's warehouse was due to its late filing of an application for a building permit, only on May 28, 1992. The petitioner's contention is meritorious. The respondent does not deny that it failed to cause the eviction of the squatters on or before September 29, 1991. Indeed, the respondent does not deny the fact that when the petitioner wrote the respondent demanding that the latter cause the eviction of the squatters on April 15, 1992, the latter were still in the premises. It was only after receiving the said letter in April 1992 that the respondent caused the eviction of the squatters, which thus cleared the way for the petitioner's contractor to commence the construction of its warehouse and secure the appropriate building permit therefor. The petitioner could not be expected to file its application for a building permit before April 1992 because the squatters were still occupying the property. Because of the respondent's failure to cause their eviction as agreed upon, the petitioner's contractor failed to commence the construction of the warehouse in October 1991 for the agreed price of P8,649,000. In the meantime, costs of construction materials spiraled. Under the construction contract entered into between the petitioner and the contractor, the petitioner was obliged to pay P11,804,160,39including the additional work costing P1,441,500, or a net increase of P1,712,980.40 The respondent is liable for the difference between the original cost of construction and the increase thereon, conformably to Article 1170 of the New Civil Code, which reads: Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. The petitioner, likewise, lost the amount of P3,900,000 by way of unearned income from the lease of the property to the Ponderosa Leather Goods Company. The respondent is, thus, liable to the petitioner for the said amount, under Articles 2200 and 2201 of the New Civil Code:

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Art. 2200. Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain. Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. In sum, we affirm the trial court's award of damages and attorney's fees to the petitioner. IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the assailed Decision of the Court of Appeals WITH MODIFICATION. The respondent is ordered to pay to the petitioner the amount of P5,612,980 by way of actual damages and P100,000 by way of attorney's fees. No costs. SO ORDERED.

complaint with the Quezon City RTC on March 28, 1996 revoking the deed of conditional sale and likewise praying for the issuance of a writ of possession in its favor. "During the pre-trial of the case, the court observed that while the complaint was captioned 'Petition for Recovery of Possession with [P]rayer for Issuance of a Writ of Possession,' an examination of its body shows that the prayer was actually for the rescission of the deed of conditional sale. For this reason, the court ordered the amendment of the complaint and in compliance thereto, [petitioner] submitted its amended complaint on March 19, 1997. "[Respondent] David denied the alleged violations of the deed of conditional sale, stating that Buenaventura Penus, alluded to by the [petitioner] as possessor-occupant of the subject property, was in fact a caretaker until and after the necessary renovations and modifications on the house were made. "In a [D]ecision dated July 1, 1998, the court a quo dismissed the complaint and adjudged the [petitioner] liable for costs. The dispositive portion of the trial court's decision reads: 'WHEREFORE, in the light of the foregoing, the Amended Complaint is dismissed, with costs against the plaintiff. 'SO ORDERED.'

G.R. No. 155634

August 16, 2004

REPUBLIC OF THE PHILIPPINES, Represented by the SOCIAL SECURITY SYSTEM, petitioner, vs. JERRY V. DAVID, respondent. DECISION PANGANIBAN, J.: Under the terms of the subject Contract, "actual possession" cannot be equated with "actual occupancy." Inasmuch as the housing unit was physically occupied by parties other than those intended to be benefited by the housing program of the Social Security System, there was a clear violation of the Contract. Since respondent did not comply with his obligations, rescission is proper. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9, 2002 Decision2 of the Court of Appeals (CA) in CAGR CV No. 61374. The appellate court disposed as follows: "WHEREFORE, the instant appeal is DENIED for lack of merit. The decision of the Regional Trial Court, Quezon City, Branch 105, in Civil Case No. Q-96-27031 is hereby AFFIRMED."3 The Facts The CA narrated the facts thus: "x x x [Respondent] Jerry V. David is an employee of the SSS, formerly assigned at its Membership (Backroom) Department. Pursuant to its Employees' Housing Loan Program, SSS awarded David a house and lot located at North Fairview, Quezon City. A Deed of Conditional Sale over the subject property was thereafter executed between the parties. "On reports that numerous violations have been committed by some of the housing awardees in connection with the conditions governing their sales, SSS conducted an investigation on the matter. The investigation revealed that in the case of [Respondent] David, he committed two (2) violations of his deed of conditional sale, to wit: (1) neither the [respondent] nor his immediate family resided and/or occupied the said housing unit, and (2) he allowed a certain Buenaventura Penus to possess and occupy the property. "As a consequence of these violations, SSS sent a letter to David formally revoking, terminating and/or rescinding the deed of conditional sale. However, the latter refused to vacate and surrender possession of the subject property, prompting SSS to institute a

"In dismissing the complaint, the court ruled that the [petitioner] failed to prove that the [respondent] purchased the subject property for the use and benefit of another undisclosed party and not for his exclusive use, or that the defendant sold, assigned, encumbered, mortgaged, leased, subleased or in any manner altered or disposed of the subject property or his rights thereto at any other time. In arriving at its [D]ecision, the lower court considered the testimony of the [respondent] that when the subject property was delivered to him on October 23, 1992, the unit was not habitable so he had to make a few constructions thereon. He secured the services of his cousin, Buenaventura Penus, to be the caretaker while construction on the house was going on. With this, the court concluded that possession, as a condition of the deed of sale between the parties, was sufficiently satisfied. "Aggrieved, [Petitioner] SSS brought [an] appeal [to the CA], arguing that the court a quo erred in holding that [respondent] did not violate the terms and conditions of the Deed of Conditional Sale and in consequently dismissing the case."4 Ruling of the Court of Appeals Affirming the trial court, the CA ruled that while other persons had been found occupying the subject property, no proof was adduced by petitioner to prove that they had taken possession of it on their own behalf and not merely as respondent's caretakers. The appellate court added that because of the squalid condition of the property when it was delivered, respondent had to make improvements thereon as well as ask Penus, and later on Oden Domingo, to stay there as caretakers. Through his caretakers, respondent was deemed to have occupied and possessed the property as required by the Deed of Sale between him and petitioner. The CA concluded that the property had clearly been subject to respondent's will, a fact equivalent to possession under Article 5315 of the Civil Code. Hence, this Petition.6 Issues In its Memorandum, petitioner raises this sole issue: "whether the Court of Appeals committed reversible error in affirming the Decision of the trial court holding that respondent did not violate the terms and conditions of the Deed of Conditional Sale."7 The Court's Ruling The Petition is meritorious. Sole Issue: Violation of the Terms and Conditions of the Deed of Conditional Sale

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Petitioner avers that respondent violated the terms and conditions of the Deed of Conditional Sale, when he failed to "actually occupy and possess the property at all times"8 and allowed other persons to do so.9 It argues that contrary to the rulings of the trial and the appellate courts, the Deed of Conditional Sale required "actual physical possession at all times," not just simple possession. It contends that the material occupation of the property by other persons ran counter to the objective of the Social Security System (SSS) housing program to restrict the use and enjoyment of the housing units to SSS employees and their immediate families only. Petitioner likewise submits that the appellate court erred in believing the claim of respondent that the house was uninhabitable when it was delivered to him in 1992. His claim was belied by his acceptance of the property without protest, as well as by the fact that his alleged caretakers had lived there from 1992 to 1996. Petitioner adds that he should have used his available money to improve the property, if the unit was indeed unlivable, instead of fully settling in advance in December 1992 the unpaid balance of its purchase price. Propriety of Review At the outset, the Court stresses that a question of law has arisen from petitioner's contention that simple possession under Article 531 of the Civil Code is not the same as "actual occupancy and possession at all times," as required of respondent under the Deed. Such question -- of what law, rule or principle is to govern a given state of facts -- is decidedly one of law.10 It may be raised in this appeal by certiorari under Rule 45 of the Rules of Court. Rules of Contract Interpretation Certain rules of contract interpretation come to mind at this point. First, in construing a contract, it is a fundamental task to ascertain the intention of the contracting parties.11 As a rule, such intention is determined by looking at the words used -- at all the words rather than at a particular word or two; and at words in context rather than just words standing alone.12 Indeed, under Article 1374 of the Civil Code, "the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly." Second, the ascertained intention of the parties is deemed an integral part of the contract, as though it has been originally expressed in unequivocal terms.13 And third, the reasonableness of the result obtained, after analysis and construction of a contract, must also be carefully considered.14 The conditions that were allegedly violated by respondent are contained in paragraph 10 of the Deed of Conditional Sale, as follows: "10. The Contract shall further [provide] the following terms and conditions: (a) The VENDEE is making this purchase for his/her own exclusive use and benefit and not for the use and benefit of another undisclosed party/parties; (b) The purpose of the sale shall be to aid the VENDEE in acquiring a house and lot for himself/herself and/or his/her immediate family, and not to provide him/her with a means for speculation or profit by a future assignment of his/her right herein acquired or the resale of the PROPERTY subject of this Contract. Therefore, the VENDEE, within the first FIVE (5) years of the existence of this contract agrees not to sell, assign, encumber, mortgage, lease, sub-let or in any manner alter or dispose of the property subject hereof, or his rights thereto, at any time, in whole or in part. After the FIVE (5) year period, VENDEE shall have the right to the full disposal of the property, provided that, VENDEE has been able to fully pay all of his/her obligations herein. However, the foregoing notwithstanding, the VENDEE may x x x at any time with prior consent of the VENDOR transfer his right to the PROPERTY to any eligible employee of the VENDOR, subject, however, to the right of first refusal by the VENDOR who may refund to the VENDEE all of his/her installment payments and the value of substantial improvements introduced by him/her if any, as appraised by the VENDOR; (c) The VENDEE, and his heirs and/or successors, shall actually occupy and be in possession of the PROPERTY at all times;

(d) The VENDEE shall not obstruct or interfere in any manner whatsoever with the right of the VENDOR or any of its duly authorized representatives to inspect, survey, repair, lay water pipes, gas, electric and telephone lines or other works of similar purposes; (e) The VENDEE shall abide by and comply with the Vendor's Occupancy Rules and Regulations the terms and conditions of which are made an integral part hereof by reference, as well as that issued by any other governmental authority which may, from time to time, be promulgated in regard to the use and preservation of the house and lot; (f) The VENDEE warrants in full the truth of the representation made in his/her Application For EMPLOYEE HOUSING LOAN, the terms of which are likewise made an integral part hereof by reference. "The violation of any of the conditions herein stipulated shall be considered as a breach of this Contract, and shall subject the VENDEE to the penalties provided for in paragraphs (11) and (12) hereof, including administrative sanctions, when warranted, in the event x x x the VENDEE has been found to have committed a misrepresentation/falsification in his/her application for an Employee Housing Loan."15 Actual Occupancy and Possession at All Times Plainly, the primary intention behind the above-quoted stipulations is to restrict the sale, the use and the benefit of the housing units to SSS employees and their immediate families only. This objective is in line with that of the SSS housing loan program -- to aid its employees in acquiring their own dwelling units at a low cost.16 Such intent, draws life also from the social justice policy of RA 1161, as amended, otherwise known as the "Social Security System Law" granting direct housing loans to covered employees and giving priority to lowincome groups.17 Indeed, the above goal is confirmed by the requirement that respondent-vendee and his heirs or assigns must actually occupy and possess the property at all times; by the proscription that he must not sell, assign, encumber, mortgage, lease, sublet or in any manner alter or dispose of the property for the first five (5) years; and by the further proviso that he may alienate or transfer his rights thereto at any time prior to full payment, but only to petitioner under its right of first refusal or to any other eligible SSS employee. These restrictive covenants are undeniably valid under Article 130618 of the Civil Code. The use of the conjunctive and in subparagraph (c) is not by any chance a surplusage. Neither is it meant to be without any legal signification. Its use is confirmatory of the restrictive intent that the houses provided by petitioner should be for the exclusive use and benefit of the SSS employee-beneficiary. It is easily discernible, therefore, that both "actual occupancy" and "possession at all times" -- not just one or the other -- were imposed as conditions upon respondent. The word and -- whether it is used to connect words, phrases or full sentences -- must be accepted in its common and usual meaning as "binding together and as relating to one another."19 And implies a conjunction, joinder or union.20 Thus, respondent had to comply with not one, but two, concurring conditions -actual occupancy and possession at all times. The question is, did he? We rule that he did not. No Actual Occupancy First, actual possession is not the same as actual occupancy. Hence, it was an error on the part of the lower courts to hold that the requirement of possession alone was a sufficient compliance with the conditions under subparagraphs (a) and (c). Under the law,21 "[p]ossession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right." As such, actual possession consists in the manifestation of acts of dominion over property of such a nature as a party would naturally exercise over his own22 -- as when respondent himself is physically in occupation of the property, or even when another person who recognizes the former's rights as

23

owner is in occupancy.23 In short, possession can be either "actual" or merely constructive. On the other hand, actual occupancy connotes "something real, or actually existing, as opposed to something merely possible, or to something which is presumptive or constructive."24 Unlike possession, it can only be actual or real, not constructive. Second, the uncontroverted fact remains that it was not respondent and/or his immediate family, but Penus and his wife, who had lived in the property since 1992; and that it was from Penus that Domingo took over possession in 1996. Thus, while it may be conceded that respondent "possessed" the property through his caretakers, there is no escaping the fact that he and/or his immediate family did not "actually occupy" it; and that he allowed other persons to benefit from its use. In his letter to SSS Assistant Administrator Amador Monteiro on January 24, 1996,25 respondent admitted as much, but tried to justify his noncompliance by saying that the property was not in a habitable condition at the time of delivery. This line of defense was sustained by the trial court on the ground of respondent's allegedly "uncontroverted or unrebutted evidence."26 The RTC's finding, however, is neither borne out by the records nor by substantial evidence. Hence, it constitutes an exception to the rule that this Court cannot review factual findings.27 Indeed, a thorough review of the records reveals that the averments of respondent were ably controverted by denials made by petitioner. Negating his claim that the house was located adjacent to a creek,28 it lengthily argued against it in the Memorandum it submitted to the trial court. Likewise, it must be stressed that under the Rules of Court,29 the defense alleged in his Answer is deemed controverted, whether or not petitioner filed a reply. Moreover, it is a basic rule of evidence that the party asserting an affirmative allegation must prove it.30 However, all that there is to back up the defense of respondent in this case is his self-serving testimony and that of his witness, Domingo. As to the latter's testimony, it suffices to say that he could not have affirmed the alleged condition of the unit in 1992, as he took possession of it only in 1996, four years after it had lain exposed to the elements with no improvements whatsoever. For four years, respondent likewise kept his silence about the purported condition of the unit. He accepted it without any whimper of protest on October 23, 1992, and even paid the housing loan in full in December of the same year. If it was indeed uninhabitable, he should have refused to accept it or immediately protested its condition. On the other hand, there is enough documentary evidence to debunk his claim. The report of petitioner's Internal Audit Service31 significantly established that 509 of the 728 awardees -- presumably situated similarly as he was -- had occupied their units in compliance with the assailed requirement. The Interview Slip32 submitted in evidence by petitioner also showed that Penus and his wife, and later Domingo, had lived in the unit since 1992. In the face of these facts, it is difficult to believe the defense of respondent. For how could the units be habitable to many others, but not to him? Likewise, this Court takes judicial notice of the fact that low-cost houses such as those offered by petitioner33 are usually core or shell units without adequate divisions, ceilings, cabinets, paint and, in some cases, electrical connections -features that have to be installed, completed or refurbished by the awardees. The idea, of course, is to provide immediate but affordable living spaces that they can work at improving, according to their needs and finances and while living therein. Certainly, at P172,978.85 (the cost of the house and lot in this case), it is but fair to accept the lack of amenities. Neither can respondent assail the validity of the Contract as a one-sided "take it or leave it" agreement. To begin with, a contract of adhesion -- wherein one party imposes a ready-made form of contract on the other -- is not strictly against the law.34 The terms of the agreement cannot be modified, but can be freely rejected in its entirety, by the other party. On the other hand, the latter's adherence thereto would mean consent.35 We need only to remind respondent that contractual obligations between the parties have the force of law and must be complied with in good faith.36 We therefore do not see any reason to discuss respondent's added arguments, other than to say that the objectives of low-cost housing -- mandated under the social justice provisions of the Constitution37 -- are too important to be sidetracked by lame, untimely and unfounded excuses. Such excuses do nothing but harm to the salutary efforts of providing the underprivileged and the

homeless with cheap but decent houses. It is for this reason that we regard this case as no ordinary skirmish over contractual relations. Rescission In view of the foregoing discussion, we rule that rescission of the Contract is the proper recourse. Article 1191 of the Civil Code provides: "Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. "The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible." As noted in previous cases, the rescission contemplated under Article 1191 is a principal action for "resolution," which is based on a breach by a party of its reciprocal obligations.38 The present Contract is one of conditional sale -oftentimes referred to as a contract to sell, wherein ownership or title is retained by the vendor39 until "full payment by the VENDEE of the full purchase price of the PROPERTY, with all the interest due thereon, as well as taxes and other charges AND upon their faithful compliance with all the conditions of this Contract x x x."40 Although a transfer of ownership or title from the seller to the buyer is normally predicated upon the payment of the purchase price, the parties are nevertheless free to stipulate other lawful conditions by which they bind themselves and upon which transfer of ownership depends.41 In this case, that other obligation was faithful compliance with the conditions of the Contract. Respondent did not faithfully comply with the conditions under subparagraphs (10)(a) and (c). His noncompliance also constituted a breach of his reciprocal obligations under the Deed. The Deed itself provides for its annulment and cancellation by reason of a breach of the terms and conditions stipulated therein. Paragraphs 11 and 12 provide thus: "11. Should the VENDEE violate, refuse or fail to comply with any of the terms and conditions stipulated herein, for whatever reason, or is found to have committed any misrepresentation in his/her application for EMPLOYEE HOUSING LOAN, this Contract shall be deemed annulled and cancelled without prejudice of the rights of the parties under Republic Act No. 6652, otherwise known as the Maceda Law, and shall entitle the VENDOR to immediately repossess the property as if this Contract was never made; for this purpose, the VENDEE shall be considered and treated as a tenant holding the property without the permission of the VENDOR, and must peacefully vacate the premises immediately upon repossession thereof by the VENDOR. The annulment and cancellation of this Contract and the right of the VENDOR to repossess the property shall become effective upon mere written notice thereof to the VENDEE. "12. In addition to the consequences stated in the immediately preceding paragraph, the VENDEE shall forfeit in favor of the VENDOR all the installments made, to stand as rent for his/her occupation of the property, likewise subject to the provisions of Republic Act No. 6552."42 (Italics supplied) However, this Court holds that the forfeiture provision under paragraph 12 does not apply to the payment made by respondent. The plain and simple reason is that he did not pay the purchase price by installment, but instead paid it in full in December 1992 -- two months after the delivery of the unit. Hence, that payment was beyond the ambit of Republic Act 6552, otherwise known as the Realty Installment Buyer Act or the Maceda Law. Doctrinally, mutual restitution must follow rescission. Under Article 1385 of the Civil Code, "rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interests x x x."43 Moreover, "[t]o rescind is to declare a contract void at its inception and to put an end to it as though it never was."44 Hence, rescission restores the parties to their relative positions, as if no contract has been made. Paragraph 11, cited above, supports the mutual restitution required in rescission. Respondent is thus obliged to return the house and lot sold, as well as rental payments he may have earned, if any. On the other hand, petitioner is mandated to refund to him his full payment of P172,978.85 plus legal interest of 6 percent per annum, as well as the value of substantial improvements introduced by him, as appraised by petitioner. Indeed, stipulated in the Deed is such appraisal by the

24

vendor,45 upon transfer of the property to petitioner or to any of its eligible employees. This condition is reasonably and justly applicable and proper in the present case. WHEREFORE, this Petition is hereby GRANTED and the assailed Decision SET ASIDE. The Deed of Conditional Sale is CANCELLED. Petitioner is ORDERED to pay respondent P172,978.85, plus the legal interest and the value of any substantial improvements thereon. Respondent is ORDERED to vacate immediately Block 18, Lot 8, SSS Housing, North Fairview, Quezon City; and to surrender possession thereof to petitioner. No costs. SO ORDERED.

