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[G. R. No. 147206.July 2, 2001] CABALLERO et al. vs.

ONG TIAO BOK SECOND DIVISION Gentlemen: Quoted hereunder, for your information, is a resolution of this Court dated JUL 2 2001. G.R. No. 147206(Danilo H. Caballero, et al. vs. Ong Tiao Bok.) Petitioners are the children and heirs of Sergio Caballero and Elisea Hechanova. In their lifetime, the couple owned two parcels of land located in Calatrava, Negros Occidental. The lots (Lot Nos. 3 and 1451), with a total area of 110,010 square meters, were covered by Transfer Certificate of Title Nos. 24402 and 24403, respectively. On March 17, 1972, Sergio Caballero, with the marital consent of his wife, Elisea Hechanova, sold the two lots to respondent Ong Tiao Bok for P60,000.00 under a contract denominated as "Deed of Sale with Right to Repurchase." The contract provided that of the amount of P60,000.00, P23,000.00 should be paid to the Philippine National Bank, P30,000.00 to a certain Rogelio Cruz, while the remaining amount of P7,000.00 should be paid to Caballero; that the vendor may repurchase the property within a period of five years from the date of the execution of the contract with a grace period of three years from the expiration of the original period of five years; and that an area of 400 square meters in Lot No. 3, a beach resort with coconut and nipa palm trees, would be reserved for the exclusive use of the vendor until the expiration of the period of redemption, although it appears that respondent took possession of the lots. The deed of sale was duly registered. On January 29, 1996, after Sergio Caballero and Elisea Hechanova had died and 16 years after the expiration of the stipulated period of redemption, petitioners filed an action in the Regional Trial Court, Branch 58, San Carlos City, Negros Occidental, for the cancellation of the annotations of the sale on the titles to the lots. They contended that the contract between their predecessor-in-interest and respondent was in fact a contract of equitable mortgage and, since the ten (10) year prescriptive period for the foreclosure of the mortgage had lapsed, the annotation on the titles to the lots constituted a cloud thereon which should be removed. The trial court dismissed petitioners' complaint on the ground that the Contract in question is a valid contract of sale with right of repurchase, and not an equitable mortgage, and that in any case laches has set in to bar petitioners' action. For this reason, it ordered the Registrar of Deeds of Negros Occidental to cancel TCT Nos. 24402 and 24403 and to issue a new one in the name of respondent since, with the

vendor's failure to redeem the properties, title thereto became consolidated in favor of respondent. On appeal to the Court of Appeals, the ruling was affirmed. Petitioners' motion for reconsideration was also denied. Hence this petition. Petitioners reiterate their contention in the Court of Appeals that the purchase price of the property in question, compared to its assessed value at the time of the sale, and the fact that the vendors were granted exclusive use to a portion of the lots sufficiently indicated that the contract was not a contract of sale but rather of loan with the lots mortgaged as security. The petition has no merit. First. In order to determine whether a contract is one of sale or mortgage, the intention of the parties must be ascertained. In this case, the parties stipulated that "for and in consideration of the sum of P60,000.00, which the Party of the Second Part [respondent] shall pay the Party of the First Part [Caballero], the latter hereby sells, cedes, and conveys unto the Party of the Second Part all his rights, interest and participation in the abovementioned lots" and that "after the expiration of five (5) years from the signing of th[e] contract the Party of the First Part has the right to repurchase the two lots for the same consideration as stated in the Deed of Sale with pacto de [r]etro and that the said Party of the First Part shall have a grace period of three (3) years from the expiration of the five years." These stipulations clearly express the intention of the parties to enter into a contract of sale with a right of repurchase. Their contract needs no interpretation and should be enforced as written. With regard to petitioners' claim that the purchase price is inadequate, Art. 1602(1) of the Civil Code provides that a contract shall be presumed to be an equitable mortgage when the price of a sale with right to repurchase is unusually inadequate. The inadequacy of the price paid must be so gross and unconscionable that the mind revolts at it and is such as a reasonable man would neither directly nor indirectly be likely to consent to (Aguilar v. Rubiato, 40 Phil. 570 (1919); 5 TOLENTINO, CIVIL CODE OF THE PHILIPPINES 157-158 (2nd ed., 1992)). In the case at bar, while the purchase price of the land was P60,000.00 when its assessed value is P65,610.00, the difference cannot be considered unconscionable and revolting. The Caballeros utilized a large part of the purchase price in order to settle their obligation to their creditors (PNB and Cruz). This obviously was a major factor in their decision to sell the properties at a price slightly lower than its assessed value. Petitioners claim that "it is public knowledge that that assessed value of properties is far below their fair market value ... thus a selling price equal or a little below that of the assessed value . . . is certainly and definitely inadequate." In the absence, however, of any evidence on the actual extent of the inadequacy of the price proving the same to be grossly inadequate, such allegation cannot be given much weight. Indeed, the vendor in cases of pacto de retro sale usually fixes a price less

than the real value to make it easier for him to return the price received (Feliciano v. Limjuco, 41 Phil. 147 (1920)) not to mention that in cases of sale with right of repurchase, the price obtained is ordinarily less than that paid in cases of absolute sale. Second. Neither is there merit in petitioners' contention that by virtue of the stipulation allowing the Caballeros exclusive use of a portion of the sold properties, they have remained in possession thereof and that, as provided in Art. 1602(2) of the Civil Code, this is an indication that the contract is one of equitable mortgage. The trial court found that the Caballeros did not really remain in possession of the lots and that it was respondent who has been in possession thereof since the execution of the contract in question. Moreover, the reservation of the portion of the area in question hardly amounts to the possession contemplated by law. Considering the nature of the property reserved (beach resort) and the area it covers (400 square meters) in relation to the size of the entire property (more than 11 hectares), it is evident that the arrangement was more a form of accommodation to the former lot owners than a recognition of their right to remain on the land. The applied purpose appears to be merely to give them access to the beach resort. Indeed, the contract provided that upon the expiration of the period of redemption, the Caballeros would no longer be allowed access to any part of the purchased property. Third. Even assuming that the contract in question was one of equitable mortgage, petitioners are barred by laches from claiming any rights under the contract. They brought this action more than 23 years after the execution of the contract, during which period respondent was in possession of the land. Petitioners have slept on their claimed right. For the foregoing reasons, the Court RESOLVED to deny the petition for lack of showing that the Court of Appeals committed a reversible error.

[G.R. No. 149756. February 11, 2005.] MYRNA RAMOS, petitioner, vs. SUSANA S. SARAO and JONAS RAMOS, respondents. DECISION PANGANIBAN, J p: Although the parties in the instant case denominated their contract as a "DEED OF SALE UNDER PACTO DE RETRO," the "sellers" have continued to possess and to reside at the subject house and lot up to the present. This evident factual circumstance was plainly overlooked by the trial and the appellate courts, thereby justifying a review of this case. This overlooked fact clearly shows that the petitioner intended merely to secure a loan, not to sell the property. Thus, the contract should be deemed an equitable mortgage. STcaDI The Case Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the August 31, 2001 Decision 2 of the Court of Appeals (CA) in CA-GR CV No. 50095, which disposed as follows: "WHEREFORE, the instant appeal is DISMISSED for lack of merit. The decision dated January 19, 1995 of the Regional Trial Court, Branch 145, Makati City is AFFIRMED in toto." 3 The Facts On February 21, 1991, Spouses Jonas Ramos and Myrna Ramos executed a contract over their conjugal house and lot in favor of Susana S. Sarao for and in consideration of P1,310,430. 4 Entitled "DEED OF SALE UNDER PACTO DE RETRO," the contract, inter alia, granted the Ramos spouses the option to repurchase the property within six months from February 21, 1991, for P1,310,430 plus an interest of 4.5 percent a month. 5 It was further agreed that should the spouses fail to pay the monthly interest or to exercise the right to repurchase within the stipulated period, the conveyance would be deemed an absolute sale. 6 On July 30, 1991, Myrna Ramos tendered to Sarao the amount of P1,633,034.20 in the form of two manager's checks, which the latter refused to accept for being allegedly insufficient. 7 On August 8, 1991, Myrna filed a Complaint for the redemption of the property and moral damages plus attorney's fees. 8 The suit was docketed as Civil Case No. 91-2188 and raffled to Branch 145 of the Regional Trial Court (RTC) of Makati City. On August 13, 1991, she deposited with the RTC two checks that Sarao refused to accept. 9 On December 21, 1991, Sarao filed against the Ramos spouses a Petition "for consolidation of ownership in pacto de retro sale" docketed as Civil Case No. 913434 and raffled to Branch 61 of the RTC of Makati City. 10 Civil Case Nos. 91-2188