(now Regional Trial Courtof Pasay City). In due time, Delta filed its amended answer with applications for the issuance of a writ of preliminary mandatory injunction to enforce the management takeover clause and a writ of preliminary attachment over the buses it sold to CBLI. [10] On December 27, 1982,

[11] the trial court granted Deltas prayer for issuance of a writ of preliminary
mandatory injunction and preliminary attachment on account of the fraudulent disposition by CBLI of its assets. On September 15, 1983, pursuant to the Memorandum of Agreement, Delta executed a Deed of Sale[12] assigning to SIHI five (5) of the sixteen (16) promissory notes[13] from California Bus Lines, Inc. At the time of assignment, these five promissory notes, identified and numbered as 80-53, 8054, 80-55, 80-56, and 80-57, had a total value ofP16,152,819.80 inclusive of interest at 14% per annum. SIHI subsequently sent a demand letter dated December 13, 1983,

[14] to CBLI requiring CBLI to remit the payments due on the five promissory
[G.R. No. 147950. December 11, 2003] CALIFORNIA BUS LINES, INC., petitioner, vs. STATE INVESTMENT HOUSE, INC., respondent. DECISION QUISUMBING, J.: In this petition for review, California Bus Lines, Inc., assails the decision, notes directly to it. CBLI replied informing SIHI of Civil Case No. 0023-P and of the fact that Delta had taken over its management and operations.[15] As regards Deltas remaining obligation to SIHI, Delta offered its available bus units, valued at P27,067,162.22, as payment in kind. [16] On December 29, 1983, SIHI accepted Deltas offer, and Delta transferred the ownership of its available buses to SIHI, which in turn acknowledged full payment of Deltas remaining obligation.[17] When SIHI was unable to take possession of the buses, SIHI filed a petition for recovery of possession with prayer for issuance of a writ of replevin before the RTC of Manila, Branch 6, docketed as Civil Case No. 84-23019. The Manila RTC issued a writ of replevin and SIHI was able to take possession of 17 bus units belonging to Delta. SIHI applied the proceeds from the sale of the said 17 buses amounting to P12,870,526.98 to Deltas outstanding obligation. Deltas obligation to SIHI was thus reduced to P20,061,898.97. On December 5, 1984, Branch 6 of the RTC of Manila rendered judgment in Civil Case No. 84-23019 ordering Delta to pay SIHI this amount. Thereafter, Delta and CBLI entered into a compromise agreement on July 24, 1984,[18] in Civil Case No. 0023-P, the injunction case before the RTC of Pasay. CBLI agreed that Delta would exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units. The RTC of Pasay approved this compromise agreement the following day,July 25, 1984.[19] Following this, CBLI vehemently refused to pay SIHI the value of the five promissory notes, contending that the compromise agreement was in full settlement of all its obligations to Delta including its obligations under the promissory notes. On December 26, 1984, SIHI filed a complaint, docketed as Civil Case No. 84-28505, against CBLI in the Regional Trial Court of Manila, Branch 34, to collect on the five (5) promissory notes with interest at 14% p.a. SIHI also prayed for the issuance of a writ of preliminary attachment against the properties of CBLI.[20] On December 28, 1984, Delta filed a petition for extrajudicial foreclosure of chattel mortgages pursuant to its compromise agreement with CBLI. On January 2, 1985, Delta filed in the RTC of Pasay a motion for execution of the judgment based on the compromise agreement.[21] The RTC of Pasay granted this motion the following day.[22] In view of Deltas petition and motion for execution per the judgment of compromise, the RTC of Manila granted in Civil Case No. 8428505 SIHIs application for preliminary attachment on January 4, 1985. [23] Consequently, SIHI was able to attach and physically take possession of thirty-two (32) buses belonging to CBLI.[24] However, acting on CBLIsmotion to quash the writ of preliminary attachment, the same court resolved on January 15, 1986,[25] to discharge the writ of preliminary attachment. SIHI assailed the discharge of the writ before the Intermediate Appellate Court (now Court of Appeals) in a petition for certiorari and prohibition, docketed as CA-G.R. SP No. 08378. On July 31, 1987, the Court of Appeals granted SIHIs petition in CA-GR SP No. 08378 and ruled that the writ of preliminary attachment issued by Branch 34 of the RTC Manila in Civil Case No. 84-28505 should stay.[26] The decision of the Court of Appeals attained finality on August 22, 1987.[27] Meanwhile, pursuant to the January 3, 1985 Order of the RTC of Pasay, the sheriff of Pasay City conducted a public auction and issued a certificate of sheriffs sale to Delta on April 2, 1987, attesting to the fact that Delta bought 14 of the 35 buses for P3,920,000.[28] On April 7, 1987, the sheriff of Manila, by virtue of the writ of execution dated March 27, 1987, issued by Branch 6 of the RTC of Manila in Civil Case No. 84-23019, sold the same 14 buses at public auction in partial satisfaction of the judgment SIHI obtained against Delta in Civil Case No. 84-23019. Sometime in May 1987, Civil Case No. 84-28505 was raffled to Branch 13 of the RTC of Manila in view of the retirement of the presiding judge of Branch 34. Subsequently, SIHI moved to sell the sixteen (16) buses of CBLI

[1] dated April 17, 2001, of the Court of Appeals in CA-G.R. CV No. 52667, reversing the judgment[2], dated June 3, 1993, of the Regional Trial Court of
Manila, Branch 13, in Civil Case No. 84-28505 entitled State Investment House, Inc. v. California Bus Lines, Inc., for collection of a sum of money. The Court of Appeals held petitioner California Bus Lines, Inc., liable for the value of five promissory notes assigned to respondent State Investment House, Inc. The facts, as culled from the records, are as follows: Sometime in 1979, Delta Motors CorporationM.A.N. Division (Delta) applied for financial assistance from respondent State Investment House, Inc. (hereafter SIHI), a domestic corporation engaged in the business of quasibanking. SIHI agreed to extend a credit line to Delta for P25,000,000.00 in three separate credit agreements dated May 11, June 19, and August 22, 1979. [3] On several occasions, Delta availed of the credit line by discounting with SIHI some of its receivables, which evidence actual sales of Deltas vehicles. Delta eventually became indebted to SIHI to the tune of P24,010,269.32.[4] Meanwhile, from April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units of M.A.N. Diesel Conversion Engines from Delta. To secure the payment of the purchase price of the 35 buses, CBLI and its president, Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes in favor of Delta on January 23 and April 25, 1980.[5] In each promissory note, CBLI promised to pay Delta or order, P2,314,000 payable in 60 monthly installments starting August 31, 1980, with interest at 14% per annum. CBLI further promised to pay the holder of the said notes 25% of the amount due on the same as attorneys fees and expenses of collection, whether actually incurred or not, in case of judicial proceedings to enforce collection. In addition to the notes, CBLI executed chattel mortgages over the 35 buses in Deltas favor. When CBLI defaulted on all payments due, it entered into a restructuring agreement with Delta on October 7, 1981, to cover its overdue obligations under the promissory notes.[6]The restructuring agreement provided for a new schedule of payments of CBLIs past due installments, extending the period to pay, and stipulating daily remittance instead of the previously agreed monthly remittance of payments. In case of default, Delta would have the authority to take over the management and operations of CBLI until CBLI and/or its president, Mr. Dionisio Llamas, remitted and/or updated CBLIs past due account. CBLI and Delta also increased the interest rate to 16% p.a. and added a documentation fee of 2% p.a. and a 4% p.a. restructuring fee. On December 23, 1981, Delta executed a Continuing Deed of Assignment of Receivables[7] in favor of SIHI as security for the payment of its obligations to SIHI per the credit agreements. In view of Deltas failure to pay, the loan agreements were restructured under a Memorandum of Agreement dated March 31, 1982.[8] Delta obligated itself to pay a fixed monthly amortization of P400,000 to SIHI and to discount with SIHI P8,000,000 worth of receivables with the understanding that SIHI shall apply the proceeds against Deltas overdue accounts. CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to threaten CBLI with the enforcement of the management takeover clause. To pre-empt the take-over, CBLI filed on May 3, 1982, a complaint for injunction[9], docketed as Civil Case No. 0023-P, with the Court of First Instance of Rizal, Pasay City,

25

which had previously been attached by the sheriff in Civil Case No. 84-28505 pursuant to the January 4, 1985, Order of the RTC of Manila. [29] SIHIs motion was granted on December 16, 1987.[30] On November 29, 1988, however, SIHI filed an urgent ex-parte motion to amend this order claiming that through inadvertence and excusable negligence of its new counsel, it made a mistake in the list of buses in the Motion to Sell Attached Properties it had earlier filed.[31] SIHI explained that 14 of the buses listed had already been sold to Delta on April 2, 1987, by virtue of the January 3, 1985 Order of the RTC of Pasay, and that two of the buses listed had been released to third party, claimant Pilipinas Bank, by Order dated September 16, 1987[32] of Branch 13 of the RTC of Manila. CBLI opposed SIHIs motion to allow the sale of the 16 buses. On May 3, 1989,[33] Branch 13 of the RTC of Manila denied SIHIs urgent motion to allow the sale of the 16 buses listed in its motion to amend. The trial court ruled that the best interest of the parties might be better served by denying further sales of the buses and to go direct to the trial of the case on the merits.[34] After trial, judgment was rendered in Civil Case No. 84-28505 on June 3, 1993, discharging CBLI from liability on the five promissory notes. The trial court likewise favorably ruled on CBLIs compulsory counterclaim. The trial court directed SIHI to return the 16 buses or to pay CBLI P4,000,000 representing the value of the seized buses, with interest at 12% p.a. to begin from January 11, 1985, the date SIHI seized the buses, until payment is made. In ruling against SIHI, the trial court held that the restructuring agreement dated October 7, 1981, between Delta and CBLI novated the five promissory notes; hence, at the time Delta assigned the five promissory notes to SIHI, the notes were already merged in the restructuring agreement and cannot be enforced against CBLI. SIHI appealed the decision to the Court of Appeals. The case was docketed as CA-G.R. CV No. 52667. On April 17, 2001, the Court of Appeals decided CA-G.R. CV No. 52667 in this manner: WHEREFORE, based on the foregoing premises and finding the appeal to be meritorious, We find defendant-appellee CBLI liable for the value of the five (5) promissory notes subject of the complaint a quoless the proceeds from the attached sixteen (16) buses. The award of attorneys fees and costs is eliminated. The appealed decision is hereby REVERSED. No costs. SO ORDERED.[35] Hence, this appeal where CBLI contends that I. THE COURT OF APPEALS ERRED IN DECLARING THAT THE RESTRUCTURING AGREEMENT BETWEEN DELTA AND THE PETITIONER DID NOT SUBSTANTIALLY NOVATE THE TERMS OF THE FIVE PROMISSORY NOTES. II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPROMISE AGREEMENT BETWEEN DELTA AND THE PETITIONER IN THE PASAY CITY CASE DID NOT SUPERSEDE AND DISCHARGE THE PROMISSORY NOTES. III. THE COURT OF APPEALS ERRED IN UPHOLDING THE CONTINUING VALIDITY OF THE PRELIMINARY ATTACHMENT AND EXONERATING THE RESPONDENT OF MALEFACTIONS IN PRESERVING AND ASSERTING ITS RIGHTS THEREUNDER.[36] Essentially, the issues are (1) whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI, and (2) whether the compromise agreement in Civil Case No. 0023-P superseded and/or discharged the subject five promissory notes. The issues being interrelated, they shall be jointly discussed. CBLI first contends that the Restructuring Agreement did not merely change the incidental elements of the obligation under all sixteen (16) promissory notes, but it also increased the obligations of CBLI with the addition of new obligations that were incompatible with the old obligations in the said notes.[37] CBLI adds that even if the restructuring agreement did not totally extinguish the obligations under the sixteen (16) promissory notes, the July 24, 1984, compromise agreement executed in Civil Case No. 0023-P did. [38] CBLI cites paragraph 5 of the compromise agreement which states that the agreement between it and CBLI was in full and final settlement, adjudication and termination of all their rights and obligations as of the date of (the) agreement, and of the issues in (the) case. According to CBLI, inasmuch as the five promissory notes were subject matters of the Civil Case No. 0023-P, the decision approving the compromise agreement operated as res judicata in the present case.[39] Novation has been defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates

the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor.[40] Novation, in its broad concept, may either be extinctive or modificatory.

[41] It is extinctive when an old obligation is terminated by the creation of a

new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement.[42] An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal).[43] Novation has two functions: one to extinguish an existing obligation, the other to substitute a new one in its place. [44] For novation to take place, four essential requisites have to be met, namely, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.[45] Novation is never presumed,[46] and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.[47] The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. [48] The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one.[49] Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts.[50] While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations. There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence.[51] If they cannot, they are incompatible and the latter obligationnovates the first.[52] Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.[53] The necessity to prove the foregoing by clear and convincing evidence is accentuated where the obligation of the debtor invoking the defense of novation has already matured.[54] With respect to obligations to pay a sum of money, this Court has consistently applied the well-settled rule that the obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, and adds other obligations not incompatible with the old ones, or where the new contract merely supplements the old one.[55] In Inchausti & Co. v. Yulo[56] this Court held that an obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and adding other obligations not incompatible with the old one. In Tible v. Aquino[57] and Pascual v. Lacsamana[58] this Court declared that it is well settled that a mere extension of payment and the addition of another obligation not incompatible with the old one is not a novation thereof. In this case, the attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed on October 7, 1981, shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal declaration of extinguishment of the pre-existing obligation, only a showing of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication.[59] However, our review of its terms yields no incompatibility between the promissory notes and the restructuring agreement. The five promissory notes, which Delta assigned to SIHI on September 13, 1983, contained the following common stipulations: 1. They were payable in 60 monthly installments up to July 31, 1985; Interest: 14% per annum;

2.

26

3.

Failure to pay any of the installments would render the entire remaining balance due and payable at the option of the holder of the notes; In case of judicial collection on the notes, the maker (CBLI) and co-maker (its president, Mr. Dionisio O. Llamas, Jr) were solidarily liable of attorneys fees and expenses of 25% of the amount due in addition to the costs of suit.

representatives in monitoring said operations shall be made available by CBL and LLAMAS. 5. Within thirty (30) days after the end of the terms of the PN Nos. 16 to 26 and 52 to 57, CBL or LLAMAS shall remit in lump sum whatever balance is left after deducting all payments made from what is due and payable to DMC in accordance with paragraph 1 of this agreement and PN Nos. 16 to 26 and 52 to 57. 6. In the event that CBL and LLAMAS fail to remit the daily remittance agreed upon and the total accumulated unremitted amount has reached and (sic) equivalent of Sixty (60) days, DMC and Silverio shall exercise any or all of the following options: (a) The whole sum remaining then unpaid plus 2% penalty per month and 16% interest per annum on total past due installments will immediately become due and payable. In the event of judicial proceedings to enforce collection, CBL and LLAMAS will pay to DMC an additional sum equivalent to 25% of the amount due for attorneys fees and expenses of collection, whether actually incurred or not, in addition to the cost of suit; To enforce in accordance with law, their rights under the Chattel Mortgage over various M.A.N. Diesel bus with Nos. CU 80-39, 80-40, 80-41, 80-42, 80-43, 80-44 and 80-15, and/or To take over management and operations of CBL until such time that CBL and/or LLAMAS have remitted and/or updated their past due account with DMC.