and 91-3434 were later consolidated and jointly tried before Branch 145 of the said Makati RTC. 11 The two lower courts narrated the trial in this manner: ACcEHI ". . . Myrna [Ramos] testified as follows: On February 21, 1991, she and her husband borrowed from Sarao the amount of P1,234,000.00, payable within six (6) months, with an interest thereon at 4.5% compounded monthly from said date until August 21, 1991, in order for them to pay [the] mortgage on their house. For and in consideration of the said amount, they executed a deed of sale under a [pacto de retro] in favor of Sarao over their conjugal house and lot registered under TCT No. 151784 of the Registry of Deeds of Makati (Exhibit A). She further claimed that Sarao will keep the torrens title until the lapse of the 6-month period, in which case she will redeem [the] subject property and the torrens title covering it. When asked why it was the amount of P1,310,430 instead of the aforestated amount which appeared in the deed, she explained that upon signing of the deed in question, the sum of P20,000.00 representing attorney's fees was added, and its total amount was multiplied with 4.5% interest rate, so that they could pay in advance the compounded interest. She also stated that although the market value of the subject property as of February 1991 [was] calculated to [be] more or less P10 million, it was offered [for] only P1,310,430.00 for the reason that they intended nothing but to redeem the same. In May 1991, she wrote a letter to Atty. Mario Aguinaldo requesting him to give a computation of the loan obligation, and [expressed] her intention to redeem the subject property, but she received no reply to her letter. Instead, she, through her husband, secured directly from Sarao a handwritten computation of their loan obligation, the total of which amount[ed] to P1,562,712.14. Later, she sent several letters to Sarao, [furnishing] Atty. Aguinaldo with copies, asking them for the updated computation of their loan obligation as of July 1991, but [no reply was again received]. During the hearing of February 17, 1992, she admitted receiving a letter dated July 23, 1991 from Atty. Aguinaldo which show[ed] the computation of their loan obligation [totaling] to P2,911,579.22 (Exhs. 6, 6-A). On July 30, 1991, she claimed that she offered the redemption price in the form of two (2) manager's checks amounting to P1,633,034.20 (Exhs. H-1 & H-2) to Atty. Aguinaldo, but the latter refused to accept them because they [were] not enough to pay the loan obligation. Having refused acceptance of the said checks covering the redemption price, on August 13, 1991 she came to Court to consign the checks (Exhs. L-4 and L-5). Subsequently, she proceeded to the Register of Deeds to cause the annotation of lis pendens on TCT No. 151784 (Exh. B-1-A). Hence, she filed the . . . civil case against Sarao. aCTADI "On the other hand, Sarao testified as follows: On February 21, 1991, spouses Ramos together with a certain Linda Tolentino and her husband, Nestor Tolentino approached her and offered transaction involv[ing a] sale of property[. S]he consulted her lawyer, Atty. Aguinaldo, and on the same date a corresponding deed of sale under pacto de retro was executed and signed (Exh. 1). Later on, she sent,

through her lawyer, a demand letter dated June 10, 1991 (Exh. 6) in view of Myrna's failure to pay the monthly interest of 4.5% as agreed upon under the deed[. O]n June 14, 1991 Jonas replied to said demand letter (Exh. 8); in the reply Jonas admitted that he no longer ha[d] the capacity to redeem the property and to pay the interest. In view of the said reply of Jonas, [Sarao] filed the corresponding consolidation proceedings. She [further claimed] that before filing said action she incurred expenses including payment of real estate taxes in arrears, . . . transfer tax and capital [gains] tax, and [expenses] for [the] consolidated proceedings, for which these expenses were accordingly receipted (Exhs. 6, 6-1 to 6-0). She also presented a modified computation of the expenses she had incurred in connection with the execution of the subject deed (Exh. 9). She also testified that Myrna did not tender payment of the correct and sufficient price for said real property within the 6-month period as stipulated in the contract, despite her having been shown the computation of the loan obligation, inclusive of capital gains tax, real estate tax, transfer tax and other expenses. She admitted though that Myrna has tendered payment amounting to P1,633,034.20 in the form of two manager's checks, but these were refused acceptance for being insufficient. She also claimed that several letters (Exhs. 2, 4 and 5) were sent to Myrna and her lawyer, informing them of the computation of the loan obligation inclusive of said expenses. Finally, she denied the allegations made in the complaint that she allied herself with Jonas, and claimed that she ha[d] no knowledge about said allegation." 12 After trial, the RTC dismissed the Complaint and granted the prayer of Sarao to consolidate the title of the property in her favor. 13 Aggrieved, Myrna elevated the case to the CA. HcSaAD Ruling of the Court of Appeals The appellate court sustained the RTC's finding that the disputed contract was a bonafide pacto de retro sale, not a mortgage to secure a loan. 14 It ruled that Myrna Ramos had failed to exercise the right of repurchase, as the consignation of the two manager's checks was deemed invalid. She allegedly failed (1) to deposit the correct repurchase price and (2) to comply with the required notice of consignation. 15 Hence, this Petition. 16 The Issues Petitioner raises the following issues for our consideration: "1. Whether or not the honorable appellate court erred in ruling the subject Deed of Sale under Pacto de Retro was, and is in reality and under the law an equitable mortgage; IECcAT

"2. Whether or not the honorable appellate court erred in affirming the ruling of the court a quo that there was no valid tender of payment of the redemption price neither [sic] a valid consignation in the instant case; and "3. Whether or not [the] honorable appellate court erred in affirming the ruling of the court a quo denying the claim of petitioner for damages and attorney's fees."17 The Court's Ruling The Petition is meritorious in regard to Issues 1 and 2. First Issue: A Pacto de Retro Sale or an Equitable Mortgage? Respondent Sarao avers that the herein Petition should have been dismissed outright, because petitioner (1) failed to show proof that she had served a copy of it to the Court of Appeals and (2) raised questions of fact that were not proper issues in a petition under Rule 45 of the Rules of Court. 18 This Court, however, disregarded the first ground; otherwise, substantial injustice would have been inflicted on petitioner. Since the Court of Appeals is not a party here, failure to serve it a copy of the Petition would not violate any right of respondent. Service to the CA is indeed mentioned in the Rules, but only to inform it of the pendency of the appeal before this Court. SCEDAI As regards Item 2, there are exceptions to the general rule barring a review of questions of fact. 19 The Court reviewed the factual findings in the present case, because the CA had manifestly overlooked certain relevant and undisputed facts which, after being considered, justified a different conclusion. 20 Pacto de Retro Sale Distinguished from Equitable Mortgage The pivotal issue in the instant case is whether the parties intended the contract to be a bona fide pacto de retro sale or an equitable mortgage. HSEIAT In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a retro, subject only to the repurchase by the vendor a retro within the stipulated period. 21 The vendor a retro's failure to exercise the right of repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title to the property. 22 Such title is not impaired even if the vendee a retro fails to consolidate title under Article 1607 of the Civil Code. 23 On the other hand, an equitable mortgage is a contract that although lacking the formality, the form or words, or other requisites demanded by a statute

nevertheless reveals the intention of the parties to burden a piece or pieces of real property as security for a debt. 24 The essential requisites of such a contract are as follows: (1) the parties enter into what appears to be a contract of sale, but (2) their intention is to secure an existing debt by way of a mortgage. 25 The nonpayment of the debt when due gives the mortgagee the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to the satisfaction of the loan obligation. 26 This Court has consistently decreed that the nomenclature used by the contracting parties to describe a contract does not determine its nature. 27 The decisive factor is their intention as shown by their conduct, words, actions and deeds prior to, during, and after executing the agreement. 28 This juristic principle is supported by the following provision of law: cDAITS Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. 29 Even if a contract is denominated as a pacto de retro, the owner of the property may still disprove it by means of parol evidence, 30 provided that the nature of the agreement is placed in issue by the pleadings filed with the trial court. 31 There is no single conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. 32 However, the law enumerates several instances that show when a contract is presumed to be an equitable mortgage, as follows: acCTIS Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) (2) When the price of a sale with right to repurchase is unusually inadequate; 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) (5) When the purchaser retains for himself a part of the purchase price; When the vendor binds himself to pay the taxes on the thing sold; aCSEcA

(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 the usury laws. 33

Furthermore, a contract purporting to be a pacto de retro is construed as an equitable mortgage when the terms of the document and the surrounding circumstances so require. 34 The law discourages the use of a pacto de retro, because this scheme is frequently used to circumvent a contract known as a pactum commissorium. The Court has frequently noted that a pacto de retro is used to conceal a contract of loan secured by a mortgage. 35 Such construction is consistent with the doctrine that the law favors the least transmission of rights. 36 Equitable Mortgage Presumed to be Favored by Law Jurisprudence has consistently declared that the presence of even just one of the circumstances set forth in the foregoing Civil Code provision suffices to convert a contract to an equitable mortgage. 37 Article 1602 specifically states that the equitable presumption applies to any of the cases therein enumerated. CTAIHc In the present factual milieu, the vendor retained possession of the property allegedly sold. 38 Petitioner and her children continued to use it as their residence, even after Jonas Ramos had abandoned them. 39 In fact, it remained as her address for the service of court orders and copies of Respondent Sarao's pleadings. 40 The presumption of equitable mortgage imposes a burden on Sarao to present clear evidence to rebut it. Corollary to this principle, the favored party need not introduce proof to establish such presumption; the party challenging it must overthrow it, lest it persist. 41 To overturn that prima facie fact that operated against her, Sarao needed to adduce substantial and credible evidence to prove that the contract was a bona fide pacto de retro. This evidentiary burden she miserably failed to discharge. ITHADC Contrary to Sarao's bare assertions, a meticulous review of the evidence reveals that the alleged contract was executed merely as security for a loan. The July 23, 1991 letter of Respondent Sarao's lawyer had required petitioner to pay a computed amount under the heading "House and Lot Loan" 42 to enable the latter to repurchase the property. In effect, respondent would resell the property to petitioner, once the latter's loan obligation would have been paid. This explicit requirement was a clear indication that the property was to be used as security for a loan. The loan obligation was clear from Sarao's evidence as found by the trial court, which we quote: ". . . [Sarao] also testified that Myrna did not tender payment of the correct and sufficient price for said real property within the 6-month period as stipulated in the contract, despite her having been shown the computation of the loan obligation, inclusive of capital gains tax, real estate tax, transfer tax and other expenses. She

admitted though that Myrna has tendered payment amounting to P1,633,034.20 in the form of two manager's checks, but these were refused acceptance for being insufficient. She also claimed that several letters (Exhs. 2, 4 and 5) were sent to Myrna and her lawyer, informing them of the computation of the loan obligation inclusive of said expenses. . . . ." 43 Respondent herself stressed that the pacto de retro had been entered into on the very same day that the property was to be foreclosed by a commercial bank. 44 Such circumstance proves that the spouses direly needed funds to avert a foreclosure sale. Had they intended to sell the property just to realize some profit, as Sarao suggests, 45 they would not have retained possession of the house and continued to live there. Clearly, the spouses had entered into the alleged pacto de retro sale to secure a loan obligation, not to transfer ownership of the property. ESaITA Sarao contends that Jonas Ramos admitted in his June 14, 1991 letter to her lawyer that the contract was a pacto de retro. 46 That letter, however, cannot override the finding that the pacto de retro was executed merely as security for a loan obligation. Moreover, on May 17, 1991, prior to the transmittal of the letter, petitioner had already sent a letter to Sarao's lawyer expressing the former's desire to settle the mortgage on the property. 47 Considering that she had already denominated the transaction with Sarao as a mortgage, petitioner cannot be prejudiced by her husband's alleged admission, especially at a time when they were already estranged. 48 Inasmuch as the contract between the parties was an equitable mortgage, Respondent Sarao's remedy was to recover the loan amount from petitioner by filing an action for the amount due or by foreclosing the property. 49 Second Issue: Propriety of Tender of Payment and Consignation Tender of payment is the manifestation by debtors of their desire to comply with or to pay their obligation. 50 If the creditor refuses the tender of payment without just cause, the debtors are discharged from the obligation by the consignation of the sum due. 51 Consignation is made by depositing the proper amount to the judicial authority, before whom the tender of payment and the announcement of the consignation shall be proved. 52 All interested parties are to be notified of the consignation. 53 Compliance with these requisites is mandatory. 54 The trial and the appellate courts held that there was no valid consignation, because petitioner had failed to offer the correct amount and to provide ample consignation notice to Sarao. 55 This conclusion is incorrect. cEaSHC

Note that the principal loan was P1,310,430 plus 4.5 per cent monthly interest compounded for six months. Expressing her desire to pay in the fifth month, petitioner averred that the total amount due was P1,633,034.19, based on the computation of Sarao herself. 56 The amount of P2,911,579.22 that the latter demanded from her to settle the loan obligation was plainly exorbitant, since this sum included other items not covered by the agreement. The property had been used solely as security for the P1,310,430 loan; it was therefore improper to include in that amount payments for gasoline and miscellaneous expenses, taxes, attorney's fees, and other alleged loans. When Sarao unjustly refused the tender of payment in the amount of P1,633,034.20, petitioner correctly filed suit and consigned the amount in order to be released from the latter's obligation. The two lower courts cited Article 1257 of the Civil Code to justify their ruling that petitioner had failed to notify Respondent Sarao of the consignation. This provision of law states that the obligor may be released, provided the consignation is first announced to the parties interested in the fulfillment of the obligation. cSCTID The facts show that the notice requirement was complied with. In her August 1, 1991 letter, petitioner said that should the respondent fail to accept payment, the former would consign the amount. 57 This statement was an unequivocal announcement of consignation. Concededly, sending to the creditor a tender of payment and notice of consignation which was precisely what petitioner did may be done in the same act. 58 Because petitioners' consignation of the amount of P1,633,034.20 was valid, it produced the effect of payment. 59 "The consignation, however, has a retroactive effect, and the payment is deemed to have been made at the time of the deposit of the thing in court or when it was placed at the disposal of the judicial authority." 60 "The rationale for consignation is to avoid making the performance of an obligation more onerous to the debtor by reason of causes not imputable to him." 61 Third Issue: Moral Damages and Attorney's Fees Petitioner seeks moral damages in the amount of P500,000 for alleged sleepless nights and anxiety over being homeless. 62 Her bare assertions are insufficient to prove the legal basis for granting any award under Article 2219 of the Civil Code. 63 Verily, an award of moral damages is uncalled for, considering that it was Respondent Sarao's accommodation that settled the earlier obligation of the spouses with the commercial bank and allowed them to retain ownership of the property. aTIEcA Neither have attorney's fees been shown to be proper. 64 As a general rule, in the absence of a contractual or statutory liability therefor, sound public policy frowns on penalizing the right to litigate. 65 This policy applies especially to the present case,

because there is a need to determine whether the disputed contract was a pacto de retro sale or an equitable mortgage. Other Matters In a belated Manifestation filed on October 19, 2004, Sarao declared that she was the "owner of the one-half share of Jonas Ramos in the conjugal property," because of his alleged failure to file a timely appeal with the CA. 66 Such declaration of ownership has no basis in law, considering that the present suit being pursued by petitioner pertains to a mortgage covering the whole property. cSEAHa Besides, it is basic that defenses and issues not raised below cannot be considered on appeal. 67 The Court, however, observes that Respondent Sarao paid real property taxes amounting to P67,567.10 to halt the auction sale scheduled for October 8, 2004, by the City of Muntinlupa. 68 Her payment was made in good faith and benefited petitioner. Accordingly, Sarao should be reimbursed; otherwise, petitioner would be unjustly enriched, 69 under Article 2175 of the Civil Code which provides: Art. 2175. Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter. AHCcET WHEREFORE, the Petition is partly GRANTED and the assailed Decision SET ASIDE. Judgment is hereby rendered: (1) DECLARING (a) the disputed contract as an equitable mortgage; (b) petitioner's loan to Respondent Sarao to be in the amount of P1,633,034.19 as of July 30, 1991; and (c) the mortgage on the property covered by TCT No. 151784 in the name of the Ramos spouses and issued by the Register of Deeds of Makati City as discharged (2) ORDERING P1,633,034.19 the RTC to release to Sarao the consigned amount of

(3) COMMANDING Respondent Sarao to return to petitioner the owner's copy of TCT No. 151784 in the name of the Ramos spouses and issued by the Register of Deeds of Makati City (4) DIRECTING the Register of Deeds of Makati City to cancel Entry No. 24057, the annotation appearing on TCT No. 151784 (5) ORDERING petitioner to pay Sarao in the amount of P67,567.10 as reimbursement for real property taxes

[G.R. No. 145871. January 31, 2006.] LEONIDES C. DIO, petitioner, vs. LINA JARDINES, respondent. DECISION AUSTRIA-MARTINEZ, J p: This resolves the petition for review on certiorari seeking to set aside the Decision 1 of the Court of Appeals (CA) dated June 9, 2000 dismissing the appeal in CA-G.R. CV No. 56118 and the Resolution dated October 25, 2000 denying the motion for reconsideration. HETDAa The antecedent facts are as follows. On December 14, 1992, Leonides C. Dio (petitioner) filed a Petition for Consolidation of Ownership with the Regional Trial Court of Baguio City, Branch 7 (RTC). She alleged that: on January 31, 1987, Lina Jardines (respondent) executed in her favor a Deed of Sale with Pacto de Retro over a parcel of land with improvements thereon covered by Tax Declaration No. 44250, the consideration for which amounted to P165,000.00; it was stipulated in the deed that the period for redemption would expire in six months or on July 29, 1987; such period expired but neither respondent nor any of her legal representatives were able to redeem or repurchase the subject property; as a consequence, absolute ownership over the property has been consolidated in favor of petitioner. 2 Respondent countered in her Answer that: the Deed of Sale with Pacto de Retro did not embody the real intention of the parties; the transaction actually entered into by the parties was one of simple loan and the Deed of Sale with Pacto de Retro was executed just as a security for the loan; the amount borrowed by respondent during the first week of January 1987 was only P50,000.00 with monthly interest of 9% to be paid within a period of six months, but since said amount was insufficient to buy construction materials for the house she was then building, she again borrowed an additional amount of P30,000.00; it was never the intention of respondent to sell her property to petitioner; the value of respondent's residential house alone is over a million pesos and if the value of the lot is added, it would be around one and a half million pesos; it is unthinkable that respondent would sell her property worth one and a half million pesos for only P165,000.00; respondent has even paid a total of P55,000.00 out of the amount borrowed and she is willing to settle the unpaid amount, but petitioner insisted on appropriating the property of respondent which she put up as collateral for the loan; respondent has been the one paying for the realty taxes on the subject property; and due to the malicious suit filed by petitioner, respondent suffered moral damages. cAaTED On September 14, 1993, petitioner filed an Amended Complaint adding allegations that she suffered actual and moral damages. Thus, she prayed that she be declared

the absolute owner of the property and/or that respondent be ordered to pay her P165,000.00 plus the agreed monthly interest of 10%; moral and exemplary damages, attorney's fees and expenses of litigation. Respondent then filed her Answer to the Amended Complaint reiterating the allegations in her Answer but increasing the alleged valuation of the subject property to more than two million pesos. After trial, the RTC rendered its Decision dated November 20, 1996, the dispositive portion of which reads as follows: WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows: a) Declaring the contract (Exh. A) entered into by the contending parties as one of deed of sale with right to repurchase or pacto de retro sale; b) Declaring the plaintiff Dio to have acquired whatever rights Jardines has over the parcel of land involved it being that Jardines has no torrens title yet over said land; c) Declaring the plaintiff Dio the owner of the residential house and other improvements standing on the parcel of land in question; d) Ordering the consolidation of ownership of Dio over the residential house and other improvements, and over the rights, she (Dio) acquired over the parcel of land in question; and ordering the corresponding government official (The City Assessor) of Baguio City to undertake the consolidation by putting in the name of plaintiff Dio the ownership and/or rights which she acquired from the defendant Jardines in the corresponding document (Tax Declarations) on file in his/her office; after the plaintiff has complied with all the requirements and has paid the fees necessary or incident to the issuance of a new tax declaration as required by law; e) Ordering the cancellation of Tax Declaration 44250;

f) Ordering defendant Jardines to pay actual and/or compensatory damages to the plaintiff as follows: 1) P3,000.00 representing expenses in going to and from Jardines' place to collect the redemption money; 2) P1,000.00 times the number of times Dio came to Baguio to attend the hearing of the case as evidenced by the signatures of Dio appearing on the minutes of the proceedings found in the Rollo of the case; 3) P10,000.00 attorney's fee.