4.

The restructuring agreement, for its part, had the following provisions: WHEREAS, CBL and LLAMAS admit their past due installment on the following promissory notes: a. PN Nos. 16 to 26 (11 units) Past Due as of September 30, 1981 P1,411,434.00 b. PN Nos. 52 to 57 (24 units) Past Due as of September 30, 1981 P1,105,353.00 WHEREAS, the parties agreed to restructure the above-mentioned past due installments under the following terms and conditions: a. PN Nos. 16 to 26 (11 units) 37 months PN Nos. 52 to 57 (24 units) 46 months b. Interest Rate: 16% per annum c. Documentation Fee: 2% per annum d. Penalty previously incurred and Restructuring fee: 4% p.a. e. Mode of Payment: Daily Remittance NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereby agree and covenant as follows: 1. That the past due installment referred to above plus the current and/or falling due amortization as of October 1, 1981 for Promissory Notes Nos. 16 to 26 and 52 to 57 shall be paid by CBL and/or LLAMAS in accordance with the following schedule of payments: Daily payments of P11,000.00 from October 1 to December 31, 1981 Daily payments of P12,000.00 from January 1, 1982 to March 31, 1982 Daily payments of P13,000.00 from April 1, 1982 to June 30, 1982 Daily payments of P14,000.00 from July 1, 1982 to September 30, 1982 Daily payments of P15,000.00 from October 1, 1982 to December 31, 1982 Daily payments of P16,000.00 from January 1, 1983 to June 30, 1983 Daily payments of P17,000.00 from July 1, 1983 2. CBL or LLAMAS shall remit to DMC on or before 11:00 a.m. everyday the daily cash payments due to DMC in accordance with the schedule in paragraph 1. DMC may send a collector to receive the amount due at CBLs premises. All delayed remittances shall be charged additional 2% penalty interest per month. 3. All payments shall be applied to amortizations and penalties due in accordance with paragraph of the restructured past due installments above mentioned and PN Nos. 16 to 26 and 52 to 57. 4. DMC may at anytime assign and/or send its representatives to monitor the operations of CBL pertaining to the financial and field operations and service and maintenance matters of M.A.N. units. Records needed by the DMC

(b)

(c)

7. DMC and SILVERIO shall insure to CBL continuous supply of spare parts for the M.A.N. Diesel Buses and shall make available to CBL at the price prevailing at the time of purchase, an inventory of spare parts consisting of at least ninety (90%) percent of the needs of CBL based on a moving 6-month requirement to be prepared and submitted by CBL, and acceptable to DMC, within the first week of each month. 8. Except as otherwise modified in this Agreement, the terms and conditions stipulated in PN Nos. 16 to 26 and 52 to 57 shall continue to govern the relationship between the parties and that the Chattel Mortgage over various M.A.N. Diesel Buses with Nos. CM No. 80-39, 80-40, 80-41, 80-42, 80-43, 8044 and CM No. 80-15 as well as the Deed of Pledge executed by Mr. Llamas shall continue to secure the obligation until full payment. 9. DMC and SILVERIO undertake to recall or withdraw its previous request to Notary Public Alberto G. Doller and to instruct him not to proceed with the public auction sale of the shares of stock of CBL subject-matter of the Deed of Pledge of Shares. LLAMAS, on the other hand, undertakes to move for the immediate dismissal of Civil Case No. 9460-P entitled Dionisio O. Llamas vs. Alberto G. Doller, et al., Court of First Instance of Pasay, Branch XXIX.[60] It is clear from the foregoing that the restructuring agreement, instead of containing provisions absolutely incompatible with the obligations of the judgment, expressly ratifies such obligations in paragraph 8 and contains provisions for satisfying them. There was no change in the object of the prior obligations. The restructuring agreement merely provided for a new schedule of payments and additional security in paragraph 6 (c) giving Delta authority to take over the management and operations of CBLI in case CBLI fails to pay installments equivalent to 60 days. Where the parties to the new obligation expressly recognize the continuing existence and validity of the old one, there can be no novation.[61]Moreover, this Court has ruled that an agreement subsequently executed between a seller and a buyer that provided for a different schedule and manner of payment, to restructure the mode of payments by the buyer so that it could settle its outstanding obligation in spite of its delinquency in payment, is not tantamount to novation. [62] The addition of other obligations likewise did not extinguish the promissory notes. In Young v. CA[63], this Court ruled that a change in the incidental elements of, or an addition of such element to, an obligation, unless otherwise expressed by the parties will not result in its extinguishment. In fine, the restructuring agreement can stand together with the promissory notes. Neither is there merit in CBLIs argument that the compromise agreement dated July 24, 1984, in Civil Case No. 0023-P superseded and/or discharged the five promissory notes. Both Delta and CBLI cannot deny that the five promissory notes were no longer subject of Civil Case No. 0023-P when they entered into the compromise agreement on July 24, 1984. Having previously assigned the five promissory notes to SIHI, Delta had no more right to compromise the same. Deltas limited authority to collect for

27

SIHI stipulated in theSeptember 13, 1985, Deed of Sale cannot be construed to include the power to compromise CBLIs obligations in the said promissory notes. An authority to compromise, by express provision of Article 1878[64] of the Civil Code, requires a special power of attorney, which is not present in this case. Incidentally, Deltas authority to collect in behalf of SIHI was, by express provision of the Continuing Deed of Assignment, [65] automatically revoked when SIHI opted to collect directly from CBLI. As regards CBLI, SIHIs demand letter dated December 13, 1983, requiring CBLI to remit the payments directly to SIHI effectively revoked Deltas limited right to collect in behalf of SIHI. This should have dispelled CBLIs erroneous notion that Delta was acting in behalf of SIHI, with authority to compromise the five promissory notes. But more importantly, the compromise agreement itself provided that it covered the rights and obligations only of Delta and CBLI and that it did not refer to, nor cover the rights of, SIHI as the new creditor of CBLI in the subject promissory notes. CBLI and Delta stipulated in paragraph 5 of the agreement that: 5. This COMPROMISE AGREEMENT constitutes the entire understanding by and between the plaintiffs and the defendants as well as their lawyers, and operates as full and final settlement, adjudication and termination of all their rights and obligations as of the date of this agreement, and of the issues in this case.[66] Even in the absence of such a provision, the compromise agreement still cannot bind SIHI under the settled rule that a compromise agreement determines the rights and obligations of only the parties to it.[67] Therefore, we hold that the compromise agreement covered the rights and obligations only of Delta and CBLI and only with respect to the eleven (11) other promissory notes that remained with Delta. CBLI next maintains that SIHI is estopped from questioning the compromise agreement because SIHI failed to intervene in Civil Case No. 0023P after CBLI informed it of the takeover by Delta of CBLIs management and operations and the resultant impossibility for CBLI to comply with its obligations in the subject promissory notes. CBLI also adds thatSIHIs failure to intervene in Civil Case No. 0023-P is proof that Delta continued to act in SIHIs behalf in effecting collection under the notes. The contention is untenable. As a result of the assignment, Delta relinquished all its rights to the subject promissory notes in favor of SIHI. This had the effect of separating the five promissory notes from the 16 promissory notes subject of Civil Case No. 0023-P. From that time, CBLIs obligations to SIHI embodied in the five promissory notes became separate and distinct from CBLIs obligations in eleven (11) other promissory notes that remained with Delta. Thus, any breach of these independent obligations gives rise to a separate cause of action in favor of SIHI against CBLI. Considering that Deltas assignment to SIHI of these five promissory notes had the effect of removing the said notes from Civil Case No. 0023-P, there was no reason for SIHI to intervene in the said case. SIHI did not have any interest to protect in Civil Case No. 0023-P. Moreover, intervention is not mandatory, but only optional and permissive.[68] Notably, Section 2,[69] Rule 12 of the then 1988 Revised Rules of Procedure uses the word may in defining the right to intervene. The present rules maintain the permissive nature of intervention in Section 1, Rule 19 of the 1997 Rules of Civil Procedure, which provides as follows: SEC. 1. Who may intervene.A person who has a legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof may, with leave of court, be allowed to intervene in the action. The court shall consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties, and whether or not the intervenor's rights may be fully protected in a separate proceeding.[70] Also, recall that Delta transferred the five promissory notes to SIHI on September 13, 1983 while Civil Case No. 0023-P was pending. Then as now, the rule in case of transfer of interest pendente lite is that the action may be continued by or against the original party unless the court, upon motion, directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.[71] The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party.[72] In light of the foregoing, SIHIs refusal to intervene in Civil Case No. 0023-P in another court does not amount to an estoppel that may prevent SIHI from instituting a separate and independent action of its own.[73] This is especially so since it does not appear that a separate proceeding would be inadequate to protect fully SIHIs rights.[74] Indeed, SIHIs refusal to intervene is precisely because it considered that its rights would be better protected in a separate and independent suit.

The judgment on compromise in Civil Case No. 0023-P did not operate as res judicata to prevent SIHI from prosecuting its claims in the present case. As previously discussed, the compromise agreement and the judgment on compromise in Civil Case No. 0023-P covered only Delta and CBLI and their respective rights under the 11 promissory notes not assigned to SIHI. In contrast, the instant case involves SIHI and CBLI and the five promissory notes. There being no identity of parties and subject matter, there is no res judicata. CBLI maintains, however, that in any event, recovery under the subject promissory notes is no longer allowed by Article 1484(3) [75] of the Civil Code, which prohibits a creditor from suing for the deficiency after it has foreclosed on the chattel mortgages. SIHI, being the successor-in-interest of Delta, is no longer allowed to recover on the promissory notes given as security for the purchase price of the 35 buses because Delta had already extrajudicially foreclosed on the chattel mortgages over the said buses on April 2, 1987. This claim is likewise untenable. Article 1484(3) finds no application in the present case. The extrajudicial foreclosure of the chattel mortgages Delta effected cannot prejudice SIHIs rights. As stated earlier, the assignment of the five notes operated to create a separate and independent obligation on the part of CBLI to SIHI, distinct and separate from CBLIs obligations to Delta. And since there was a previous revocation of Deltas authority to collect for SIHI, Delta was no longer SIHIs collecting agent. CBLI, in turn, knew of the assignment and Deltas lack of authority to compromise the subject notes, yet it readily agreed to the foreclosure. To sanction CBLIs argument and to apply Article 1484 (3) to this case would work injustice to SIHI by depriving it of its right to collect against CBLI who has not paid its obligations. That SIHI later on levied on execution and acquired in the ensuing public sale in Civil Case No. 84-23019 the buses Delta earlier extrajudicially foreclosed on April 2, 1987, in Civil Case No. 0023-P, did not operate to render the compromise agreement and the foreclosure binding on SIHI. At the time SIHI effected the levy on execution to satisfy its judgment credit against Delta in Civil Case No. 84-23019, the said buses already pertained to Delta by virtue of the April 2, 1987 auction sale. CBLI no longer had any interest in the said buses. Under the circumstances, we cannot see how SIHIs belated acquisition of the foreclosed buses operates to hold the compromise agreementand consequently Article 1484(3)applicable to SIHI as CBLI contends. CBLIs last contention must, therefore, fail. We hold that the writ of execution to enforce the judgment of compromise in Civil Case No. 0023-P and the foreclosure sale of April 2, 1987, done pursuant to the said writ of execution affected only the eleven (11) other promissory notes covered by the compromise agreement and the judgment on compromise in Civil Case No. 0023-P. In support of its third assignment of error, CBLI maintains that there was no basis for SIHIs application for a writ of preliminary attachment. [76] According to CBLI, it committed no fraud in contracting its obligation under the five promissory notes because it was financially sound when it issued the said notes on April 25, 1980.[77] CBLI also asserts that at no time did it falsely represent to SIHI that it would be able to pay its obligations under the five promissory notes.[78] According to CBLI, it was not guilty of fraudulent concealment, removal, or disposal, or of fraudulent intent to conceal, remove, or dispose of its properties to defraud its creditors; [79] and that SIHIs bare allegations on this matter were insufficient for the preliminary attachment of CBLIs properties.[80] The question whether the attachment of the sixteen (16) buses was valid and in accordance with law, however, has already been resolved with finality by the Court of Appeals in CA-G.R. SP No. 08376. In its July 31, 1987, decision, the Court of Appeals upheld the legality of the writ of preliminary attachment SIHI obtained and ruled that the trial court judge acted with grave abuse of discretion in discharging the writ of attachment despite the clear presence of a determined scheme on the part of CBLI to dispose of its property. Considering that the said Court of Appeals decision has already attained finality on August 22, 1987, there exists no reason to resolve this question anew. Reasons of public policy, judicial orderliness, economy and judicial time and the interests of litigants as well as the peace and order of society, all require that stability be accorded the solemn and final judgments of courts or tribunals of competent jurisdiction.[81] Finally, in the light of the justness of SIHIs claim against CBLI, we cannot sustain CBLIs contention that the Court of Appeals erred in dismissing its counterclaim for lost income and the value of the 16 buses over which SIHI obtained a writ of preliminary attachment. Where the party who requested the attachment acted in good faith and without malice, the claim for damages resulting from the attachment of property cannot be sustained.[82] WHEREFORE, the decision dated April 17, 2001, of the Court of Appeals in CA-G.R. CV No. 52667 is AFFIRMED. Petitioner California Bus Lines, Inc., is ORDERED to pay respondent State Investment House, Inc., the value of the five (5) promissory notes subject of the complaint in Civil Case No. 84-28505 less the proceeds from the sale of the attached sixteen (16) buses. No pronouncement as to costs.

28

SO ORDERED.

On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed to Valdes-Choy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay the capital gains tax as she did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt showing that Chua had a remaining balance of P10,215,000.00 after deducting the advances made by Chua. This receipt reads: April 9, 2003 July 14, 1989

G.R. No. 119255

TOMAS K. CHUA, petitioner, vs. COURT OF APPEALS and ENCARNACION VALDESCHOY, respondents. CARPIO, J.: The Case This is a petition for review on certiorari seeking to reverse the decision of the Court of Appeals in an action for specific performance2 filed in the Regional Trial Court3 by petitioner Tomas K. Chua ("Chua") against respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to compel ValdesChoy to consummate the sale of her paraphernal house and lot in Makati City. The Court of Appeals reversed the decision4 rendered by the trial court in favor of Chua. The Facts Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area of 718 square meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village, Makati City. The Property is covered by Transfer Certificate of Title No. 162955 ("TCT") issued by the Register of Deeds of Makati City in the name of Valdes-Choy. Chua responded to the advertisement. After several meetings, Chua and Valdes-Choy agreed on a purchase price of P10,800,000.00 payable in cash. On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt ("Receipt") evidencing the transaction, signed by Valdes-Choy as seller, and Chua as buyer, reads: 30 June 1989 RECEIPT RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for the sale of the property located at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro Manila (Area : 718 sq. meters). The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before 155July 1989. Capital Gains Tax for the account of the seller. Failure to pay balance on or before 15 July 1989 forfeits the earnest money. This provided that all papers are in proper order.6 CONFORME: ENCARNACION VALDES Seller TOMAS K. CHUA Buyer x x x.7 In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a manager's check for P480,000.00. Strangely, after securing the manager's check, Chua immediately gave PBCom a verbal stop payment order claiming that this manager's check for P480,000.00 "was lost and/or misplaced."8 On the same day, after receipt of Chua's verbal order, PBCom Assistant VicePresident Julie C. Pe notified in writing9 the PBCom Operations Group of Chua's stop payment order. In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to execute the necessary documents and arrange the payments.10 Valdes-Choy as vendor and Chua as vendee signed two Deeds of Absolute Sale ("Deeds of Sale"). The first Deed of Sale covered the house and lot for the purchase price of P8,000,000.00.11 The second Deed of Sale covered the furnishings, fixtures and movable properties contained in the house for the purchase price of P2,800,000.00.12 The parties also computed the capital gains tax to amount to P485,000.00.
1

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of FOUR HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial Payment for the sale of the property located at 40 Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati, Metro Manila (Area 718 sq. meters), covered by TCT No. 162955 of the Registry of Deeds of Makati, Metro Manila. The total purchase price of the above-mentioned property is TEN MILLION EIGHT HUNDRED THOUSAND PESOS only, broken down as follows: P10,800,000.0 0 P100,000.0 0 485,000.00 585,000.00 BALANCE DUE TO ENCARNACION VALDEZ-CHOY PLUS P80,000.00 for documentary stamps paid in advance by seller

SELLING PRICE EARNEST MONEY PARTIAL PAYMENT

P10,215,000.0 0

80,000.00 P10,295,000.0 0 x x x.13

On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00 manager's check to her account with Traders Royal Bank. She then purchased a Traders Royal Bank manager's check for P480,000.00 payable to the Commissioner of Internal Revenue for the capital gains tax. Valdes-Choy and Chua returned to the office of Valdes-Choy's counsel and handed the Traders Royal Bank check to the counsel who undertook to pay the capital gains tax. It was then also that Chua showed to Valdes-Choy a PBCom manager's check for P10,215,000.00 representing the balance of the purchase price. Chua, however, did not give this PBCom manager's check to Valdes-Choy because the TCT was still registered in the name of Valdes-Choy. Chua required that the Property be registered first in his name before he would turn over the check to Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of Sale, claiming that what Chua required was not part of their agreement.14 On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to PBCom an affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-President Pe, however, testified that the manager's check was nevertheless honored because Chua subsequently verbally advised the bank that he was lifting the stop-payment order due to his "special arrangement" with the bank.16 On 15 July 1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy suggested to her counsel that to break the impasse Chua should deposit in escrow the P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of a new TCT in the name of Chua even without receiving the balance of the purchase price. Valdes-Choy believed this was the only way she could protect herself if the certificate of title is transferred in the name of the buyer before she is fully paid. Valdes-Choy's counsel promised to relay her suggestion to Chua and his counsel, but nothing came out of it. On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the trial court dismissed on 22 November 1989. On 29 November 1989, Chua re-filed his complaint for specific performance with damages. After trial in due course, the trial court rendered judgment in favor of Chua, the dispositive portion of which reads: Applying the provisions of Article 1191 of the new Civil Code, since this is an action for specific performance where the plaintiff, as vendee, wants to pursue the sale, and in order that the fears of the

29

defendant may be allayed and still have the sale materialize, judgment is hereby rendered: I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of this decision: a. the owner's duplicate copy of TCT No. 162955 registered in her name; b. the covering tax declaration and the latest tax receipt evidencing payment of real estate taxes; c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly executed by defendant in favor of the plaintiff, whether notarized or not; and 2. Within five (5) days from compliance by the defendant of the above, ordering the plaintiff to deliver to the Branch Clerk of Court of this Court the sum of P10,295,000.00 representing the balance of the consideration (with the sum of P80,000.00 for stamps already included); 3. Ordering the Branch Clerk of this Court or her duly authorized representative: a. to make representations with the BIR for the payment of capital gains tax for the sale of the house and lot (not to include the fixtures) and to pay the same from the funds deposited with her; b. to present the deed of sale executed in favor of the plaintiff, together with the owner's duplicate copy of TCT No. 162955, real estate tax receipt and proof of payment of capital gains tax, to the Makati Register of Deeds; c. to pay the required registration fees and stamps (if not yet advanced by the defendant) and if needed update the real estate taxes all to be taken from the funds deposited with her; and d. surrender to the plaintiff the new Torrens title over the property; 4. Should the defendant fail or refuse to surrender the two deeds of sale over the property and the fixtures that were prepared by Atty. Mark Bocobo and executed by the parties, the Branch Clerk of Court of this Court is hereby authorized and empowered to prepare, sign and execute the said deeds of sale for and in behalf of the defendant; 5. Ordering the defendant to pay to the plaintiff; a. the sum of P100,000.00 representing moral and compensatory damages for the plaintiff; and b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees and cost of litigation. 6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken from the funds said plaintiff has deposited with the Court, the amounts covered at paragraph 5 above; 7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom the following amounts: a. the capital gains tax paid to the BIR; b. the expenses incurred in the registration of the sale, updating of real estate taxes, and transfer of title; and c. the amounts paid under this judgment to the plaintiff. 8. Ordering the defendant to surrender to the plaintiff or his representatives the premises with the furnishings intact within seventy-two (72) hours from receipt of the proceeds of the sale; 9. No interest is imposed on the payment to be made by the plaintiff because he had always been ready to pay the balance and the

premises had been used or occupied by the defendant for the duration of this case. II. In the event that specific performance cannot be done for reasons or causes not attributable to the plaintiff, judgment is hereby rendered ordering the defendant: 1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at the legal rate from June 30, 1989 until fully paid; 2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July 14, 1989 until fully paid; 3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the additional sum of P300,000.00 in the concept of exemplary damages; and 4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's fees and cost of litigation. SO ORDERED.18 Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The Court of Appeals handed down a new judgment, disposing as follows: WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one is rendered: (1) Dismissing Civil Case No. 89-5772; (2) Declaring the amount of P100,000.00, representing earnest money as forfeited in favor of defendantappellant; (3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to plaintiff-appellee without interest; (4) Dismissing defendant-appellant's compulsory counterclaim; and (5) Ordering the plaintiff-appellee to pay the costs.19 Hence, the instant petition. The Trial Court's Ruling The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first paid the full consideration before a new TCT covering the Property is issued in the name of Chua. On the other hand, Chua did not want to pay the consideration in full unless a new TCT is first issued in his name. The trial court faulted Valdes-Choy for this impasse. The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by the Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to sell was subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers must be "in proper order" before full payment is made. The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he was prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the deadline of 15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He purchased from PBCom two manager's checks both payable to Valdes-Choy. The first check for P485,000.00 was to pay the capital gains tax. The second check for P10,215,000.00 was to pay the balance of the purchase price. The trial court was convinced that Chua demonstrated his capacity and readiness to pay the balance on 13 July 1989 with the production of the PBCom manager's check for P10,215,000.00. On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation under the contract to sell to put all the papers in order. The trial court noted that as of 14 July 1989, the capital gains tax had not been paid because Valdes-Choy's counsel who was suppose to pay the tax did not do so. The trial court declared that Valdes-Choy was in a position to deliver only the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The trial court concluded that these

30

documents were all useless without the Bureau of Internal Revenue receipt evidencing full payment of the capital gains tax which is a pre-requisite to the issuance of a new certificate of title in Chua's name. The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date was due to Valdes-Choy's fault. The Court of Appeals' Ruling In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full consideration only after the Property is registered in his name was not the agreement of the parties. The Court of Appeals noted that there is a whale of difference between the phrases "all papers are in proper order" as written on the Receipt, and "transfer of title" as demanded by Chua. Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in order and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a position to deliver the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The Property was also free from all liens and encumbrances. The Court of Appeals declared that the trial court erred in considering Chua's showing to Valdes-Choy of the PBCom manager's check for P10,215,000.00 as compliance with Chua's obligation to pay on or before 15 July 1989. The Court of Appeals pointed out that Chua did not want to give up the check unless "the property was already in his name."20 Although Chua demonstrated his capacity to pay, this could not be equated with actual payment which he refused to do. The Court of Appeals did not consider the non-payment of the capital gains tax as failure by Valdes-Choy to put the papers "in proper order." The Court of Appeals explained that the payment of the capital gains tax has no bearing on the validity of the Deeds of Sale. It is only after the deeds are signed and notarized can the final computation and payment of the capital gains tax be made. The Issues In his Memorandum, Chua raises the following issues: 1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE PROPERTY; 2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY WITHOUT OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE; 3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE AUTOMATIC RESCISSION OF THE CONTRACT OF SALE; 4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO DECLARE THE "EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS FORFEITED IN FAVOR OF VALDES-CHOY; 5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW, REASON AND EQUITY DESERVING OF BEING REINSTATED AND AFFIRMED.21 The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is a perfected contract of sale or a mere contract to sell, and (b) whether Chua can compel Valdes-Choy to cause the issuance of a new TCT in Chua's name even before payment of the full purchase price. The Court's Ruling The petition is bereft of merit. There is no dispute that Valdes-Choy is the absolute owner of the Property which is registered in her name under TCT No.162955, free from all liens and encumbrances. She was ready, able and willing to deliver to Chua the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. There is also no dispute that on 13 July 1989, Valdes-Choy received PBCom Check No. 206011 for P100,000.00 as earnest money from Chua. Likewise, there is no controversy that the Receipt for the P100,000.00 earnest money embodied the terms of the binding contract between Valdes-Choy and Chua.

Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on the following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money, provided that "all papers are in proper order." On 13 July 1989, Chua gave Valdes-Choy the PBCom manager's check for P485,000.00 to pay the capital gains tax. Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually paid to Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to Valdes-Choy the PBCom manager's check for P10,215,000.00, with Valdes-Choy as payee. However, Chua refused to give this check to ValdesChoy until a new TCT covering the Property is registered in Chua's name. Or, as the trial court put it, until there is proof of payment of the capital gains tax which is a pre-requisite to the issuance of a new certificate of title. First and Second Issues: Contract of Sale or Contract to Sell? Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the Receipt, as a contract to sell and not a contract of sale. This has been Chua's persistent contention in his pleadings before the trial and appellate courts. Chua now pleads for the first time that there is a perfected contract of sale rather than a contract to sell. He contends that there was no reservation in the contract of sale that Valdes-Choy shall retain title to the Property until after the sale. There was no agreement for an automatic rescission of the contract in case of Chua's default. He argues for the first time that his payment of earnest money and its acceptance by Valdes-Choy precludes the latter from rejecting the binding effect of the contract of sale. Thus, Chua claims that Valdes-Choy may not validly rescind the contract of sale without following Article 159222 of the Civil Code which requires demand, either judicially or by notarial act, before rescission may take place. Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the court below cannot be raised for the first time on appeal, as this is offensive to the basic rules of fair play, justice and due process.23 In addition, when a party deliberately adopts a certain theory, and the case is tried and decided on that theory in the court below, the party will not be permitted to change his theory on appeal. To permit him to change his theory will be unfair to the adverse party.24 Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of sale. The distinction between a contract of sale and contract to sell is well-settled: In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.25 A perusal of the Receipt shows that the true agreement between the parties was a contract to sell. Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua until full payment of the purchase price. First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay the balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can sell the Property to other interested parties. There is in effect a right reserved in favor of Valdes-Choy not to push through with the sale upon Chua's failure to remit the balance of the purchase price before the deadline. This is in the nature of a stipulation reserving ownership in the seller until full payment of the purchase price. This is also similar to giving the seller the right to rescind unilaterally the contract the moment the buyer fails to pay within a fixed period.26 Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in a deed of sale, ownership not having passed between them. The signing of the Deeds of Sale came later when Valdes-Choy was under the impression that Chua was about to pay the balance of the purchase price. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price.27 Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to the sale. When Chua refused to pay Valdes-Choy the

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balance of the purchase price, Valdes-Choy also refused to turn-over to Chua these documents.28 These are additional proof that the agreement did not transfer to Chua, either by actual or constructive delivery, ownership of the Property.29 It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest money is a forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance of the purchase price. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. If there is a contract of sale, ValdesChoy should have the right to compel Chua to pay the balance of the purchase price. Chua, however, has the right to walk away from the transaction, with no obligation to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract of sale. The earnest money was given in a contract to sell, and thus Article 1482, which speaks of a contract of sale, is not applicable. Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment of the purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. However, Article 1592 does not apply to a contract to sell where the seller reserves the ownership until full payment of the price.31 Third and Fourth Issues: Withholding of Payment of the Balance of the Purchase Price and Forfeiture of the Earnest Money Chua insists that he was ready to pay the balance of the purchase price but withheld payment because Valdes-Choy did not fulfill her contractual obligation to put all the papers in "proper order." Specifically, Chua claims that ValdesChoy failed to show that the capital gains tax had been paid after he had advanced the money for its payment. For the same reason, he contends that Valdes-Choy may not forfeit the earnest money even if he did not pay on time. There is a variance of interpretation on the phrase "all papers are in proper order" as written in the Receipt. There is no dispute though, that as long as the papers are "in proper order," Valdes-Choy has the right to forfeit the earnest money if Chua fails to pay the balance before the deadline. The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau of Internal Revenue receipt as proof of payment. The Court of Appeals held otherwise. We quote verbatim the ruling of the Court of Appeals on this matter: The trial court made much fuss in connection with the payment of the capital gains tax, of which Section 33 of the National Internal Revenue Code of 1977, is the governing provision insofar as its computation is concerned. The trial court failed to consider Section 34-(a) of the said Code, the last sentence of which provides, that "[t]he amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property (other than money) received;" and that the computation of the capital gains tax can only be finally assessed by the Commission on Internal Revenue upon the presentation of the Deeds of Absolute Sale themselves, without which any premature computation of the capital gains tax becomes of no moment. At any rate, the computation and payment of the capital gains tax has no bearing insofar as the validity and effectiveness of the deeds of sale in question are concerned, because it is only after the contracts of sale are finally executed in due form and have been duly notarized that the final computation of the capital gains tax can follow as a matter of course. Indeed, exhibit D, the PBC Check No. 325851, dated July 13, 1989, in the amount of P485,000.00, which is considered as part of the consideration of the sale, was deposited in the name of appellant, from which she in turn, purchased the corresponding check in the amount representing the sum to be paid for capital gains tax and drawn in the name of the Commissioner of Internal Revenue, which then allayed any fear or doubt that that amount would not be paid to the Government after all.32 We see no reason to disturb the ruling of the Court of Appeals. In a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. In this case, the suspensive condition is the full payment of the purchase price by Chua. Such full payment gives rise to Chua's right to demand the execution of the contract of sale.

It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale as follows: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownershipof and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. x x x. (Emphasis supplied) Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the buyer, even if there is a contract to sell between them. It is also upon the existence of the contract of sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled at the time of the execution of the contract of sale, in the absence of a contrary stipulation. In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as follows: Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. (Emphasis supplied) The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of title is still registered in the name of the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new certificate of title in the name of the buyer but by the execution of the instrument of sale in a public document. In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law commentator Arturo M. Tolentino explains it, Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of acquiring dominion and determines the transmission of ownership, the birth of the real right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505 signifies that the transmission of ownership from vendor to vendee has taken place. The delivery of the thing constitutes an indispensable requisite for the purpose of acquiring ownership. Our law does not admit the doctrine of transfer of property by mere consent; the ownership, the property right, is derived only from delivery of the thing. x x x.33 (Emphasis supplied) In a contract of sale of real property, delivery is effected when the instrument of sale is executed in a public document. When the deed of absolute sale is signed by the parties and notarized, then delivery of the real property is deemed made by the seller to the buyer. Article 1498 of the Civil Code provides that Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. x x x. Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed of absolute sale before a notary public, the seller is in a position to transfer ownership of the real property to the buyer. At this point, the seller complies with his undertaking to sell the real property in accordance with the contract to sell, and to assume all the obligations of a vendor under a contract of sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer ownership to the buyer. Neither is the seller obligated to cause the issuance of a new certificate of title in the name of the buyer. However, the seller must put all his papers in proper order to the point that he is in a position to transfer ownership of the real property to the buyer upon the signing of the contract of sale. In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller under the contract to sell. First, she already signed the Deeds of Sale in the office of her counsel in the presence of the buyer. Second, she was prepared to turn-over the owner's duplicate of the TCT to the buyer, along with the tax declarations and latest realty tax receipt. Clearly, at this point Valdes-Choy was ready, able and willing to transfer ownership of the Property to the buyer as required by the contract to sell, and by Articles 1458 and 1495 of the Civil Code to consummate the contract of sale.

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Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the balance of the purchase price. Chua imposed the condition that a new TCT should first be issued in his name, a condition that is found neither in the law nor in the contract to sell as evidenced by the Receipt. Thus, at this point Chua was not ready, able and willing to pay the full purchase price which is his obligation under the contract to sell. Chua was also not in a position to assume the principal obligation of a vendee in a contract of sale, which is also to pay the full purchase price at the agreed time. Article 1582 of the Civil Code provides that Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract. x x x. (Emphasis supplied) In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price "on or before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the balance of the purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by Chua, state as follows: Deed of Absolute Sale covering the lot: xxx For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency,receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and assigns, the said parcel of land, together with the improvements existing thereon, free from all liens and encumbrances.34 (Emphasis supplied) Deed of Absolute Sale covering the furnishings: xxx For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS (P2,800,000.00), Philippine Currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and assigns, the said furnitures, fixtures and other movable properties thereon, free from all liens and encumbrances.35 (Emphasis supplied) However, on the agreed date, Chua refused to pay the balance of the purchase price as required by the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was therefore in default and has only himself to blame for the rescission by Valdes-Choy of the contract to sell. Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper order." Article 1376 of the Civil Code provides that: Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. Customarily, in the absence of a contrary agreement, the submission by an individual seller to the buyer of the following papers would complete a sale of real estate: (1) owner's duplicate copy of the Torrens title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax receipt. The buyer can retain the amount for the capital gains tax and pay it upon authority of the seller, or the seller can pay the tax, depending on the agreement of the parties. The buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the government is concerned, the capital gains tax remains a liability of the seller since it is a tax on the seller's gain from the sale of the real estate.Payment of the capital gains tax, however, is not a prerequisite to the transfer of ownership to the buyer. The transfer of ownership takes effect upon the signing and notarization of the deed of absolute sale. The recording of the sale with the proper Registry of Deeds37 and the transfer of the certificate of title in the name of the buyer are necessary only to bind third parties to the transfer of ownership.38 As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument conveying the real estate.39 Registration of the sale with the Registry of Deeds, or the issuance of a new certificate of title, does not confer ownership on the buyer. Such registration or issuance of a new certificate of title is not one of the modes of acquiring ownership.40

In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that customarily would complete the sale, and to pay as well the capital gains tax. On the other hand, Chua's condition that a new TCT be first issued in his name before he pays the balance of P10,215,000.00, representing 94.58% of the purchase price, is not customary in a sale of real estate. Such a condition, not specified in the contract to sell as evidenced by the Receipt, cannot be considered part of the "omissions of stipulations which are ordinarily established" by usage or custom.41 What is increasingly becoming customary is to deposit in escrow the balance of the purchase price pending the issuance of a new certificate of title in the name of the buyer. Valdes-Choy suggested this solution but unfortunately, it drew no response from Chua. Chua had no reason to fear being swindled. Valdes-Choy was prepared to turnover to him the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. There was no hindrance to paying the capital gains tax as Chua himself had advanced the money to pay the same and Valdes-Choy had procured a manager's check payable to the Bureau of Internal Revenue covering the amount. It was only a matter of time before the capital gains tax would be paid. Chua acted precipitately in filing the action for specific performance a mere two days after the deadline of 15 July 1989 when there was an impasse. While this case was dismissed on 22 November 1989, he did not waste any time in re-filing the same on 29 November 1989. Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a suspensive condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property. Article 1181 of the Civil Code provides that ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired shall depend upon the happening of the event which constitutes the condition. Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him because the suspensive condition - the full payment of the purchase price - did not happen. There is no correlative obligation on the part of Valdes-Choy to transfer ownership of the Property to Chua. There is also no obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the name of Chua since unless expressly stipulated, this is not one of the obligations of a vendor. WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February 1995 is AFFIRMED in toto. SO ORDERED. G.R. No. 143169 January 21, 2005