Costs against defendant Jardines.

SO ORDERED. 3 Respondent then appealed to the CA which reversed the RTC judgment. The CA held that the true nature of the contract between herein parties is one of equitable mortgage, as shown by the fact that (a) respondent is still in actual physical possession of the property; (b) respondent is the one paying the real property taxes on the property; and (c) the amount of the supposed sale price, P165,000.00, earns monthly interest. The dispositive portion of the CA Decision promulgated on June 9, 2000 reads: WHEREFORE, foregoing premises considered, we find that the Regional Trial Court, First Judicial Region, Branch 07, Baguio City, committed reversible errors in rendering its decision dated 20 November 1996 in Civil Case No. 2669-R, entitled Leonides G. Dio, etc. vs. Lina Jardines". The appeal at bar is hereby GRANTED and the assailed decision is hereby REVERSED and SET ASIDE. Let a new judgment be entered as follows: 1. Declaring that the true nature of the contract entered into by the contending parties as one of equitable mortgage and not a pacto de retro sale; 2. Ordering the defendant-appellant to pay plaintiff-appellee legal interest on the amount of P165,000.00 from July 29, 1987, the time the said interest fell due, until fully paid; 3. No pronouncement as to cost.

SO ORDERED. 4 Petitioner moved for reconsideration of said decision, but the same was denied per Resolution dated October 25, 2000. ADCETI Hence, herein petition for review on certiorari alleging that: 1. THE LOWER COURT COMMITTED AN ERROR IN DECLARING THAT THE TRUE NATURE OF THE CONTRACT ENTERED INTO BY THE PARTIES AS ONE EQUITABLE MORTGAGE AND NOT A PACTO DE RETRO SALE; 2. THE LOWER COURT COMMITTED AN ERROR IN ORDERING THE RESPONDENT TO PAY PETITIONER LEGAL INTEREST DESPITE THE CONFLICTING ADMISSIONS OF THE PARTIES THAT THE AGREED INTERESTS WAS EITHER 9% OR 10%; 3. THE FINDINGS OF FACTS OF THE LOWER COURT ARE CONTRARY TO EVIDENCE AND THE ADMISSIONS OF THE PARTIES; 4. THE LOWER COURT COMMITTED AN ERROR IN GOING BEYOND THE ISSUES OF THE CASE BY DELETING THE AWARD FOR DAMAGES DESPITE THE FACT THAT THE SAME WAS NOT RAISED AS AN ISSUE IN THE APPEAL; 5

The petition lacks merit. The Court finds the allegations of petitioner that the findings of fact of the CA are contrary to evidence and admissions of the parties and that it erred in declaring the contract between the parties as an equitable mortgage to be absolutely unfounded. TCIDSa A close examination of the records of this case reveals that the findings of fact of the CA are all based on documentary evidence and on admissions and stipulation of facts made by the parties. The CA's finding that there was no gross inadequacy of the price of respondent's residential house as stated in the contract, was based on respondent's own evidence, Tax Declaration No. 44250, which stated that the actual market value of subject residential house in 1986 was only P93,080.00. The fact that respondent has remained in actual physical possession of the property in question, and that respondent has been the one paying the real property taxes on the subject property was established by the admission made by petitioner during the pre-trial conference and embodied in the Pre-Trial Order 6 dated May 25, 1994. The finding that the purchase price in the amount of P165,000.00 earns monthly interest was based on petitioner's own testimony and admission in her appellee's brief that the amount of P165,000.00, if not paid on July 29, 1987, shall bear an interest of 10% per month. The Court sees no reversible error with the foregoing findings of fact made by the CA. The CA correctly ruled that the true nature of the contract entered into by herein parties was one of equitable mortgage. Article 1602 of the Civil Code enumerates the instances when a purported pacto de retro sale may be considered an equitable mortgage, to wit: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) (2) When the price of a sale with right to repurchase is unusually inadequate; 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) (5) When the purchaser retains for himself a part of the purchase price; 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. SHCaDA

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 the usury laws. (Emphasis supplied) In Legaspi vs. Ong, 7 the Court further explained that: The presence of even one of the above-mentioned circumstances as enumerated in Article 1602 is sufficient basis to declare a contract of sale with right to repurchase as one of equitable mortgage. As stated by the Code Commission which drafted the new Civil Code, in practically all of the so-called contracts of sale with right of repurchase, the real intention of the parties is that the pretended purchase price is money loaned and in order to secure the payment of the loan, a contract purporting to be a sale with pacto de retro is drawn up. 8 In the same case, the Court cited Article 1603 of the Civil Code, which provides that in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. 9 In the instant case, the presence of the circumstances provided for under paragraphs (2) and (5) of Article 1602 of the Civil Code, and the fact that petitioner herself demands payment of interests on the purported purchase price of the subject property, clearly show that the intention of the parties was merely for the property to stand as security for a loan. The transaction between herein parties was then correctly construed by the CA as an equitable mortgage. acITSD The allegation that the appellate court should not have deleted the award for actual and/or compensatory damages is likewise unmeritorious. Section 8, Rule 51 of the Rules of Court provides as follows: Sec. 8. Questions that may be decided. No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors. Clearly, the appellate court may pass upon plain errors even if they are not stated in the assignment of errors. In Villegas vs. Court of Appeals, 10 the Court held: [T]he Court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. 11 In the present case, the RTC's award for actual damages is a plain error because a reading of said trial court's Decision readily discloses that there is no sufficient evidence on record to prove that petitioner is entitled to the same. Petitioner's only evidence to prove her claim for actual damages is her testimony that she has spent

P3,000.00 in going to and from respondent's place to try to collect payment and that she spent P1,000.00 every time she travels from Bulacan, where she resides, to Baguio in order to attend the hearings. TSacCH In People vs. Sara, 12 the Court held that a witness' testimony cannot be "considered as competent proof and cannot replace the probative value of official receipts to justify the award of actual damages, for jurisprudence instructs that the same must be duly substantiated by receipts." 13 Hence, there being no official receipts whatsoever to support petitioner's claim for actual or compensatory damages, said claim must be denied. The appellate court was also correct in ordering respondent to pay "legal interest" on the amount of P165,000.00. Both parties admit that they came to an agreement whereby respondent shall pay petitioner interest, at 9% (according to respondent) or 10% (according to petitioner) per month, if she is unable to pay the principal amount of P165,000.00 on July 29, 1987. IaCHTS In the Pre-Trial Order 14 dated May 25, 1994, one of the issues for resolution of the trial court was "whether or not the interest to be paid under the agreement is 10% or 9% or whether or not this amount of interest shall be reduced equitably pursuant to law." 15 The factual milieu of Carpo vs. Chua 16 is closely analogous to the present case. In the Carpo case, petitioners therein contracted a loan in the amount of P175,000.00 from respondents therein, payable within six months with an interest rate of 6% per month. The loan was not paid upon demand. Therein petitioners claimed that following the Court's ruling in Medel vs. Court of Appeals, 17 the rate of interest of 6% per month or 72% per annum as stipulated in the principal loan agreement is null and void for being excessive, iniquitous, unconscionable and exorbitant. The Court then held thus: In a long line of cases, this Court has invalidated similar stipulations on interest rates for being excessive, iniquitous, unconscionable and exorbitant. In Solangon v. Salazar, we annulled the stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan. In Imperial v. Jaucian, we reduced the interest rate from 16% to 1.167% per month or 14% per annum. In Ruiz v. Court of Appeals, we equitably reduced the agreed 3% per month or 36% per annum interest to 1% per month or 12% per annum interest. The 10% and 8% interest rates per month on a P1,000,000.00 loan were reduced to 12% per annum in Cuaton v. Salud. Recently, this Court, in Arrofo v. Quino, reduced the 7% interest per month on a P15,000.00 loan amounting to 84% interest per annum to 18% per annum. cDAITS There is no need to unsettle the principle affirmed in Medel and like cases. From that perspective, it is apparent that the stipulated interest in the subject loan is

excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. In the ordinary course, the codal provision may be invoked to annul the excessive stipulated interest. In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set in the above-cited cases, this stipulation is similarly invalid. . . . . 18 Applying the afore-cited rulings to the instant case, the inescapable conclusion is that the agreed interest rate of 9% per month or 108% per annum, as claimed by respondent; or 10% per month or 120% per annum, as claimed by petitioner, is clearly excessive, iniquitous, unconscionable and exorbitant. Although respondent admitted that she agreed to the interest rate of 9%, which she believed was exorbitant, she explained that she was constrained to do so as she was badly in need of money at that time. As declared in the Medel case 19 and Imperial vs. Jaucian, 20 "[i]niquitous and unconscionable stipulations on interest rates, penalties and attorney's fees are contrary to morals." Thus, in the present case, the rate of interest being charged on the principal loan of P165,000.00, be it 9% or 10% per month, is void. The CA correctly reduced the exorbitant rate to "legal interest." aETASc In Trade & Investment Development Corporation of the Philippines vs. Roblett Industrial Construction Corporation, 21 the Court held that: In Eastern Shipping Lines, Inc. v. Court of Appeals, this Court laid down the following rules with respect to the manner of computing legal interest: I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on 'Damages' of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 22 (Underscoring supplied) IDTSEH

Applied to the present case, since the agreed interest rate is void, the parties are considered to have no stipulation regarding the interest rate. Thus, the rate of interest should be 12% per annum to be computed from judicial or extrajudicial demand, subject to the provisions of Article 1169 of the Civil Code, to wit: 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 the obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. xxx xxx xxx

The records do not show any of the circumstances enumerated above. Consequently, the 12% interest should be reckoned from the date of extrajudicial demand. AScHCD Petitioner testified that she went to respondent's place several times to try to collect payment, but she (petitioner) failed to specify the dates on which she made such oral demand. The only evidence which clearly shows the date when petitioner made a demand on respondent is the demand letter dated March 19, 1989 (Exh. "C"), which was received by respondent or her agent on March 29, 1989 per the Registry Return Receipt (Exh. "C-1"). Hence, the interest of 12% per annum should only begin to run from March 29, 1989, the date respondent received the demand letter from petitioner.