JIMMY ANG, petitioner, vs. ELEANOR R. LUCERO, THE HONORABLE SECRETARY of JUSTICE, and THE CITY PROSECUTOR of MAKATI CITY, respondents. DECISION CARPIO, J.: The Case This petition for review1 assails the 29 October 1999 Decision2 and 25 April 2000 Resolution of the Court of Appeals in CA-G.R. SP No. 44778. The Court of Appeals dismissed the petition for certiorari filed by petitioner Jimmy Ang and affirmed the Resolutions issued by former Secretary of Justice Teofisto T. Guingona, Jr. The Antecedents The present controversy stemmed from a criminal complaint for estafa through falsification of public documents filed by respondent Eleanor Lucero ("Lucero") against petitioner Jimmy Ang ("Ang") before the City Prosecution Office of Makati ("CPO Makati"). As summarized by then Secretary of Justice Teofisto T. Guingona, Jr. ("Secretary of Justice") and quoted by the Court of Appeals in the assailed decision, the antecedent facts are as follows: The record shows that complainant [Lucero], an American citizen, is a businesswoman and a native of Pangasinan. On August 8, 1989, she entered into a memorandum of agreement with E. Ganzon, Inc. for the purchase of Condominium Unit 1512, Makati Cinema Square Tower located along Pasong

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Tamo, Makati forP2,417,655.00. As she is a resident of Guam, she appointed by virtue of a Special Power of Attorney,3Graciano P. Catenza, Jr. as her attorney-in-fact on November 20, 1990 to manage and administer all her businesses and properties in the Philippines, including the condominium unit. Catenza, however, delegated his authority to the respondent. Complainant claims that respondent [Ang] took advantage of the trust and confidence she reposed in him when he falsified two documents, namely: letter of authorization4 dated July 6, 1992 by making it appear that she is authorizing E. Ganzon, Inc., the condominium developer and owner to register her condominium unit under his name; and Deed of Assignment5 dated June 22, 1992 wherein respondent made it appear that she is transferring to him the ownership of the condominium unit. She further claims that the falsification was made possible when the respondent typed the authority to transfer in a blank sheet of paper containing her signature which he previously requested for the purpose of securing permit from a government agency in connection with her bus service business prior to her departure for Guam. Moreover, she avers that her signature in the deed of assignment was forged by respondent. She adds that she was not in the Philippines when the document was allegedly signed by her on June 22, 1992 and notarized before Atty. Rene B. Betita on July 1, 1992. Through the use of the aforementioned fictitious documents, her title was cancelled and in lieu thereof, condominium Certificate of Title No. 23578 was issued in the name of respondent by the Registry of Deeds of Makati City which title he used as a collateral to secure a loan in the amount of P2,000,000.00 from the Rizal Commercial Banking Corporation (RCBC). When she learned of the fraudulent transfer, she executed an affidavit of adverse claim and annotated it on the title on March 21, 1994. The day after the thirty-day effectivity period of the adverse claim lapsed, respondent, to add insult to injury, immediately secured an additional loan in the amount of P700,000.00 with the same bank (RCBC) using the same property as collateral even after the transport business he was managing for the complainant had ceased operation already. Respondent failed to act on complainants demands for accounting and for the reconveyance to her of Condominium Unit No. 1512. In his defense, respondent claims that the questioned documents were prepared with the prior knowledge of complainant and his authority was relayed by her through the telephone. The transfer of ownership and issuance of a new condominium title in his name were necessary since RCBC did not want to transact business with her because of her lack of track record and her citizenship. He avers that he had to do this since complainant failed to send money needed to support her business projects and to pay her outstanding obligations. As a proof of her knowledge, complainant gave him P500,000.00 on October 5, 1993 to pay the RCBC loan. To disprove the allegation that she never appeared before a notary public, he claims that complainant executed two (2) more documents and had them notarized after she left for Guam which she never questioned. xxx6 (Emphasis supplied) The CPO Makati referred the notarized Deed of Assignment dated 22 June 1992 and Authorization Letter dated 6 July 1992, both allegedly executed by Lucero in favor of Ang, to the National Bureau of Investigation ("NBI") for verification of signature. On 16 January 1995, the NBI submitted its report to the CPO Makati.1awphi1.nt The NBI found the signature on the Deed of Assignment and Luceros sample signatures to have been written by "one and the same person." However, the NBI found the signature on the Authorization Letter a "traced forgery." After the preliminary investigation, Prosecutor Edgardo C. Bautista ("Prosecutor Bautista") of the CPO Makati issued a Resolution dated 17 April 1995 finding probable cause against Ang. Prosecutor Bautista recommended the filing of two (2) informations, (1) for estafa under Article 315, paragraph 1 (c) of the Revised Penal Code7 and (2) for estafa through falsification of public document. Ang moved for a reinvestigation. Prosecutor Wilfredo Ong of the CPO Makati reconsidered Prosecutor Bautistas resolution of 17 April 1995 and dismissed the complaint for insufficiency of evidence. Lucero filed a motion for reconsideration which the CPO Makati denied on 11 October 1995. Lucero appealed the dismissal of the complaint to the Department of Justice. The Secretary of Justice issued Letter-Resolution No. 106 Series of 1997 dated 18 February 1997 ("First Resolution") disposing as follows: WHEREFORE, your resolution is accordingly reversed. You are hereby directed to file the appropriate information for estafa through falsification of public

document against respondent and to report the action taken within ten (10) days from receipt hereof.8 Ang filed a motion for reconsideration which the Secretary of Justice denied in his Letter-Resolution dated 10 June 1997.1awphi1.nt Ang filed with the Court of Appeals a petition for certiorari with prayer for the issuance of a writ of preliminary injunction and temporary restraining order. On 16 October 1997, the Court of Appeals issued a Resolution granting Angs prayer for the issuance of a temporary restraining order. The Court of Appeals enjoined the CPO Makati from filing the information for estafaas the Secretary of Justice directed in his First Resolution, pending the proceedings before the Court of Appeals. Thereafter, the CPO Makati filed a Manifestation stating that it already filed an information for estafa against Ang in Criminal Case No. 97-697 as early as 14 May 1997. Consequently, the Court of Appeals issued a Resolution dated 18 December 1997 enjoining the Secretary of Justice and the CPO Makati from proceeding with Criminal Case No. 97-697 pending before the Regional Trial Court of Makati, Branch 64. On 29 October 1999, the Court of Appeals rendered a Decision dismissing the petition for certiorari and affirming the resolutions of the Secretary of Justice. The dispositive portion of the Decision reads: WHEREFORE, premises considered, the instant petition is hereby DISMISSED for lack of merit, and the challenged Resolution No. 106 Series [of] 1997, dated February 18, 1997, and the Letter-Resolution dated June 10, 1997 of the public respondent Secretary of the Department of Justice are hereby AFFIRMED. The Resolution of this Court dated December 18, 1997 enjoining the respondents from proceedings (sic) with Criminal Case No. 97697 pending before the Regional Trial Court of Makati City, Branch 64, is hereby RECONSIDERED and SET ASIDE. The said trial court is ordered to continue with the proceedings with dispatch. SO ORDERED.9 Hence, this petition. The Ruling of the Court of Appeals The Court of Appeals ruled that the Special Power of Attorney ("SPA")10 which Lucero granted to Graciano P. Catenza ("Catenza") pertains only to acts of administration and does not include acts of strict dominion. The SPA even prohibited Catenza from transferring Luceros titles to real property by sale or gratuity to third persons without Luceros prior written consent. Catenza allegedly delegated this power to Ang. The Court of Appeals also found that Lucero granted Ang a general and not a special power of attorney.11 The Court of Appeals added that even assuming Lucero granted Ang a special power of attorney to sell her Makati Cinema Square Tower Condominium Unit No. 1512 ("Property"), it does not include the power to mortgage the Property. Assuming further that Lucero signed a blank sheet of paper that turned out to be a Deed of Assignment conveying to Ang all her rights and interest in the Property, such assignment was not Luceros real intention. The Court of Appeals pointed out that Ang relied heavily on the NBIs finding that the signature in the Deed of Assignment and Luceros specimen signature were written by one and the same person. However, Ang ignored the NBIs finding that the signature appearing in the Authorization Letter is a "traced forgery." The Issues Ang seeks a reversal of the assailed decision by contending that: I THE COURT OF APPEALS HAD OVERLOOKED THE FACT THAT PETITIONER CAN ACTUALLY MORTGAGE THE PROPERTY SUBJECT MATTER OF THE INSTANT CASE. II

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THE COURT OF APPEALS HAD FAILED TO CONSIDER THE FACT THAT PRIVATE RESPONDENT IS ALREADY ESTOPPED FROM DISOWNING THE TRANSACTIONS THAT PETITIONER ENTERED INTO IN HER BEHALF. III THE COURT OF APPEALS HAD ERRED IN RULING THAT THE POWER OF ATTORNEY GIVEN TO PETITIONER DID NOT GRANT HIM MORE THAN ACTS OF ADMINISTRATION.12 The Courts Ruling The petition lacks merit. The issue in this case is the propriety of the Secretary of Justices finding of probable cause for estafa. Ang insists that there is no probable cause to hold him liable for estafa. Ang contends that Lucero granted him the authority not only to sell but also to mortgage the Property. Ang insists that even assuming he is not authorized to sell the Property, he is nevertheless allowed to mortgage the Property if it is urgent and indispensable to preserve "the things under his administration." Ang further claims that he was justified in mortgaging the Property because the proceeds of the mortgage would be used for the needs and expenses of Luceros business. Ang also argues that Luceros facsimile letter dated 29 December 1993 shows that Lucero is estopped from questioning the transactions entered on her behalf.l^vvphi1.net Ang claims that Lucero knowingly and voluntarily signed the documents and blank papers to further her business interests. Ang contends that "the nature and import of the pre-signed documents" show that Lucero impliedlyauthorized Ang to execute more than acts of administration. Angs contentions are untenable. In a preliminary investigation, the public prosecutor merely determines whether there is probable cause or sufficient ground to engender a well-founded belief that a crime has been committed and that the respondent isprobably guilty thereof, and should be held for trial.13 It does not call for the application of rules and standards of proof that a judgment of conviction requires after trial on the merits.14 As implied by the words themselves, "probable cause" is concerned with probability, not absolute or moral certainty.15 The complainant need not present at this stage proof beyond reasonable doubt. A preliminary investigation does not require a full and exhaustive presentation of the parties evidence.16 In this case, Ang calls on this Court to assume the function of a public prosecutor. Angs arguments are essentially evidentiary matters that must be presented and heard during the trial. Whether Lucero granted Ang the authority to sell and mortgage the Property is a question which requires an examination of the parties evidence. The Court may not be compelled to pass upon the correctness of the exercise of the public prosecutors function without any showing of grave abuse of discretion or manifest error in his findings. Ang miserably failed to show the presence of any of these exceptional circumstances to warrant an assessment of the parties evidence presented thus far in the preliminary investigation. Contrary to Angs claims, Lucero sufficiently established the existence of probable cause for estafa in this case. First, the SPA Lucero executed in Catenzas favor is clear. Paragraph 7 of the SPA provides: xxx 7. To make, sign, execute and deliver contracts, documents, agreements and other writings of whatever nature or kind, involving the administration of my business(es), with any and all third persons, concerns or entities, upon terms and conditions acceptable to my said attorney, including agreements, whether or not they be urgent and indispensable for the preservation of my property under his administration; Provided, however, that contracts by which ownership of any immovable

owned by me is transmitted or acquired either gratuitously or for valuable consideration shall not be entered into by my said attorney-in-fact without my prior written consent. xxx17 (Emphasis supplied) The provision clearly shows that Catenza is not allowed to enter into any contract for the transfer or acquisition of Luceros real property without her prior written approval. The same prohibition applies to Ang. There is no showing that Catenza validly delegated his authority under the SPA to Ang. Even assuming there was a valid delegation, Ang merely stepped into the shoes of Catenza and could not exercise more power than what Catenza had under the SPA. Thus, the prohibition on Catenza applied to Ang, assuming there was a valid delegation. Second, the NBI found the signature on the Authorization Letter a traced forgery. Third, Ang obtained a loan from Rizal Commercial Banking Corporation ("RCBC") using the Property as collateral. There is no showing how Ang applied the loan proceeds. Fourth, Ang obtained an additional loan18 of P700,000 from RCBC with the Property as collateral after Lucero annotated an adverse claim on the Propertys certificate of title which was already in Angs name. The adverse claim clearly indicates Luceros objection to the registration of the title to Ang. However, Ang inexplicably ignored the adverse claim and proceeded with the loan. Fifth, Ang admitted that Lucero signed blank sheets of paper. Ang typed the Deed of Assignment in one of these sheets of paper with Luceros signature.19 Lucero, however, denies authorizing Ang to type any deed of assignment involving the Property over her signature. Instead, Lucero claims that Ang requested her signature to secure a permit for her bus service business. Lastly, Ang refused to render an accounting of his alleged transactions on Luceros behalf despite the latters repeated demands. If Ang merely performed his duties as Luceros agent in connection with the latters businesses, then there is certainly no reason to evade Luceros valid requests. Considering these circumstances, there is indeed probable cause to hold Ang liable for estafa in this case. Estafaor swindling is committed by defrauding another through any of the means enumerated in Article 315 of the Revised Penal Code. Under Article 315, paragraph 1(c), estafa is committed by taking undue advantage of the signature of the offended party in blank, and by writing any document above such signature in blank, to the prejudice of the offended party or any third person. In this case, Ang admitted typing the Deed of Assignment over Luceros signature in blank. Thereafter, Ang used the Deed of Assignment to transfer the ownership of the Property from Lucero to him. Lucero claims that she was prejudiced by virtue of the Deed of Assignment. However, whether Ang took advantage of Luceros signature is a question that should be presented and resolved during the trial. There is also probable cause that Ang committed estafa by falsification of public document. The Deed of Assignment is a public document since it is notarized.20 Lucero claims that the Deed of Assignment was falsified because she was out of the country when it was executed. Moreover, though the signature in the Deed of Assignment appears to be her signature, it was not Luceros intention to transfer the Property to Ang. WHEREFORE, we DENY the petition. We AFFIRM the Decision of the Court of Appeals dated 29 October 1999 and its Resolution dated 25 April 2000 in CA-G.R. SP No. 44778. Costs against petitioner. SO ORDERED.

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"Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six (6) Drafts in its own favor, payable thirty (30) days after sight, charged to the account of Fortune Motors Corporation, as follows: G.R. No. 135462 December 7, 2001 Date of Draft July 26, 1983 July 27, 1983 July 28, 1983 August 2, 1983 PARDO, J.: The Case The case is a petition to set aside the decision1 of the Court of Appeals, the dispositive portion of which reads: "WHEREFORE, premises considered, the appealed Decision (as amended by that Order of July 22, 1992) of the lower court in Civil Case No. 21944 is hereby AFFIRMED with the MODIFICATION that defendant-appellee South City Homes, Inc. is hereby ordered to pay, jointly and severally, with Fortune Motors Corporation, Palawan Lumber Manufacturing Corporation and Joseph L. G. Chua, the outstanding amounts due under the six (6) drafts and trust receipts, with interest thereon at the legal rate from the date of filing of this case until said amounts shall have been fully paid, as follows: Date of Draft July 26, 1983 July 27, 1983 July 28, 1983 August 2, 1983 August 5, 1983 August 8, 1983 Amount Balance P244,269.00 967,765.50 1,138,941.00 244,269.00 275,079.00 475,046.10 Due P198,659.52 324,767.41 1,138,941.00 244,269.00 275,079.60 475,046.10 August 5, 1983 August 8, 1983 Amount P244,269.00 967,765.50 1,138,941.00 244,269.00 275,079.00 475,046.10

SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER MANUFACTURING CORPORATION, petitioners, vs. BA FINANCE CORPORATION, respondent.