[G.R. No. 151333. September 20, 2005.] SPOUSES NATALIO and FELICIDAD SALONGA, petitioners, vs. SPOUSES MANUEL and NENITA CONCEPCION and FLORENCIA REALTY CORPORATION, respondents. DECISION CALLEJO, SR., J p: The spouses Natalio Salonga and Felicidad Salonga were the owners of eight (8) prime parcels of land located in Dagupan City covered by Transfer Certificate of Title (TCT) Nos. 40886, 40887, 43547, 26506, 35156, 49460, 49459 and 53650. 1 They had a commercial building with four floors which stood on their property located along A.B. Fernandez Avenue, Dagupan City and covered by TCT No. 53650. The spouses leased the building to traders and merchants, and lived in a house along Arellano Street. The house stood on a lot which they also owned, covered by TCT No. 26506. DTaAHS To finance their business, the spouses secured a loan from the Associated Bank. To secure the payment thereof, they executed a Real Estate Mortgage in favor of the bank over the property covered by TCT Nos. 40886, 40887, 43547, 35156 and 49459. 2 The spouses likewise secured a loan from the Philippine National Bank (PNB), and also executed a real estate mortgage over their property covered by TCT No. 26506. 3 A real estate mortgage over their property covered by TCT No. 53650 was also executed, including the commercial building thereon, as security for their loan from the Development Bank of the Philippines (DBP). 4 Their loan from the Rural Bank of Malasiqui, Inc. (Pangasinan) was secured by a real estate mortgage over their property covered by TCT No. 49460. 5 The devastating earthquake of July 16, 1990 severely damaged the spouses' commercial building, adversely affecting their business. 6 Consequently, they defaulted in the payment of their loans. The creditor banks foreclosed or threatened to foreclose their real estate mortgages. On September 4, 1991, their property covered by TCT No. 49460 mortgaged to the Rural Bank of Malasiqui, Inc. was sold at public auction with the said bank as the highest bidder. 7 The DBP had the property covered by TCT No. 53650 sold at public auction on November 21, 1991. 8 The Certificate of Sale in favor of the bank as the winning bidder was filed with the Office of the Register of Deeds on January 2, 1992. 9 On October 1, 1992, the Associated Bank filed a petition with the Regional Trial Court (RTC) of Dagupan City for the extrajudicial foreclosure of the Real Estate Mortgage over the property of the spouses covered by TCT Nos. 49459, 40886, 40887, 43547 and 35156, for the satisfaction of the balance of their loans and the increments thereof totaling P571,132.70 as of August 31, 1992. The sheriff set the sale at public auction on December 10, 1992. 10

Beleaguered, the spouses Salonga secured a loan, this time, from the spouses Manuel and Nenita Concepcion, who were engaged in the business of lending money, to repay their loan to the PNB. The spouses Salonga borrowed P500,000.00 from the spouses Concepcion, which the latter remitted to the PNB on November 6, 1992 in payment of the spouses Salonga's account. The latter were issued a receipt. 11 They also paid P2,756.85 to the PNB for surcharges. 12 Thus, on November 11, 1992, the PNB executed a Deed of Release of Real Estate Mortgage 13 which the bank delivered to Manuel Concepcion; the receipt of the said payment and the owner's duplicate of TCT No. 26506 was likewise released to Manuel Concepcion. The spouses Concepcion also agreed to the spouses Salonga's plea for another loan to enable them to settle their obligations with the Associated Bank. Concepcion remitted the amount of P200,000.00 to the bank on December 8, 1992; 14 P200,000.00, on December 21, 1992; 15 and P186,520.50 on January 18, 1993 16 for the account of the spouses Salonga, for which the latter were issued receipts by the bank. 17 The bank executed a Cancellation of the Real Estate Mortgage 18 on January 20, 1993 and delivered the amount together with the owner's duplicate of the titles over the five parcels of land, and the aforesaid receipt to spouses Concepcion. The spouses Salonga secured another loan from the spouses Concepcion in the amount of P2,042,377.19, which the latter paid to the DBP for the account of the spouses Salonga. The bank executed a Deed of Redemption and Cancellation of Liens 19 on January 5, 1993. The spouses Concepcion took delivery of the deed and the owner's duplicate of TCT No. 53650 and the receipt issued by the DBP for said amount in the names of the spouses Salonga. The spouses Concepcion required the spouses Salonga to pay 3% of the loans as monthly interest, on top of a 5% commission if the property was sold to thirdparties. The spouses Salonga failed to pay the loans, interest and commission despite the lapse of several months. In the meantime, they continued residing in the same house. Much as they tried, the spouses Salonga failed to sell their property to any interested buyer. Worse, the spouses Concepcion pressed them to pay their loan accounts, plus the interests thereon. Their property covered by TCT No. 49460 was sold at public auction with the Rural Bank of Malasiqui, Inc. as the winning bidder. The bank consolidated its title on August 20, 1993. 20 The Register of Deeds cancelled TCT No. 49460 and issued TCT No. 60384 to the bank. 21 On August 31, 1993, the spouses Salonga executed, in favor of the spouses Concepcion, a Deed of Absolute Sale 22 over their property previously mortgaged to the Associated Bank covered by TCT Nos. 43547, 40886, 40887, 35156 and 49459. It appears on the said deed that the property was sold for the price of P575,000.00,

and that the spouses Salonga received the amount from the spouses Concepcion. cITaCS On September 20, 1993, the spouses Concepcion executed a Deed of Absolute Sale over the property covered by TCT Nos. 40886, 40887, and 43547 in favor of the Florencia Realty Corporation for P600,000.00. On September 21, 1993, the spouses Concepcion filed the said deed in the Office of the Register of Deeds. The spouses Concepcion then filed the cancellation of real estate mortgage executed by the Associated Bank, the deed of absolute sale executed by the spouses Salonga, and the deed of absolute sale in favor of the Florencia Realty Corporation in the Office of the Register of Deeds, which issued TCT Nos. 60530, 60531 and 60532 in the names of the Florencia Realty Corporation, and TCT Nos. 60533, 60534 and 60694 in the names of the spouses Concepcion on September 21, 1993. On October 18, 1993, the Spouses Salonga executed a Deed of Absolute Sale 23 over their properties previously mortgaged with the PNB and DBP, covered by TCT Nos. 53650 and 26506 including the improvements therein in favor of the spouses Concepcion. It appears that the lots were sold for P1,500,000.00, receipt of which was acknowledged by the spouses Salonga in the said deed. The spouses Concepcion filed the deed of absolute sale on the same day with the Office of the Register of Deeds, which issued TCT Nos. 60694 and 60695 in the names of the spouses Concepcion following the payment of the capital gains taxes. However, the spouses Salonga continued to reside in the same house. Sometime in 1994, the daughter of the spouses Salonga arrived from abroad. The spouses and their daughter offered to redeem the property from the spouses Concepcion. However, the latter informed the spouses Salonga and their daughter that the title to the property had already been transferred to their names, and agreed to the redemption of the property for P8,000,000.00 and the spouses Concepcion increased it to P10,000,000.00. On July 12, 1994, the spouses Salonga filed a complaint against the spouses Concepcion and the Florencia Realty Corporation with the RTC of Dagupan City for annulment of the August 31, 1993 and October 18, 1993 Deeds of Absolute Sale, as well as the reconveyance of the property subject of said deeds with damages. The spouses Salonga alleged that the two deeds of absolute sale were simulated and did not reflect their true agreements, that is, that their property would guarantee the "payment of the total amount of remittances the defendants had paid to the mortgagors-banks for the redemption of their property, plus 3% a month of their loans as interests, and if the property were sold to a third-party, a 5% commission of the purchase price thereof." They also alleged that their agreement with the spouses Concepcion that the latter would not register the said deeds in the Office of the Register of Deeds and secure titles over the properties in their names; the defendants, in evident bad faith, registered the said deeds and secured titles in