"(Folder of Exhibits, pp. 1, 4, 7, 8, 11 and 14). "Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles delivered to it by CARCO under which it agreed to remit to the Entruster (CARCO) the proceeds of any sale and immediately surrender the remaining unsold vehicles (Folder of Exhibits, pp. 2, 5, 7-A, 9, 12 and 15). The drafts and trust receipts were assigned to plaintiff-appellant, under Deeds of Assignment executed by CARCO (Folder of Exhibits, pp. 3, 6, 7-B, 10, 13 and 16). "Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due under the drafts and to remit the proceeds of motor vehicles sold or to return those remaining unsold in accordance with the terms of the trust receipt agreements, BA Finance Corporation sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc., Aurelio Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar (Folder of Exhibits, pp. 29-37). Since the defendants-appellants failed to settle their outstanding account with plaintiff-appellant, the latter filed on December 22, 1983 a complaint for a sum of money with prayer for preliminary attachment, with the Regional Trial Court of Manila, Branch 1, which was docketed as Civil Case No. 83-21944 (Record, pp. 1-12). Plaintiff-appellant filed a surety bond in the amount of P3,391,546.56 and accordingly, Judge Rosalio C. Segundo ordered the issuance of a writ of preliminary attachment on January 3, 1984 (Record, pp. 37-47). Defendants Fortune Motors Corporation, South City Homes, Inc., Edgar C. Rodrigueza, Aurelio F. Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar filed a Motion to Discharge Attachment, which was opposed by plaintiff-appellant (Record, pp. 49-56). In an Order dated January 11, 1984, Judge Segundo dissolved the writ of attachment except as against defendant Fortune Motors Corporation and set the said incident for hearing (Record, p. 57). On January 19, 1984, the defendants filed a Motion to Dismiss. Therein, they alleged that conventional subrogation effected a novation without the consent of the debtor (Fortune Motors Corporation) and thereby extinguished the latter's liability; that pursuant to the trust receipt transaction, it was premature under P. D. No. 115 to immediately file a complaint for a sum of money as the remedy of the entruster is an action for specific performance; that the suretyship agreements are null and void for having been entered into without an existing principal obligation; and that being such sureties does not make them solidary debtors (Record, pp. 58-64). "After due hearing, the court denied the motion to discharge attachment with respect to defendant Fortune Motors Corporation as well as the motion to dismiss by the defendants (Record, pp. 68 and 87). In their Answer, defendants stressed that their obligations to the creditor (CARCO) was extinguished by the assignment of the drafts and trust receipts to plaintiff-appellant without their knowledge and consent, and pursuant to legal provision on conventional subrogation a novation was effected, thereby extinguishing the liability of the sureties; that plaintiff-appellant failed to immediately demand the return of the goods under the trust receipt agreements or exercise the courses of action by the entruster as provided for under P. D. No. 115; and that at the time the suretyship agreements were entered into, there were no principal obligations, thus rendering them null and void. A counterclaim for the award of actual, moral and exemplary damages was prayed for by defendants (Record, pp. 91-110). "During the pre-trial, efforts to reach a compromise was not successful, and in view of the retirement of Judge Rosalio C. Segundo of RTC Manila, Branch 1, the case was-re-raffled off to Branch XXXIII, presided over by Judge Felix V. Barbers (Record, pp. 155-160).

and the attorney's fees and costs of suit. "SO ORDERED."2 The Facts The facts, as found by the Court of Appeals, are as follows: "The present controversy relates to the rights of an assignee (financing company) of drafts and trust receipts backed up by sureties, in the event of default by the debtor (car dealer) to whom the assignor creditor (car manufacturer) sold and delivered motor vehicles for resale. A consistent ruling on these cases is hereby reiterated: that a surety may secure obligations incurred subsequent to the execution of the surety contract. "Prior to the transactions covered by the subject drafts and trust receipts, defendant-appellant Fortune Motors Corporation (Phils.) has been availing of the credit facilities of plaintiff-appellant BA Finance Corporation. On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of plaintiff-appellant a Continuing Suretyship Agreement, in which he "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 21-22). "On February 3, 1983, Palawan Lumber Manufacturing Corporation represented by Joseph L.G. Chua, George D. Tan, Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiffappellant a Continuing Suretyship Agreement in which, said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 19-20). On the same date, South City Homes, Inc. represented by Edgar C. Rodrigueza and Aurelio F. Tablante, likewise executed a Continuing Suretyship Agreement in which said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 17-18).

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"Fortune Motors Corporation filed a motion to lift the writ of attachment covering three (3) vehicles described in the Third-Party Claim filed with the Office of Deputy Sheriff Jorge C. Victorino (RTC, Branch 1) by Fortune Equipment, Inc. which was opposed by plaintiff-appellant (Record, pp. 173-181). On June 15, 1984, Deputy Sheriff Jorge C. Victorino issued a "Notice of Levy Upon Personal Properties Pursuant to Order of Attachment" which was duly served on defendant Fortune Motors Corporation (Record, pp. 191-199). In an Order dated April 28, 1986, the court a quo denied the motion to lift the writ of attachment on three (3) vehicles described in the Third-Party Claim filed by Fortune Equipment Inc. (Record, p. 207). On motion of their respective counsel, the trial court granted the parties time to sit down and appraise the machineries and spare parts owned by defendant Fortune Motors Corporation which are now in the possession of plaintiff corporation by virtue of the attachment. A series of conferences was allowed by the court, as means toward possible compromise agreement. In an Order dated June 2, 1987, the case was returned to Branch I, now presided over by Judge Rebecca G. Salvador (Record, p. 237). The pre-trial period was terminated and the case was set for trial on the merits (Record, p. 259). "Acting on the motion to sell levied properties filed by defendant George D. Tan, the trial court ordered the public sale of the attached properties (Record, p. 406). The court likewise allowed the complaint-in-intervention filed by Fortune Equipment Inc. and South Fortune Motors Corporation who claimed ownership of four (4) vehicles earlier seized and attached (Record, p. 471-475). Plaintiff corporation admitted the allegations contained in the complaint-inintervention only with respect to one truck so attached but denied the rest of intervenors' allegations (Record, pp. 479-482). Thereafter, the parties submitted their respective pre-trial briefs on the complaint-inintervention, and after the submission of evidence thereon, the case was submitted for decision (Record, pp. 573-577). "On November 25, 1991, the lower court rendered its judgment, the dispositive portion of which reads as follows: "WHEREFORE, judgment is hereby rendered: "1. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua, jointly and severally to pay the plaintiff on the July 27, 1983 Draft, the sum of P324,767.41 with the interest thereon at the legal rate from the date of filing of this case, December 21, 1983 until the amount shall have been fully paid; "2. Ordering defendants Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the July 26, 1983 Draft, the sum of P198,659.52 with interest thereon at the legal rate from the date of filing of this case, until the amount shall have been fully paid; "3. Ordering defendant Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the July 28, 1983 Draft the sum of P1,138,941.00 with interest thereon at the legal rate from the date of filing of this case, until the amount shall have been fully paid; "4. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the August 2, 1983 Draft, the sum of P244,269.00 with interest thereon at the legal rate from the date of filing of this case, until the amount shall have been fully paid; "5. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the August 5, 1983 Draft the sum of P275,079.60 with interest thereon at the legal rate from the date of the filing of this case, until the amount shall have been fully paid; "6. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the August 8, 1983 Draft the sum of P475,046.10 with interest thereon at legal rate from the date of the filing of this case, until the amount shall been fully paid; "7. Ordering defendant Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay the sum of P300,000.00 as attorney's fees and the costs of this suit; "8. Dismissing plaintiff's complaint against South City Homes, Aurelio Tablante, Joselito Baltazar, George Tan and Edgar Rodrigueza and the latter's counterclaim for lack of basis;

"9. Ordering Deputy Sheriff Jorge Victorino to return to Intervenor Fortune Equipment the Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234; "10. Dismissing the complaint-in-intervention in so far as the three other vehicles mentioned in the complaint-in-intervention are concerned for lack of cause of action; "11. Dismissing the complaint-in-intervention against Fortune Motor for lack of basis; and "12. Ordering the parties-in-intervention to bear their respective damages, attorneys fees and the costs of the suit. "Upon execution, the sheriff may cause the judgment to be satisfied out of the properties attached with the exception of one (1) unit Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234, if they be sufficient for that purpose. The officer shall make a return in writing to the court of his proceedings. Whenever the judgment shall have been paid, the officer, upon reasonable demand must return to the judgment debtor the attached properties remaining in his hand, and any of the proceeds of the properties not applied to the judgment. "SO ORDERED. "On two (2) separate motions for reconsideration, one filed by plaintiffs-intervenors dated December 18, 1991 and the other by plaintiff dated December 26, 1991, the trial court issued an Order dated July 22, 1992 amending its Decision dated November 25, 1991. Specifically, said Order amended paragraphs 9 and 10 thereof and deleted the last paragraph of the said Decision. "Paragraphs 9 and 10 now read: "9. Ordering Deputy Sheriff Jorge C. Victorino to return to Intervenor Fortune Equipment, Inc. the Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234; Mitsubishi Truck Canter with Motor No. 4D30313012 and Chassis No. 513696, and Fuso Truck with Motor No. 006769 and Chassis No. 20756, and to Intervenor South Fortune Motors Corporation the Cimaron Jeepney with Plate No. NET-849; "10. Ordering the plaintiff, in the event the motor vehicles could no longer be returned to pay the estimated value thereof i.e., P750,000.00 for the three trucks, and P5,000.00 for the Cimaron Jeepney, to the plaintiffsintervenors. "x x x" (Records, pp. 664-665) "Plaintiffs BA Finance Corporation, defendants Fortune Motors Corp. (Phils.) and Palawan Lumber Manufacturing Corporation, and intervenors Fortune Equipment and South Fortune Motors, interposed the present appeal and filed their respective Briefs."3 On September 8, 1998, the Court of Appeals promulgated a decision, the dispositive portion of which is quoted in the opening paragraph of this decision. Hence, this appeal.4 The Issues The issues presented are: (1) whether the suretyship agreement is valid; (2) whether there was a novation of the obligation so as to extinguish the liability of the sureties; and (3) whether respondent BAFC has a valid cause of action for a sum of money following the drafts and trust receipts transactions.5 The Court's Ruling On the first issue, petitioners assert that the suretyship agreement they signed is void because there was no principal obligation at the time of signing as the principal obligation was signed six (6) months later. The Civil Code, however, allows a suretyship agreement to secure future loans even if the amount is not yet known. Article 2053 of the Civil Code provides that:

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"Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known. x x x" In Fortune Motors (Phils.) Corporation v. Court of Appeals,6 we held: "To fund their acquisition of new vehicles (which are later retailed or resold to the general public), car dealers normally enter into wholesale automotive financing schemes whereby vehicles are delivered by the manufacturer or assembler on the strength of trust receipts or drafts executed by the car dealers, which are backed up by sureties. These trust receipts or drafts are then assigned and/or discounted by the manufacturer to/with financing companies, which assume payment of the vehicles but with the corresponding right to collect such payment from the car dealers and/or the sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade without having to pay cash therefor; manufacturers get paid without any receivables/collection problems; and financing companies earn their margins with the assurance of payment not only from the dealers but also from the sureties. When the vehicles are eventually resold, the car dealers are supposed to pay the financing companies and the business goes merrily on. However, in the event the car dealer defaults in paying the financing company, may the surety escape liability on the legal ground that the obligations were incurred subsequent to the execution of the surety contract? "x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. "Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor." Petitioners next posit (second issue) that a novation, as a result of the assignment of the drafts and trust receipts by the creditor (CARCO) in favor of respondent BAFC without the consent of the principal debtor (Fortune Motors), extinguished their liabilities. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.7 As a consequence, the third party steps into the shoes of the original creditor as subrogee of the latter. Petitioners' obligations were not extinguished. Thus: "x x x Moreover, in assignment, the debtor's consent is not essential for the validity of the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626, Civil Code). "Article 1626 also shows that payment of an obligation which is already existing does not depend on the consent of the debtor. It, in effect, mandates that such payment of the existing obligation shall already be made to the new creditor from the time the debtor acquires knowledge of the assignment of the obligation. "The law is clear that the debtor had the obligation to pay and should have paid from the date of notice whether or not he consented. "We have ruled in Sison & Sison vs. Yap Tico and Avancea, 37 Phil. 587 [1918] that definitely, consent is not necessary in order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtor's refusal to give consent. "What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may, therefore,

validly assign his credit and its accessories without the debtor's consent (National Investment and Development Co. v. De Los Angeles, 40 SCRA 489 [1971]. The purpose of the notice is only to inform that debtor from the date of the assignment, payment should be made to the assignee and not to the original creditor."8 Petitioners finally posit (third issue) that as an entruster, respondent BAFC must first demand the return of the unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having failed to do so, petitioners had no cause of action whatsoever against Fortune Motors Corporation and the action for collection of sum of money was, therefore, premature. A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.9 In the event of default by the entrustee on his obligations under the trust receipt agreement, it is not absolutely necessary that the entruster cancel the trust and take possession of the goods to be able to enforce his rights thereunder. We ruled: "x x x Significantly, the law uses the word "may" in granting to the entruster the right to cancel the trust and take possession of the goods. Consequently, petitioner has the discretion to avail of such right or seek any alternative action, such as a third party claim or a separate civil action which it deems best to protect its right, at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust agreement."10 The Judgment WHEREFORE, the appealed decision is hereby AFFIRMED. However, the award of attorneys fees is deleted. No costs. SO ORDERED.

G.R. No. 149040

July 4, 2007

EDGAR LEDONIO, petitioner, vs. CAPITOL DEVELOPMENT CORPORATION, respondent. DECISION CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Revised Rules of Court praying that (1) the Decision,2 dated 20 March 2001, of the Court of Appeals in CA-G.R. CV No. 43604, affirming in toto the Decision,3 dated 6 August 1993, of the Quezon City Regional Trial Court (RTC), Branch 91, in Civil Case No. Q-90-5247, be set aside; and (2) the Complaint4 in Civil Case No. Q-90-5247 be dismissed. Herein respondent Capitol Development Corporation instituted Civil Case No. Q-90-5247 by filing a Complaint for the collection of a sum of money against herein petitioner Edgar Ledonio. In its Complaint, respondent alleged that petitioner obtained from a Ms. Patrocinio S. Picache two loans, with the aggregate principal amount of P60,000.00, and covered by promissory notes duly signed by petitioner. In the first promissory note,5 dated 9 November 1988, petitioner promised to pay to the order of Ms. Picache the principal amount of P30,000.00, in monthly installments of P3,000.00, with the first monthly installment due on 9 January 1989. In the second promissory note,6 dated 10 November 1988, petitioner again promised to pay to the order of Ms. Picache the principal amount of P30,000.00, with 36% interest per annum, on 1 December 1988. In case of default in payment, both promissory notes provide that (a) petitioner shall be liable for a penalty equivalent to 20% of the total outstanding balance; (b) unpaid interest shall be compounded or added to the balance of the principal amount and shall bear the same rate of interest as the latter; and (c) in case the creditor, Ms. Picache, shall engage the services of counsel to enforce her rights and powers under the promissory notes, petitioner shall pay as attorney's fees and liquidated damages the sum equivalent to 20% of the total amount sought to be recovered, but in no case shall the said sum be less that P10,000.00, exclusive of costs of suit.

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On 1 April 1989, Ms. Picache executed an Assignment of Credit7 in favor of respondent, which reads KNOW ALL MEN BY THESE PRESENTS: That I, PAT S. PICACHE of legal age and with postal address at 373 Quezon Avenue, Quezon City for and in consideration of SIXTY THOUSAND PESOS (P60,000.00) Philippine Currency, to me paid by [herein respondent] CAPITOL DEVELOPMENT CORPORATION, a corporation organized and existing under the laws of the Republic of the Philippines with principal office at 373 Quezon Avenue, Quezon City receipt whereof is hereby acknowledged have sold, transferred, assigned and conveyed and (sic) by me these presents do hereby sell, assign, transfer and convey unto the said [respondent] CAPITOL DEVELOPMENT CORPORATION, a certain debt due me from [herein petitioner] EDGAR A. LEDONIO in the principal sum of SIXTY THOUSAND PESOS (P60,000.00) Philippine Currency, under two (2) Promissory Notes dated November 9, 1988 and November 10, 1988, respectively, photocopies of which are attached to as annexes A & B to form integral parts hereof with full power to sue for, collect and discharge, or sell and assign the same. That I hereby declare that the principal sum of SIXTY THOUSAND PESOS (P60,000.00) with interest thereon at THIRTY SIX (36%) PER CENT per annum is justly due and owing to me as aforesaid. IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of April, 1989 at Quezon City. (SGD)PAT S. PICACHE The foregoing document was signed by two witnesses and duly acknowledged by Ms. Picache before a Notary Public also on 1 April 1989. Since petitioner did not pay any of the loans covered by the promissory notes when they became due, respondent -- through its Vice President Nina P. King and its counsel King, Capuchino, Banico & Associates -- sent petitioner several demand letters.8 Despite receiving the said demand letters, petitioner still failed and refused to settle his indebtedness, thus, prompting respondent to file the Complaint with the RTC, docketed as Civil Case No. Q-90-5247. In his Answer filed with the RTC, petitioner sought the dismissal of the Complaint averring that respondent had no cause of action against him. He denied obtaining any loan from Ms. Picache and questioned the genuineness and due execution of the promissory notes, for they were the result of intimidation and fraud; hence, void. He asserted that there had been no transaction or privity of contract between him, on one hand, and Ms. Picache and respondent, on the other. The assignment by Ms. Picache of the promissory notes to respondent was a mere ploy and simulation to effect the unjust enforcement of the invalid promissory notes and to insulate Ms. Picache from any direct counterclaims, and he never consented or agreed to the said assignment. Petitioner then presented his own narration of events leading to the filing of Civil Case No. Q-90-5247. According to him, on 24 February 1988, he entered into a Contract of Lease9 of real property located in Quezon City with Mission Realty & Management Corporation (MRMC), of which Ms. Picache is an incorporator and member of the Board of Directors.10 Petitioner relocated the plant and machines used in his garments business to the leased property. After a month or two, a foreign investor was interested in doing business with him and sent a representative to conduct an ocular inspection of petitioner's plant at the leased property. During the inspection, a group of Meralco employees entered the leased property to cut off the electric power connections of the plant. The event gave an unfavorable impression to the foreign investor who desisted from further transacting with petitioner. Upon verification with Meralco, petitioner discovered that there were unpaid electric bills on the leased property amounting to hundreds of thousands of pesos. These electric bills were supposedly due to the surreptitious electrical connections to the leased property. Petitioner claimed that he was never informed or advised by MRMC of the existence of said unpaid electric bills. It took Meralco considerable time to restore electric power to the leased property and only after petitioner pleaded that he was not responsible for the illegal electrical connections and/or the unpaid electric bills, for he was only a recent lessee of the leased property. Because of the work stoppage and loss of business opportunities resulting from the foregoing incident, petitioner purportedly suffered damages amounting to United States $60,000.00, for which petitioner verbally attempted to recover compensation from MRMC. Having failed to obtain compensation from MRMC, petitioner decided to vacate and pull out his machines from the leased property but he can only do so, unhampered and uninterrupted by MRMC security personnel, if he signed, as he did, blank promissory note forms. Petitioner alleged that when he signed the