their names; the market price of the whole property amounted to P10,000,000.00, but it appeared that the property was sold to the spouses Concepcion for only P2,000,000.00, which was the amount the spouses Concepcion remitted to the bank in their account; they offered to repay their loans and their offers were rejected. The spouses Salonga prayed that judgment be rendered in their favor, thus: WHEREFORE, it is respectfully prayed that after due hearing, judgment be rendered in accordance with the several causes of action hereof; 1. Declaring the Deed[s] of Absolute Sales, (sic), (Annexes "I" and "J") dated August 31, 1993 and October 18, 1993, respectively as a simulated contracts and therefore VOID AB INITIO; 2. Ordering the Register of Deeds of Dagupan City to cancel TCT Nos. 60533, 60534, 60695, 60694, 60624 in the name of the defendants and TCT Nos. 60530, 60531 and 60532 in the name of Florencia Realty Corporation, Inc., and to restore TCT Nos. 40886, 40887, 43547, 20506, 35156, 49460, 49459 and 53650 in the name of the plaintiffs Spouses Natalio Salonga and Felicidad Salonga; 3. Ordering defendants spouses Manuel Concepcion and Nenita Viado to pay plaintiffs the sum of P500,000.00 as damages authorized to be awarded under Article 19 of the same code; 4. Ordering defendants Spouses Manuel Concepcion and Nenita Viado to pay plaintiffs the sum of P2,000,000.00 for moral damages; the sum of P100,000.00 for exemplary damages; 5. Ordering defendants Spouses Manuel Concepcion and Nenita Viado to pay plaintiffs the sum of P100,000.00 as and for attorney's fees plus the sum of P1,000.00 as per Court appearance fee; the sum of P100,000.00 for litigation expenses. PLAINTIFFS further pray for such other reliefs just and equitable in the premises. 24 In their answer to the complaint, the spouses Concepcion admitted that they gave loans to the spouses Salonga in the total amount of P3,131,154.54 which they remitted to the DBP, the PNB and Associated Bank for the plaintiffs' account, with the assurance that they would sell the property within three months; from the proceeds of the sale, their loans and the interest thereof at 3% per month and a commission of 5% of the purchase price of the property would be paid. They further alleged that despite extensions granted to them, the plaintiffs failed to pay their loans, and offered, instead, to sell their property for the price equivalent to the spouses Concepcion's remittances to the creditors-banks, plus an additional amount; the lots covered by TCT Nos. 53650 and 26506 were not part of the said sale; the spouses Salonga requested for more time to sell the remaining two lots.

The spouses Concepcion further alleged that they agreed to spouses Salonga's offer, and the latter executed a deed of absolute sale on August 31, 1993 covering the lots described in TCT Nos. 43547, 40886, 40887, 35156 and 49459; when the plaintiffs failed to sell the lots covered by TCT Nos. 53650 and 26506, they executed a deed of absolute sale over the said lots on October 18, 1993 and received the additional purchase price of P1,500.000.00 from the defendants; the plaintiffs promised to vacate their house in April 1994, but refused to do so; worse, the plaintiffs filed a complaint against them. Subsequently, the spouses Concepcion as plaintiffs filed an action for ejectment against the spouses Salonga on August 23, 1994 with the Municipal Trial Court of Dagupan City, praying for their eviction from the subject property. 25 The case was docketed as Civil Case No. CV-95-00671-D. 26 Felicidad Salonga testified that there was no period agreed upon to repay their loans from the defendants, and while they executed the Deeds of Absolute Sale dated August 31, 1993 and October 18, 1993 in favor of the defendants, they did not receive the amounts stated therein. The plaintiffs also adduced in evidence Olivia Arafiles' valuation of the property, pegged at P10,270,600.00. 27 Julio A. Garcia testified that he was in the house of the plaintiffs and affixed his signature on a document signed by the defendant Manuel Concepcion, quoted, infra: ICacDE I Manuel Concepcion of legal aged (sic), married to Nenita Viado and resident of Bautista Pangasinan have agreed (sic) to Mr. And Mrs. Natalio Salonga a resident of Dagupan city to sign a Deed of Sale and I will not registered (sic) as long as the spouses Salonga will pay the principal cash involved plus the interest of 3% per month. 28 Felicidad further testified that she and her husband continued residing in their house even after the spouses Concepcion had paid their loans to the creditor banks. However, upon the latter's suggestion, they had the commercial building repainted and leased to a tenant, with the agreement that the rentals would be credited to their (spouses Salonga's) account. The latter paid interests on their account, but the spouses Concepcion refused to issue receipts therefor. Felicidad further declared that on March 10, 1993, Manuel Concepcion arrived in their house and suggested that a deed of sale over the property be executed in their favor while looking for prospective buyers. The spouses Salonga agreed, provided that said deed would not be registered in the Office of the Register of Deeds. Felicidad wrote an undertaking on a piece of paper, in which the spouses Concepcion promised not to register the said deed of sale in the Office of the Register of Deeds. Manuel Concepcion signed the note in the presence of Julio Garcia. 29 Felicidad likewise testified that when she and her husband failed to sell their property and pay their account with the spouses Concepcion, she and her husband executed on August 31, 1993 a deed of sale over five (5) parcels of land previously

mortgaged with the Associated Bank, for the latter to assume the right of the creditor banks to collect their loan account and interests; the property will only serve as security for the payment of their account. She further testified that she and her husband did not receive from the defendant the P575,000.00 and P1,500,000.00 stated in the said deeds as the purchase price of the subject properties. Felicidad further narrated that when her daughter arrived in the Philippines in 1994, they sought to redeem the property from the spouses Concepcion, but the latter informed them that the titles to the property had already been transferred in their names and that the property could be redeemed for P10,000,000.00. In April 1996, they were finally evicted from the property by a sheriff and soldiers. Manuel Concepcion testified that he and his wife agreed to grant loans to the plaintiffs to enable them to pay their loan account with their creditor banks, with their assurance that they will be able to sell their property within 60 days and pay their accounts plus interests and 5% commission. Despite several extensions granted to the spouses Salonga, they failed to sell their properties. Sometime in April 1993, the spouses Salonga offered to sell their properties previously mortgaged with the Associated Bank in payment for the P586,520.50 advanced by them to the Associated Bank, plus P575,000.00 on top of said amount. The spouses Salonga agreed. The latter's lawyers then prepared a Deed of Absolute Sale dated August 31, 1993, which they signed following their receipt of P575,000.00. The spouses Salonga pleaded that they be given a period of one month to execute a deed of absolute sale over the two parcels of land previously mortgaged to the PNB and DBP and to a third-party, to which the spouses Concepcion also agreed. However, the spouses Salonga failed to sell the properties. On October 18, 1993, the spouses Salonga executed a Deed of Absolute Sale 30 over the parcels of land covered by TCT Nos. 53650 and 26506 as payment of their loan account, plus P1,500,000.00. Manuel Concepcion further narrated that they spent P1,200,000.00 for the renovation of the commercial building 31 and had it leased to tenants. They also paid for the realty taxes due for the building. 32 He denied having known Julio Garcia and having signed the note 33 on March 10, 1993. In the meantime, the MTC rendered judgment ordering the spouses Salonga to vacate the property. They appealed to the RTC of Dagupan City, docketed as Civil Case No. 94-00249-D. On December 4, 1995, the spouses Salonga filed a motion to stay the execution of the appealed decision, which the RTC denied. The spouses Salonga were ejected by a sheriff sometime in April 1996. On December 10, 1996, the court a quo rendered judgment in favor of the spouses Concepcion ordering the dismissal of the complaint. The fallo of the decision reads:

WHEREFORE, the Complaint is DISMISSED. In this connection, the plaintiffs are ordered to pay defendants the sum of P500,000.00 as moral damages and the sum of P200,000.00 as exemplary damages. The plaintiffs are also ordered to pay defendants the sum of P50,000.00 as and by way of attorney's fee plus P10,000.00 as litigation expenses aside from the costs of suit. Furnish copies of this Decision to Atty. Mariano Mel Ramos and Atty. Rodolfo Palma. SO ORDERED. 34 The RTC ruled that the August 31 and October 18, 1993 Deeds of Absolute Sale were valid in fact and in law. The spouses Salonga appealed the decision to the Court of Appeals (CA) wherein they alleged that: 1. THE TRIAL COURT GRAVELY ERRED IN DISMISSING THE COMPLAINT OF PLAINTIFFS-APPELLANTS AND IN NOT HOLDING THAT THE DEEDS OF SALE SIGNED BY PLAINTIFFS-APPELLANTS CONVEYING THE PROPERTIES IN QUESTION TO DEFENDANTS-APPELLEES ARE ACTUALLY EQUITABLE MORTGAGE; 2. THE TRIAL COURT GRAVELY ERRED IN HOLDING PLAINTIFFS-APPELLANTS LIABLE FOR MORAL AND EXEMPLARY DAMAGES AS WELL AS ATTORNEY'S FEES AND LITIGATION EXPENSES. 35 They averred that, as admitted by Manuel Concepcion, the parties had agreed that the former would return their advance/s for their account, with 3% interest a month, and that no sale was agreed upon by the parties. They even granted extensions to the spouses Salonga to repay their loans. The spouses Salonga assert that their transactions with the spouses Concepcion relative to their property were in the nature of equitable mortgages as shown, inter alia, by the fact that the prices of the property as appearing in the deeds of absolute sale were a little more than P2,000,000.00, grossly inadequate as compared to their market value of P10,000,000.00; 36 the parties had agreed that the deeds of sale would not be registered in the Office of the Register of Deeds, but that the spouses Concepcion registered the said deeds in gross and evident bad faith; despite the existence of the deeds of absolute sale, the spouses Salonga remained in possession of the property. aCHDST On December 21, 2001, the CA rendered judgment dismissing the appeal and affirming the appealed decision with modification. 37 The CA ruled that the spouses Salonga had sold their property to the spouses Concepcion with a right to repurchase, and that the said spouses failed to repurchase the same. The appellate court also declared that the spouses Salonga failed to prove that the said

transactions were in the nature of equitable mortgages. They took possession of the house for a limited period of time, while the spouses Concepcion took possession of the estate of the property after the execution of the deed of absolute sale. The spouses Salonga, now the petitioners, filed the present petition for review on certiorari with this Court, assailing the decision and resolution of the CA. They contend that: THE COURT OF APPEALS ERRED IN THAT ITS CONCLUSIONS ARE CONTRARY TO LAW AND JURISPRUDENCE, AS I THE DEEDS OF SALE IN FAVOR OF RESPONDENTS CONCEPCIONS ARE NULL AND VOID AS THEY ARE ABSOLUTELY SIMULATED AND THEIR CAUSES WERE INEXISTENT AT THE TIME OF THE TRANSACTION, AND IF UPHELD THEIR PURPOSE IS CONTRARY TO LAW AND PUBLIC POLICY, THUS VOID. II THE PETITIONERS DID NOT GIVE THEIR CONSENT TO A SALE. III ASSUMING EX GRATIA ARGUMENTI THAT THE DEEDS WERE NOT VOID AB INITIO, THEY ARE VOIDABLE OR AT LEAST THE PETITIONERS ARE ENTITLED TO REFORMATION OF THE DEEDS AS THEY DID NOT EXPRESS THE TRUE INTENT OF THE PARTIES AS THEY ARE EQUITABLE MORTGAGES AT BEST. 38

The issues in this case are factual. Under Rule 45 of the Rules of Court, only questions of law may be raised in a petition for review on certiorari, the reason being that the Court is not a trier of facts; hence, is not to re-examine and reevaluate the evidence on record. Furthermore, the conclusions of the CA on appeal are binding and conclusive on the Court, unless there is a convincing showing that the appellate court ignored, misapplied or misconstrued cogent facts and circumstances which, if considered, would warrant the modification or reversal of the outcome of the case. 39 The Court is not proscribed, however, from delving into and resolving factual issues, if the findings and conclusions of the trial court are inconsistent with those of the appellate court; or where the findings of the trial court and the CA are contrary to the evidence on record or were arrived at arbitrarily. 40 The petition is impressed with merit.

Article 1602 of the New Civil Code of the Philippines provides that a contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) (2) When the price of a sale with right to repurchase is unusually inadequate; 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) (5) When the purchaser retains for himself a part of the purchase price; 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 case, 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 the usury laws. The provision shall apply to a contract purporting to be an absolute sale. 41 In case of doubt, a contract purporting to be a sale with right to repurchase shall be considered as an equitable mortgage. 42 In a contract of mortgage, the mortgagor merely subjects the property to a lien, but the ownership and possession thereof are retained by him. 43 For the presumption in Article 1602 of the New Civil Code to arise, two requirements 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. The existence of any of the circumstances defined in Article 1602 of the New Civil Code, not the concurrence nor an overwhelming number of such circumstances is sufficient for a contract of sale to be presumed an equitable mortgage. 44 If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. 45 However, if the records appear to be contrary to the evident intention of the contracting parties, the latter shall prevail. cCAaHD The nomenclature given by the parties to the contract is not conclusive of the nature and legal effects thereof. 46 Even if a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage, and that the document does not express the true intent of the parties. 47

There is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. The decisive factor in evaluating such deed is the intention of the parties as shown by all the surrounding circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct, and declarations of the parties before, during and after the execution of said deed, and generally all pertinent facts having a tendency to determine the real nature of their design and understanding. 48 As such, documentary and parol evidence may be adduced by the parties. When in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in controversy. 49 Articles 1602, 1603 and 1604 of the New Civil Code were designed to prevent the circumvention of the use of usury 50 and the prohibition against the creditor appropriating the mortgaged properties. Besides, in times of grave financial distress which render persons hard-pressed to answer an emergency, such persons would have no choice but to sign a deed of absolute sale of property if only to obtain a much-needed loan from unscrupulous money lenders. 51 The notarization of the document does not guarantee its validity because it is not the function of the notary public to validate an instrument that was never intended by the parties to have any binding legal effect on him. Neither is the notarization of a document conclusive of the nature of the transaction conferred by the said document, nor is it conclusive of the true agreement of the parties thereto. After a thorough examination of the records, we find and so hold that the August 31 and October 18, 1993 Deeds of Absolute Sale are mere equitable mortgages and not bona fide absolute sale of the parcels of land therein described. FIRST. The petitioners were hard-pressed to pay their account to the respondents in the total principal amount of P3,198,886.47; the said amount paid by the respondents for the account of the petitioners to the PNB, the Associated Bank and the DBP, excluding the amount of 36% interest a month or 36% interest per annum. The petitioners tried to sell the property to third-persons, but failed. The respondents refused to give the petitioners any further extensions of time to sell the property, unless they execute the deeds of absolute sale in favor of the respondents and insure the payment of their account. The specter of the petitioners being evicted from their residence loomed large in the horizon. To give themselves more time to sell their property and avert eviction from their house, the petitioners opted to execute the deeds of absolute sale. SECOND. It was made to appear under the August 31, 1993 Deed of Absolute Sale that the petitioners had sold their five parcels of land to the respondents for the principal amount of P575,000.00, and that the petitioners received the said amount from the respondents. However, at the time of the execution of said deed, the

petitioners were indebted to the respondents for the principal amount of P586,520.50, which the respondents had remitted to the Associated Bank for the account of the petitioners. It is incredible that the petitioners would sell the said parcels of land to the respondents, and that the latter would remit the purchase price of P575,000.00 to the petitioners, and retain the said amount to be applied as payment to the petitioners' account of P586,520.50. It was also made to appear under the October 18, 1993 Deed of Absolute Sale that the petitioners sold two parcels of land to the respondents (on which their commercial building and their house were constructed) for P1,500,000.00, and that the petitioners received the said amount from the respondents following the execution of the deed. However, the evidence on record shows that the petitioners had an outstanding account of P2,042,377.19 as of October 18, 1993 to the respondents. It is incredible that, instead of applying the aforesaid amount of P1,500,000.00 in partial payment of the petitioners' outstanding account, the respondents would choose to remit the same upon the execution of the October 18, 1993 deed of absolute sale. In fine, the petitioners' account to the respondents, in the total amount of P3,198,886.47, remained outstanding despite the sale of the petitioners' seven parcels of land in favor of the respondents. We reject the respondents' contention that the petitioners sold their seven parcels of land, not only for P2,078,000.00 but also for the outstanding account of P3,198,886.47, for the total price of P5,876,886.47. The respondents were burdened to prove that the petitioners agreed to sell their property partly in payment of the said account; the respondents failed to do so. A plain reading of the two (2) deeds of absolute sale shows that the seven lots were sold to the respondents for only P2,078,000.00. There is no provision in said deeds stating that the petitioners sold their property in partial payment of their outstanding account to the respondents (P3,198,886.47), and partly for an additional P2,078,000.00 If it is true, as claimed by the respondents, that the petitioners sold the seven parcels of land to them not only for P2,078,000.00 as appearing in said deeds, but also for the outstanding account of P3,198,886.47, the same should have been specifically and positively stated in the said deeds. No such provision appears in the two deeds. There is likewise no provision in the said deeds that, by the execution thereof, the petitioners' outstanding account to the respondents in the amount of P3,198,886.47 was extinguished and paid. The absence of any provision in the two deeds of absolute sale that the seven parcels of land were sold by the petitioners to the respondents in partial payment of their outstanding account, and partly for P2,078,000.00, and any declaration therein that the said outstanding account was thereby extinguished negates the respondents' contention. THIRD. Respondent Manuel Concepcion had earlier signed on March 10, 1993 an undertaking that he would not register the deed of absolute sale as long as the

petitioners will pay their outstanding account plus interests thereon at the rate of 3% per month: I Manuel Concepcion, of legal aged (sic), married to Nenita Viado and resident of Bautista, Pangasinan have agreed to Mr. & Mrs. Natalio Salonga, a resident of Dagupan City to sign a Deed of Sale and I will not registered (sic) as long as the spouses Salonga will pay the principal cash involved plus the interest of 3% per month. 8 Titles Witness: ILLEGIBLE Sgd. ILLEGIBLE MANUEL D. CONCEPCION 52

Respondent Manuel Concepcion's undertaking not to register the deed of sale with the Office of the Register of Deeds fortifies the petitioners' contention that the subject transaction under the two deeds of absolute sale was an equitable mortgage, and not bona fide conveyances of the said lots. Indeed, the respondents did not present the August 31, 1993 Deed of Absolute Sale to the Office of the Register of Deeds; the said deeds were only presented on September 21, 1993 when the respondents sold the five (5) parcels of land to Florencia Realty Corporation. The respondents likewise failed to adduce clear and convincing evidence that respondent Manuel Concepcion's signature on the undertaking is a forgery. The bare claim that the signature on the note purporting to be that of the respondent is a forgery is not sufficient. It bears stressing that forgery is not presumed. Forgery must be proved with clear and convincing evidence. 53 The fact that respondent Manuel Concepcion signed the note on March 10, 1993, before the petitioners executed the said deeds of absolute sale in August and October 1993, does not militate against the probative weight thereof. The petitioners had only 60 days from January 1993 within which to repay the respondents from the proceeds of the sale; however, the petitioners failed to sell their property and repay the respondents. When the respondents pressed the petitioners for the payment of their account, the latter agreed to execute deeds of absolute sale by the petitioners over the property, with the agreement not to present the said deed to the Office of the Register of Deeds for registration. However, despite their written undertaking to the contrary, the respondents filed the August 31 and October 18, 1993 Deeds of Sale in the Office of the Register of Deeds and registered the same. THIRD. When the petitioners' daughter arrived in the Philippines from abroad, they had offered to redeem the parcels of land from the respondents, only to discover that the two deeds of absolute sale had already been registered in the Office of the Register of Deeds; that the respondents had acquired titles over the said parcels of land; and that the said lots had been sold to Florencia Realty Corporation. Worse,

the respondents demanded the amount of P8,000,000.00, later increased to P10,000,000.00, for the redemption of the property. HIEASa WITNESS: A When my daughter arrived from abroad, we're trying to pay same, there is no one year yet from that time when my daughter is trying to redeem the property. Q And you claim that Mr. Concepcion refuse to accept the payment?