promissory note forms, the allotted spaces for the principal amount of the loans, interest rates, and names of the promisee/s were in blank; and that Ms. Picache took advantage of petitioner's signatures on the blank promissory note forms by filling up the blanks. To raise even more suspicions of fraud and spuriousness of the promissory notes and their subsequent assignment to respondent, petitioner called attention to the fact that Ms. Picache is an incorporator and member of the Board of Directors of both MRMC and respondent.11 After the pre-trial conference and the trial proper, the RTC rendered a Decision12 on 6 August 1993, ruling in favor of respondent. The RTC gave more credence to respondent's version of the facts, finding that [Herein petitioner]'s disclaimer of the promissory note[s] does not inspire belief. He is a holder of a degree in Bachelor of Science in Chemical Engineering and has been a manufacturer of garments since 1979. As a matter of fact, [petitioner]'s testimony that he was made to sign blank sheets of paper is contrary to his admission in paragraphs 12 and 13 of his Answer that as a condition to his removal of his machines [from] the leased premises, he was made to sign blank promissory note forms with respect to the amount, interest and promisee. It thus appears incredulous that a businessman like [petitioner] would simply sign blank sheets of paper or blank promissory notes just [to] be able to vacate the leased premises. Moreover, the credibility of [petitioner]'s testimony leaves much to be desired. He contradicted his earlier testimony that he only met Patrocinio Picache once, which took place in the office of Mission Realty and Management Corporation, by stating that he saw Patrocinio Picache a second time when she went to his house. Likewise, his claim that the electric power in the leased premises was cut off only two months after he occupied the same is belied by his own evidence. The contract of lease submitted by [petitioner] is dated February 24, 1988 and took effect on March 1, 1988. His letter to Mission Realty and Management Corporation dated September 21, 1988, complained of the electric power disconnection that took place on September 6, 1988, that is, six (6) months after he had occupied the leased premises, and did not even give a hint of his intention to vacate the premises because of said incident. It appears that [petitioner] was already advised to pay his rental arrearages in a letter dated August 9, 1988 (Exh. "2") and was notified of the termination of the lease contract in a letter dated September 19, 1988 (Exh. "4"). However, in a letter dated September 26, 1988, [petitioner] requested for time to look for a place to transfer. The RTC also sustained the validity and enforceability of the Assignment of Credit executed by Ms. Picache in favor of respondent, even in the absence of petitioner's consent to the said assignment, based on the following reasoning The promissory notes (Exhs. "A" and "B") were assigned by Ms. Patrocinio Picache to [herein respondent] by virtue of a notarized Assignment of Credit dated April 1, 1989 for a consideration of P60,000.00 (Exh. "C"). The fact that the assignment of credit does not bear the conformity of [herein petitioner] is of no moment. In C & C Commercial Corporation vs. Philippine National Bank, 175 SCRA 1, 11, the Supreme Court held thus: "x x x Article 1624 of the Civil Code provides that 'an assignment of credits and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475' which in turn states that 'the contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.' The meeting of the minds contemplated here is that between the assignor of the credit and his assignee, there being no necessity for the consent of the debtor, contrary to petitioner's claim. It is sufficient that the assignment be brought to his knowledge in order to be binding upon him. This may be inferred from Article 1626 of the Civil Code which declares that 'the debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation.'" [Petitioner] does not deny having been notified of the assignment of credit by Patrocinio Picache to the [respondent]. Thus, [respondent] sent several demand letters to the [petitioner] in connection with the loan[s] (Exhs. "D", "E", "F" and "G"). [Petitioner] acknowledged receipt of [respondent]'s letter of demand dated June 13, 1989 (Exh. "F") and assured [respondent] that he would settle his account, as per their telephone conversation (Exhs. "H" and "9"). Such communications between [respondent] and [petitioner] show that the latter had been duly notified of the said assignment of credit. x x x.

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Given its aforequoted findings, the RTC proceeded to a determination of petitioner's liabilities to respondent, taking into account the provisions of the promissory notes, thus x x x Consequently, [herein respondent] is entitled to recover from [herein petitioner] the principal amount ofP30,000.00 for the promissory note dated November 9, 1988. As said note did not provide for any interest, [respondent] may only recover interest at the legal rate of 12% per annum from April 18, 1990, the date of the filing of the complaint. With respect to the promissory note dated November 10, 1988, the same provided for interest at 36% per annum and that interest not paid when due shall be added to and shall become part of the principal and shall bear the same rate of interest as the principal. Likewise, both promissory notes provided for a penalty of 20% of the total outstanding balance thereon and attorney's fees equivalent to 20% of the sum sought to be recovered in case of litigation. In Garcia vs. Court of Appeals, 167 SCRA 815, it was held that penalty interests are in the nature of liquidated damages and may be equitably reduced by the courts if they are iniquitous or unconscionable, pursuant to Articles 1229 and 2227 of the Civil Code. Considering that the promissory note dated November 10, 1988 already provided for interest at 36% per annum on the principal obligation, as well as for the capitalization of the unpaid interest, the penalty charge of 20% of the total outstanding balance of the obligation thus appears to be excessive and unconscionable. The interest charges are enough punishment for [petitioner]'s failure to comply with his obligation under the promissory note dated November 10, 1988. With respect to the attorney's fees, the court is likewise empowered to reduce the same if they are unreasonable or unconscionable, notwithstanding the express contract therefor. (Insular Bank of Asia and America vs. Spouses Salazar, 159 SCRA 133, 139). Thus, an award of P10,000.00 as and for attorney's fees appears to be enough. Consequently, the fallo of the RTC Decision reads WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the [herein respondent] and against [herein petitioner] ordering the latter as follows: 1. To pay [respondent], on the promissory note dated November 9, 1988, the amount of P30,000.00 with interest thereon at the legal rate of 12% per annum from April 18, 1990 until fully paid and a penalty of 20% on the total amount; 2. To pay [respondent], on the promissory note dated November 10, 1988, the amount of P30,000.00 with interest thereon at 36% per annum compounded at the same rate until fully paid; 3. To pay [respondent] the amount of P10,000.00, as and for attorney's fees; and 4. To pay the costs of the suit.13 Aggrieved by the RTC Decision, dated 6 August 1993, petitioner filed an appeal with the Court of Appeals, which was docketed as CA-G.R. CV No. 43604. The appellate court, in a Decision,14 dated 20 March 2001, found no cogent reason to depart from the conclusions arrived at by the RTC in its appealed Decision, dated 6 August 1993, and affirmed the latter Decision in toto. The Court of Appeals likewise denied petitioner's Motion for Reconsideration in a Resolution,15 dated 16 July 2001, stating that the grounds relied upon by petitioner in his Motion were mere reiterations of the issues and matters already considered, weighed and passed upon; and that no new matter or substantial argument was adduced by petitioner to warrant a modification, much less a reversal, of the Court of Appeals Decision, dated 20 March 2001. Comes now petitioner to this Court, via a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, raising the sole issue16 of whether or not the Court of Appeals committed grave abuse of discretion in affirming in toto the RTC Decision, dated 6 August 1993. Petitioner's main argument is that the Court of Appeals erred when it ruled that there was an assignment of credit and that there was no novation/subrogation in the case at bar. Petitioner asserts the position that consent of the debtor to the assignment of credit is a basic/essential element in order for the assignee to have a cause of action against the debtor. Without the debtor's consent, the recourse of the assignee in case of non-payment of the assigned credit, is to recover from the assignor. Petitioner further argues that even if there was indeed an

assignment of credit, as alleged by the respondent, then there had been a novation of the original loan contracts when the respondent was subrogated in the rights of Ms. Picache, the original creditor. In support of said argument, petitioner invokes the following provisions of the Civil Code ART. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. ART. 1301. Conventional subrogation of a third person requires the consent of the original parties and the third person. According to petitioner, the assignment of credit constitutes conventional subrogation which requires the consent of the original parties to the loan contract, namely, Ms. Picache (the creditor) and petitioner (the debtor); and the third person, the respondent (the assignee). Since petitioner never gave his consent to the assignment of credit, then the subrogation of respondent in the rights of Ms. Picache as creditor by virtue of said assignment is without force and effect. This Court finds no merit in the present Petition. Before proceeding to a discussion of the points raised by petitioner, this Court deems it appropriate to emphasize that the findings of fact of the Court of Appeals and the RTC in this case shall no longer be disturbed. It is axiomatic that this Court will not review, much less reverse, the factual findings of the Court of Appeals, especially where, as in this case, such findings coincide with those of the trial court, since this Court is not a trier of facts.17 The jurisdiction of this Court in a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless it is shown, inter alia, that: (a) the conclusion is grounded entirely on speculations, surmises and conjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c) there is grave abuse of discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact of the trial court and the appellate court are contradicted by the evidence on record and (f) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both parties.18 None of these circumstances are present in the case at bar. After a perusal of the records, this Court can only conclude that the factual findings of the Court of Appeals, affirming those of the RTC, are amply supported by evidence and are, resultantly, conclusive on this Court.19 Therefore, the following facts are already beyond cavil: (1) petitioner obtained two loans totaling P60,000.00 from Ms. Picache, for which he executed promissory notes, dated 9 November 1988 and 10 November 1988; (2) he failed to pay any of the said loans; (3) Ms. Picache executed on 1 April 1989 an Assignment of Credit covering petitioner's loans in favor of respondent for the consideration of P60,000.00; (4) petitioner had knowledge of the assignment of credit; and (5) petitioner still failed to pay his indebtedness despite repeated demands by respondent and its counsel. Petitioner's persistent assertions that he never acquired any loan from Ms. Picache, or that he signed the promissory notes in blank and under duress, deserve scant consideration. They were already found by both the Court of Appeals and the RTC to be implausible and inconsistent with petitioner's own evidence. Now this Court turns to the questions of law raised by petitioner, all of which hinges on the contention that a conventional subrogation occurred when Ms. Picache assigned the debt, due her from the petitioner, to the respondent; and without petitioner's consent as debtor, the said conventional subrogation should be deemed to be without force and effect. This Court cannot sustain petitioner's contention and hereby declares that the transaction between Ms. Picache and respondent was an assignment of credit, not conventional subrogation, and does not require petitioner's consent as debtor for its validity and enforceability. An assignment of credit has been defined as an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause - such as sale, dation in payment or exchange or donation - and without need of the debtor's consent, transfers that credit and its accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor.20 On the other hand, subrogation, by definition, is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Conventional subrogation is that which takes place by agreement of parties.21

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Although it may be said that the effect of the assignment of credit is to subrogate the assignee in the rights of the original creditor, this Court still cannot definitively rule that assignment of credit and conventional subrogation are one and the same. A noted authority on civil law provided a discourse22 on the difference between these two transactions, to wit Conventional Subrogation and Assignment of Credits. In the Argentine Civil Code, there is essentially no difference between conventional subrogation and assignment of credit. The subrogation is merely the effect of the assignment. In fact it is expressly provided (article 769) that conventional redemption shall be governed by the provisions on assignment of credit. Under our Code, however, conventional subrogation is not identical to assignment of credit. In the former, the debtor's consent is necessary; in the latter, it is not required. Subrogation extinguishes an obligation and gives rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that the new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor's right to another. (Emphasis supplied.) This Court has consistently adhered to the foregoing distinction between an assignment of credit and a conventional subrogation.23 Such distinction is crucial because it would determine the necessity of the debtor's consent. In an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce the legal effects. What the law requires in an assignment of credit is not the consent of the debtor, but merely notice to him as the assignment takes effect only from the time he has knowledge thereof. A creditor may, therefore, validly assign his credit and its accessories without the debtor's consent. On the other hand, conventional subrogation requires an agreement among the parties concerned the original creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual agreement among all the necessary parties.24 Article 1300 of the Civil Code provides that conventional subrogation must be clearly established in order that it may take effect. Since it is petitioner who claims that there is conventional subrogation in this case, the burden of proof rests upon him to establish the same25 by a preponderance of evidence.26 In Licaros v. Gatmaitan,27 this Court ruled that there was conventional subrogation, not just an assignment of credit; thus, consent of the debtor is required for the effectivity of the subrogation. This Court arrived at such a conclusion in said case based on its following findings We agree with the finding of the Court of Appeals that the Memorandum of Agreement dated July 29, 1988 was in the nature of a conventional subrogation which requires the consent of the debtor, Anglo-Asean Bank, for its validity. We note with approval the following pronouncement of the Court of Appeals: "Immediately discernible from above is the common feature of contracts involving conventional subrogation, namely, the approval of the debtor to the subrogation of a third person in place of the creditor. That Gatmaitan and Licaros had intended to treat their agreement as one of conventional subrogation is plainly borne by a stipulation in their Memorandum of Agreement, to wit: "WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which they now record herein with the express conformity of the third parties concerned" (emphasis supplied), which third party is admittedly Anglo-Asean Bank. Had the intention been merely to confer on appellant the status of a mere "assignee" of appellee's credit, there is simply no sense for them to have stipulated in their agreement that the same is conditioned on the "express conformity" thereto of Anglo-Asean Bank. That they did so only accentuates their intention to treat the agreement as one of conventional subrogation. And it is basic in the interpretation of contracts that the intention of the parties must be the one pursued (Rule 130, Section 12, Rules of Court). xxxx

Aside for the 'whereas clause" cited by the appellate court in its decision, we likewise note that on the signature page, right under the place reserved for the signatures of petitioner and respondent, there is, typewritten, the words "WITH OUR CONFORME." Under this notation, the words "ANGLO-ASEAN BANK AND TRUST" were written by hand. To our mind, this provision which contemplates the signed conformity of Anglo-Asean Bank, taken together with the aforementioned preambulatory clause leads to the conclusion that both parties intended that Anglo-Asean Bank should signify its agreement and conformity to the contractual arrangement between petitioner and respondent. The fact that Anglo-Asean Bank did not give such consent rendered the agreement inoperative considering that, as previously discussed, the consent of the debtor is needed in the subrogation of a third person to the rights of a creditor. None of the foregoing circumstances are attendant in the present case. The Assignment of Credit, dated 1 April 1989, executed by Ms. Picache in favor of respondent, was a simple deed of assignment. There is nothing in the said Assignment of Credit which imparts to this Court, whether literally or deductively, that a conventional subrogation was intended by the parties thereto. The terms of the Assignment of Credit only convey the straightforward intention of Ms. Picache to "sell, assign, transfer, and convey" to respondent the debt due her from petitioner, as evidenced by the two promissory notes of the latter, dated 9 November 1988 and 10 November 1988, for the consideration of P60,000.00. By virtue of the same document, Ms. Picache gave respondent full power "to sue for, collect and discharge, or sell and assign" the very same debt. The Assignment of Credit was signed solely by Ms. Picache, witnessed by two other persons. No reference was made to securing the conformeof petitioner to the transaction, nor any space provided for his signature on the said document. Perhaps more in point to the case at bar is Rodriguez v. Court of Appeals, 28 in which this Court found that The basis of the complaint is not a deed of subrogation but an assignment of credit whereby the private respondent became the owner, not the subrogee of the credit since the assignment was supported by HK $1.00 and other valuable considerations. xxxx The petitioner further contends that the consent of the debtor is essential to the subrogation. Since there was no consent on his part, then he allegedly is not bound. Again, we find for the respondent. The questioned deed of assignment is neither one of subrogation nor a power of attorney as the petitioner alleges. The deed of assignment clearly states that the private respondent became an assignee and, therefore, he became the only party entitled to collect the indebtedness. As a result of the Deed of Assignment, the plaintiff acquired all rights of the assignor including the right to sue in his own name as the legal assignee. Moreover, in assignment, the debtor's consent is not essential for the validity of the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626, Civil Code). Since the Assignment of Credit, dated 1 April 1989, is just as its title suggests, then petitioner's consent as debtor is not necessary in order that the assignment may fully produce legal effects. The duty to pay does not depend on the consent of the debtor; otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors' refusal to give consent.29 Moreover, this Court had already noted previously that there does not appear to be anything in Philippine statutes or jurisprudence which prohibits a creditor, without the consent of the debtor, from making an assignment of his credit and the rights accessory thereto; and, certainly, an assignment of credit and its accessory rights does not at all obliterate the obligation of the debtor to pay, but merely puts the assignee in the place of the assignor.30 Hence, the obligation of petitioner to pay his debt subsists despite the assignment thereof; only, his obligation after he came to know of the said assignment would be to pay the debt to the respondent (the assignee), instead of Ms. Picache (the original creditor). It bears to emphasize that even if the consent of petitioner as debtor is unnecessary for the validity and enforceability of the assignment of credit, nonetheless, the petitioner must have knowledge, acquired either by formal notice or some other means, of the assignment so that he may pay the debt to the proper party, which shall now be the assignee. This much can be gathered from a reading of Article 1626 of the Civil Code providing that, "The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation." This Court, in Sison v. Yap Tico,31 presented and adopted Manresa's analysis of Article 1626 of the Civil Code (then Article 1527 of the old Civil Code)

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Manresa, in commenting upon the provisions of article 1527 of the Civil Code, after discussing the articles of the Mortgage Law, says: "We have said that article 1527 deals with the individual phase or aspect which presupposes the existence of a relationship with third parties, that is, with the person of the debtor. Let us see in what way. "The above-mentioned article states that a debtor who, before having knowledge of the assignment, should pay the creditor shall be released from the obligation. "In the first place, the necessity for the notice to the debtor in order that the assignment may fully produce its legal effects may be inferred from the above. It refers to a notice and not to a petition for the consent which is not necessary. We say that the notice is not necessary in order that the legal effects may be fully produced, because if it should be omitted, such omission will not imply that the assignment will not exist legally, but that its effects will be limited to the parties thereto; at least, they will not reach the debtor. "* * * * * * * * "Let us go to the legal effects produced by the failure to give the notice. In the beginning, we have said that the contract does not lose its efficacy with respect to the parties who made it; but article 1527 determines specifically one of the consequences arising from the failure to give notice, for it evidently takes for granted that the debtor who, before having knowledge of the assignment, should pay the creditor shall be released from the obligation. So that if the creditor assigned his credit, acting in bad faith and taking advantage of the fact that the debtor does not know anything about the assignment because the latter has not been notified, and collects its amount, the debtor shall be free from the obligation, inasmuch as it has been legally extinguished by a payment which fully redounds to his benefit. The assignee can take advantage of all civil and criminal actions against the assignor, but he can ask nothing from the debtor, because the latter did not know of the assignment, nor was he bound to know it; the assignor should blame himself for his failure to have the notice made. "* * * * * * * * "Hence, there not having been any notice to the debtor, the existence of his knowledge of the assignment should be proved by him who is interested therein; and the debtor is not bound to prove his ignorance." In a more recent case, Aquintey v. Spouses Tibong,32 this Court stated: "The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it." Since his consent is immaterial, the only other matter which this Court must determine is whether petitioner had knowledge of the Assignment of Credit, dated 1 April 1989, between Ms. Picache and respondent. Both the Court of Appeals and the RTC ruled in the affirmative, and so must this Court. Petitioner does not deny having knowledge of the assignment of credit by Ms. Picache to the respondent. In 1989, when petitioner's loans became overdue, it was respondent and its counsel who sent several demand letters to him. It can be reasonably presumed that petitioner received said letters for they were sent by registered mail, and the return cards were signed by petitioner's agent. Petitioner expressly acknowledged receipt of respondent's demand letter, dated 13 June 1989, to which he replied with another letter, dated 21 June 1989, stating that he would settle his account with respondent but also requesting consideration of the losses he suffered from the electric power disconnection at the property he leased from MRMC. It further appears that petitioner had never questioned why it was respondent seeking payment of the loans and not the original creditor, Ms. Picache. All these circumstances tend to establish that respondent already knew of the assignment of credit made by Ms. Picache in favor of respondent and explains his acceptance of all the demands for payment of the loans made upon him by the respondent. Finally, assuming arguendo that this Court considers petitioner a third person to the Assignment of Credit, dated 1 April 1989, the fact that the said document was duly notarized makes it legally enforceable even as to him. According to Article 1625 of the Civil Code ART. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.

Notarization converted the Assignment of Credit, dated 1 April 1989, a private document, into a public document,33 thus, complying with the mandate of the afore-quoted provision and making it enforceable even as against third persons. WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED, and the Decision, dated 20 March 2001, of the Court of Appeals in CA-G.R. CV No. 43604, affirming in toto the Decision, dated 6 August 1993, of the Quezon City Regional Trial Court, Branch 91, in Civil Case No. Q-90-5247, is hereby AFFIRMED. Costs against the petitioner. SO ORDERED.

G.R. No. 143868

November 14, 2002

OSCAR C. FERNANDEZ, GIL C. FERNANDEZ and ARMANDO C. FERNANDEZ, petitioners, vs. Spouses CARLOS and NARCISA TARUN, respondents. DECISION PANGANIBAN, J.: The right of redemption may be exercised by a co-owner, only when part of the community property is sold to a stranger. When the portion is sold to a coowner, the right does not arise because a new participant is not added to the coownership. The Case The Petition for Review on Certiorari before us challenges the July 7, 2000 Decision of the Court of Appeals (CA)1in CA-GR CV No. 55264, which reversed the Regional Trial Court (RTC) of Dagupan City (Branch 44) in Civil Case No. D-3815.2 The assailed Decision disposed as follows: "WHEREFORE, the appealed decision is REVERSED and a NEW ONE is entered: "1. Ordering the partition of Lot 2991 in the proportion stated in Transfer Certificate of Title No. 24440, that is: Angel Fernandez, married to Corazon Cabal 7,114.46 sqm; spouses Carlos Tarun and Narcisa Zareno 1094.54 sqm. "The costs of the subdivision shall be equitably shared by plaintiffsappellants and defendants-appellees. "2. Ordering the Register of Deeds of Dagupan City to issue a separate transfer certificate of title each to plaintiffs-appellants and defendants-appellees corresponding to their respective shares upon completion of the partition."3 The Facts The antecedent facts of the case are narrated in the assailed CA Decision as follows: "An 8,209-square meter fishpond situated at Arellano-Bani, Dagupan City is disputed by [Respondents] Carlos Tarun and Narcisa Zareno, and [Petitioners] Corazon Cabal vda. de Fernandez and her children Oscar, Gil and Armando, all surnamed Fernandez. "The property is known as Lot No. 2991 of the Cadastral Survey of Dagupan. It was originally covered by OCT No. 43099, subsequently cancelled by TCT No. 24440. The brothers Antonio, Santiago, Demetria and Angel Fernandez, together with their uncle Armando, co-owned this property to the extent of 1/6 thereof.4 It was subsequently increased to 1/5 on account of the 1/6 share of Armando, who died single and without issue, which accrued in favor of the five remaining co-owners. "On June 4, 1967, Antonio Fernandez sold his share of about 547.27 square meters to [the Spouses] Tarun (Exh. I).5 On June 18, 1967, Demetria Fernandez, also sold her share on the same fishpond consisting of 547.27 square meters to

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[respondents].6 Thus, the total area sold to [respondents] is 1094.54 square meters, more or less. The two sales were registered and annotated on OCT No. 43099. "On November 14, 1969, the co-owners of the subject fishpond and another fishpond covered by TCT No. 10944 executed a Deed of Extrajudicial Partition of two parcels of registered land with exchange of shares. Among the parties to the deed are Antonio, Santiago, Demetria and Angel, all surnamed Fernandez. "It was stipulated in the deed that the parties recognize and respect the sale of a portion of Lot 2991 consisting of 1094.54 square meters previously sold by Antonio and Demetria Fernandez in favor of [respondents]. This portion was excluded in the partition. "Likewise, by virtue of the Deed of Extrajudicial Partition, Angel B. Fernandez exchanged his share on the other fishpond covered by TCT No. 10944 to the shares of his co-owners on the remaining portion of [L]ot No. 2991 covered by TCT No. 10945, making Angel B. Fernandez and [respondents] as co-owners of Lot No. 2991. "By virtue of the terms and conditions set forth in the Deed, TCT No. 24440 of the Registry of Deed[s] of Dagupan City, (Exh. A) was issued in favor of Angel B. Fernandez and [respondents]. From the time the latter bought the 1094.54-square meter portion of the fishpond, they had been paying the realty taxes thereon. However, it was Angel B. Fernandez and later on his heirs, [petitioners], who remained in possession of the entire fishpond. "When Angel B. Fernandez was still alive, [respondents] sought the partition of the property and their share of its income. Angel Fernandez refused to heed their demand. After the death of Angel Fernandez, [respondents] wrote [petitioners] of their desire for partition but this was rejected by [petitioners]. Hence, this suit for partition and damages."7 Ruling of the RTC On August 1, 1996, the RTC rendered judgment in favor of petitioners, ruling that, under Articles 1620 and 1621 of the Civil Code, they were entitled to redeem the property that they had sold to respondents. It further held that the sale was highly iniquitous and void for respondents failure to comply with Article 1623 of the same code. Ruling of the Court of Appeals Reversing the RTC, the CA held that petitioners were not entitled to redeem the controversial property for several reasons. First, it was Angel Fernandez who was its co-owner at the time of the sale; hence, he was the one entitled to receive notice and to redeem the property, but he did not choose to exercise that right. Second, the execution of the Deed of Extrajudicial Partition was a substantial compliance with the notice requirement under that law. Finally, it was too late in the day to declare the exchange highly iniquitous, when Angel Fernandez had not complained about it. As his successors-in-interest, petitioners were bound by the terms of the agreement. Hence, this Petition.8 Issues In their Memorandum,9 petitioners raise the following issues: "1. Whether or not petitioners are entitled to exercise their right of legal redemption. "2. Whether or not the transaction is one of equitable mortgage. "3. Whether or not the deed of extra-judicial partition is void and inefficacious. "4. Whether or not petitioners are entitled to damages, attorneys fees and costs. "5. Whether or not the lower court committed grave abuse of discretion amounting to lack of jurisdiction when it substituted it surmises, conjectures and guesswork in place of the trial courts findings of fact borne by the evidence on record."10 This Courts Ruling The Petition is not meritorious.

First Issue: Entitlement to Legal Redemption Petitioners aver that the sale to respondents is void, because it did not comply with the requirements of the Civil Code. According to them, they were not notified of the sale, but learned about it only when they received the summons for the partition case. They claim their right to redeem the property under the following provisions of the Civil Code: "Article 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one. "Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may respectively have in the thing owned in common." "Article 1621. The owners of adjoining lands shall also have the right of redemption when a piece of rural land, the area of which does not exceed one hectare, is alienated, unless the grantee does not own any rural land. "The right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and other apparent servitudes for the benefit of other estates. "If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of the adjoining land of smaller area shall be preferred; and should both lands have the same area, the one who first requested the redemption." xxx xxx xxx

"Article 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners. "The right of redemption of co-owners excludes that of adjoining owners." We disagree with petitioners. True, the right to redeem is granted not only to the original co-owners, but also to all those who subsequently acquire their respective shares while the community subsists.11 However, it must be stressed that this right of redemption is available only when part of the co-owned property is sold to a third person. Otherwise put, the right to redeem referred to in Article 1620 applies only when a portion is sold to a non-co-owner. In this case, it is quite clear that respondents are petitioners co-owners. The sale of the contested property to Spouses Tarun had long been consummated before petitioners succeeded their predecessor, Angel Fernandez. By the time petitioners entered into the co-ownership, respondents were no longer "third persons," but had already become co-owners of the whole property. A third person, within the meaning of Article 1620, is anyone who is not a co-owner.12 In Basa v. Aguilar,13 this Court has unequivocally ruled that the right of redemption may be availed of by a co-owner, only when the shares of the other owners are sold to a third person. " Legal redemption is in the nature of a privilege created by law partly for reasons of public policy and partly for the benefit and convenience of the redemptioner, to afford him a way out of what might be a disagreeable or [an] inconvenient association into which he has been thrust. (10 Manresa, 4th. Ed., 317.) It is intended to minimize co-ownership. The law grants a co-owner the exercise of the said right of redemption when the shares of the other owners are sold to a third person."14 There is no legal redemption, either in case of a mere lease15 and if the purchaser is also a tenant.16 Equally unavailing is petitioners contention that the sale was void, because the vendor had not sent any notice in writing to the other co-owners as required under Article 1625 of the Code. Indeed, the Code merely provides that a deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit that a written notice has been given to all possible redemptioners. However, it does not state that, by reason of such lack of notice, the sale shall become void. Jurisprudence affirms the need for notice, but its form has been the subject of varying interpretations. Conejero v. Court of Appeals17 held that a written notice was still required, even if the redemptioner had actual prior knowledge of the sale. However, in Distrito v. Court of Appeals,18 the Court ruled that written notice was not necessary, if the co-owner was actually aware of the sale. While the law requires that the notice must be in writing, it does not prescribe any particular form, so long as the reasons for a written notice are satisfied

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otherwise.19Thus, in a civil case for collection of a share in the rentals by an alleged buyer of a co-owned property, the receipt of a summons by a co-owner has been held to constitute actual knowledge of the sale. On that basis, the coowner may exercise the right of redemption within 30 days from the finality of the decision.20 Applying the presently prevailing principles discussed above, petitioners predecessor -- Angel Fernandez -- is deemed to have been given notice of the sale to respondents by the execution and signing of the Deed of Extrajudicial Partition and Exchange of Shares. As correctly held by the CA, the law does not require any specific form of written notice to the redemptioner.21 From such time, he had 30 days within which to redeem the property sold under Article 1623. The Deed was executed November 4, 1969; hence, the period to redeem expired on December 4, 1969. Consequently, the right to redeem was deemed waived, and petitioners are bound by such inaction of their predecessor. The former cannot now be allowed to exercise the right and adopt a stance contrary to that taken by the latter. Otherwise stated, the right to redeem had long expired during the lifetime of the predecessor and may no longer be exercised by petitioners who are his successors-in-interest. Second Issue: Sale or Equitable Mortgage?

Antonio, Demetria and Santiago Fernandez, who had already sold parts of their share to third persons. However, Angel Fernandez agreed and stipulated in the same Deed that he had traded his share in Lot No. 2924-B for the entire Lot No. 2991, except the portion already sold to respondents.32 Taking these stipulations into consideration, we are inclined to believe that the swapping of shares by the heirs was more favorable to the late Angel Fernandez, because his ownership became contiguous and compact in only one fishpond, instead of being merely shared with the other co-heirs in two different fishponds.33 Fourth Issue: Damages and Attorneys Fees Petitioners claim that they are entitled to P50,000 as attorneys fees and damages deserves scant consideration. It has been clearly established that respondents are co-owners of the subject property. Under Article 494 of the Civil Code, each co-owner may demand at any time the partition of the thing owned in common. Hence, respondents action for partition was not an unfounded suit. Verily, it was founded on a right given by law. Fifth Issue:

Petitioners contend that the sale was only an equitable mortgage because (1) the price was grossly inadequate, and (2) the vendors remained in possession of the land and enjoyed its fruits. Since the property is situated primely within the city proper, the price of P7,662 for 1,094.54 square meters is supposedly unconscionable. Moreover, since June 4, 1967 up to the present, the vendees (or herein respondents) have allegedly never been in actual possession of the land. The contention is untenable. On its face, a document is considered a contract of equitable mortgage when the circumstances enumerated in Article 1602 of the Civil Code are manifest, as follows: (a) when the price of the sale with the right to repurchase is unusually inadequate,22 and (b) when the vendor remains in possession as lessee or otherwise.23Although it is undisputed that Angel Fernandez was in actual possession of the property, it is important to note that he did not sell it to respondents. The sellers were his co-owners -- Antonio and Demetria Fernandez -- who, however, are not claiming that the sale between them was an equitable mortgage. For the presumption of an equitable mortgage to arise, one must first satisfy the requirement that the parties entered into a contract denominated as a contract of sale, and that their intention was to secure an existing debt by way of mortgage.24 Furthermore, mere alleged inadequacy of the price does not necessarily void a contract of sale, although the inadequacy may indicate that there was a defect in the consent, or that the parties really intended a donation, mortgage, or some other act or contract.25 Finally, unless the price is grossly inadequate or shocking to the conscience,26 a sale is not set aside. In this case, petitioners failed to establish the fair market value of the property when it was sold in 1967. Hence, there is no basis to conclude that the price was grossly inadequate or shocking to the conscience. Third Issue: Validity of the Extrajudicial Partition Petitioners also assail the partition as lopsided and iniquitous. They argue that their predecessor stood to lose 5,498.14 square meters under the extrajudicial partition. We are not convinced. It is a long-established doctrine that the law will not relieve parties from the effects of an unwise, foolish or disastrous agreement they entered into with all the required formalities and with full awareness of what they were doing. Courts have no power to relieve them from obligations they voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments.27 Neither the law nor the courts will extricate them from an unwise or undesirable contract which they entered into with all the required formalities and with full knowledge of its consequences.28 On the other hand, petitioners herein are bound by the extrajudicial partition, because contracts not only take effect between the parties, but also extend to their assigns and heirs.29 Moreover, if petitioners intended to annul the extrajudicial partition for being "lopsided and iniquitous," then they should have argued this in a proper action and forum. They should have filed an action to annul the extrajudicial partition and claimed their rightful share in the estate, impleading therein the other signatories to the Deed and not just herein respondents. In any event, a perusal of the Deed of Extrajudicial Partition with Exchange of Shares reveals that the partition of Lot nos. 2991 and 2924 was done equally and fairly. Indeed, 1,641.80 square meters of Lot No. 299130 and 10,971.80 square meters of Lot No. 2924-B31 were originally given to all the co-owners -- except

Factual Findings of the CA Petitioners insist that the CA made some factual findings that were neither in conformity with those of the RTC nor borne by the evidence on record. They assert that the appellate court erred in ruling that the extrajudicial partition had been freely and willfully entered into when, in fact, Angel B. Fernandez had been shortchanged by 5,498.14 square meters. They also contend that the registration of the two Deeds of Sale in favor of respondents was not valid, because it was not accompanied by an affidavit that written notice had been served to all possible redemptioners. We are not persuaded. We do not find any factual or legal basis to conclude that the extrajudicial partition was iniquitous, and that the sale of Antonio and Demetrias share in Lot no. 2991 is void. Factual findings of the CA supported by substantial evidence are conclusive and binding,34 unless they fall under the exceptions in Fuentes v. Court of Appeals35 and similar cases. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioners. SO ORDERED.

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