A He wanted that it may pay in accordance with the price which he is going to peg, and my daughter said, could it be possible that it be paid in the amount in respect to the principal and plus the interest. Q A When was that? 1994, Sir.

Q How much did Mr. Concepcion allegedly inform your daughter that you pay to him? A First he said 10 million and then earlier he said 8 million.

Q Now, after your daughter went to his house Mr. Concepcion, allegedly to pay your indebtedness, and which was refuse[d] by Mr. Concepcion, what did you do, Madam Witness? A We went to the register of deeds, and we found out that it was already in the name of Mr. Concepcion, that (sic) why we already sought the help of a lawyer. Q A Q A Did you pay any interest in connection with this agreement? Yes, Sir. Do you have any evidence to show that you really pay the interest? He refused to issue as (sic) receipts.

Q In other words, you don't have document or piece of paper to show that indeed you pay (sic) the interest? A None, Sir, because actually if we are going to ask for a receipt for the payment of the interest, he will say "why, are you going to pay the entire amount of your indebtedness. Q Despite the fact, Madam Witness, that you claimed that there was an agreement that you have to pay also the interest of the principal and you claim, that he refused to accept payments of that agreed upon you?

ATTY. PALMA: That is misleading, Your Honor, the testimony of this witness Mr. Concepcion refused to issue a receipt, not to refuse to accept the payments. xxx ATTY. PALMA: That is in respect to the daughter. COURT: Answer. WITNESS: He received the interest but he refused to received (sic) the payment made by my daughter. ATTY. RAMOS: Q You claim Madam Witness, that Mr. Concepcion already sold the 3 parcels which is adjacent to the Lyceum University when did you learn that? A Q do? A Q A 1994, Sir. After learning that Mr. Concepcion sold that (sic) parcels of land, what did you That was the time we sought a help from a lawyer. Who is now in possession of that (sic) 3 parcels of land? Lyceum, Sir. 54 xxx xxx

FOURTH. The petitioners remained in possession of the residential house even after October 18, 1993 without paying any rentals therefor. It was only on August 23, 1994, after the petitioners filed their complaint against the respondents in the trial court, that the respondents filed their complaint for ejectment against the petitioners. FIFTH. The parcels of land covered by TCT Nos. 43547, 40886, 40887, 35156 and 49459 and TCT Nos. 53650 and 26506 had a total market value of P10,270,600.00. 55 However, under the two deeds of absolute sale, the seven parcels of land, including the petitioners' house, were sold to the respondents for only P2,078,000.00, an amount grossly disproportionate to the market value of the property. The respondents failed to adduce any evidence to controvert the petitioners' evidence relative to the market value of the seven parcels of land.

On the issue of whether respondent Florencia Realty Corporation is a purchaser in good faith or not, case law has it that he who alleges that he is a purchaser of registered land is burdened to prove such statement. Such burden is not discharged by involving the ordinary presumption of good faith. 56 The defense of having purchased the property in good faith may be availed of only where registered land is involved and the buyer had relied in good faith on the clean title of the registered owner. 57 In this case, it appears that the respondent purchased the parcels of land on September 20, 1993. At that time, the petitioners were still the registered owners of the property. The respondent did not allege in its answer to the complaint that it was a purchaser in good faith of the property; neither did it adduce a morsel of evidence to prove that it purchased the property in good faith. IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The decisions of the Regional Trial Court and the Court of Appeals are REVERSED and SET ASIDE. Judgment is hereby rendered in favor of the petitioners, as follows: (1) The August 31 and October 18, 1993 Deeds of Absolute Sale executed by the petitioners in favor of the respondents are NULLIFIED. The transactions covered by said deeds are declared equitable mortgages, not bona fide sales of the lots therein covered; and (2) The petitioners' claims for damages and attorney's fees, and the respondents' counterclaims for damages and attorney's fees are DISMISSED. No costs. DHITSc SO ORDERED.

[G.R. No. 159048. October 11, 2005.] BENNY GO, petitioner, vs. ELIODORO BACARON, respondent. DECISION PANGANIBAN, J p: The present Contract, which purports to be an absolute deed of sale, should be deemed an equitable mortgage for the following reasons: (1) the consideration has been proven to be unusually inadequate; (2) the supposed vendor has remained in possession of the property even after the execution of the instrument; and (3) the alleged seller has continued to pay the real estate taxes on the property. aCSDIc The Case Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to set aside the October 17, 2002 Decision 2 and the May 20, 2003 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 67218. The assailed Decision disposed as follows:

"WHEREFORE, premises considered, the Decision dated February 24, 2000 of the Regional Trial Court of Davao City, Branch 12, in Civil Case No. 25,101-97 is hereby REVERSED and SET ASIDE and a new one is hereby rendered ordering the reformation of the subject instrument, such that the same must be considered a mortgage contract and not a transfer of right. Costs against [petitioner]." 4 The assailed Resolution denied Reconsideration. The Facts The antecedents are narrated by the CA as follows: "As evidenced by the Transfer of Rights dated October 1, 1993, Eliodoro Bacaron conveyed a 15.3955-hectare parcel of land located in Langub, Talomo, Davao City, in favor of Benny Go for P20,000.00. "About a year thereafter, Bacaron, seeking to recover his property, went to Go to pay his alleged P20,000.00 'loan' but the latter refused to receive the same and to return his property saying that the transaction between the two of them was a sale and not a mortgage as claimed by Bacaron. cdtai 2006 "Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein respondent], filed a Complaint for Reformation of Instrument with Damages and prayer for the issuance of a writ of preliminary injunction, with the Regional Trial Court of Davao

City, Branch 12, against the [petitioner] Benny Go, which case was docketed as Civil Case No. 25,101-97. CDAcIT "In his Complaint, [respondent] alleged that in the middle part of 1993, he suffered business reversals which prompted him, being in urgent need of funds, to borrow P20,000.00 from the [petitioner]. He however averred that prior to extending said loan to him, the [petitioner] required him to execute a document purporting to be a Transfer of Rights but was told that the same would only be a formality as he could redeem the unregistered land the moment he pays the loan. Admitting that he signed the instrument despite knowing that the same did not express the true intention of the parties' agreement, i.e., that the transaction was a mere equitable mortgage, the [respondent] explained that he did so only because he was in a very tight financial situation and because he was assured by the [petitioner] that he could redeem his property. To support this claim, [respondent] stressed the fact that the consideration in the instrument was merely P20,000.00, which is grossly inadequate as the selling price of a 15-hectare land considering that, at that time, the market value of land in Davao City amounts to P100,000.00 per hectare. [Respondent] narrated that a year thereafter, or in a middle part of 1994, he was able to raise the P20,000.00 and went to the [petitioner] to pay his loan but the latter refused to accept his payment, insisting that the transaction entered into by the parties was not an equitable mortgage, as the [respondent] insists, but a real transfer of right over the property. Because of said refusal, [respondent] continued, he was compelled to refer the matter to his lawyer in order to request the [petitioner] to accept his payment otherwise he would file the necessary action in court. Despite said formal demand by the [respondent], however, [petitioner] allegedly continued to refuse to recognize the 'equitable mortgage', prompting [respondent] to consign the P20,000.00 with the Clerk of Court of the RTC of Davao City, Branch 12. He thus insisted that it is [petitioner] who is 'dead wrong' in not recognizing the equitable mortgage since, aside from the fact that the consideration was unusually inadequate, [respondent] allegedly remained in possession of the property. DCATHS "[Respondent] thus prayed for an award for moral damages, in view of the [petitioner's] evident bad faith in refusing to recognize the equitable mortgage, and for attorney's fees as [petitioner's] alleged stubbornness compelled him to engage the services of counsel. He likewise sought an award for exemplary damages to deter others from committing similar acts and at the same time asked the court to issue a writ of preliminary injunction and/or temporary restraining order to prevent [petitioner] from dispossessing [respondent] of the subject property or from disposing of the same in favor of third parties as these acts would certainly work injustice for and cause irreparable damage to the [respondent]. The prayer for the issuance of a restraining order was however denied by the court in an Order. "[Petitioner] filed his Answer on May 5, 1997, denying [respondent's] claim that the transaction was only an equitable mortgage and not an actual transfer of right. He

asserted that the truth of the matter was that when [respondent] suffered business reverses, his accounts with the [petitioner], as evidenced by postdated checks, cash vouchers and promissory notes, remained unpaid and his total indebtedness, exclusive of interests, amounted to P985,423.70. [Petitioner] further averred that, in order to avoid the filing of cases against him, [respondent] offered to pay his indebtedness through dacion en pago, giving the land in question as full payment thereof. In addition, he stressed that considering that the property is still untitled and the [respondent] bought the same from one Meliton Bacarro for only P50,000.00, it is most unreasonable for him to agree to accept said land in exchange for over a million pesos of indebtedness. He claimed though that he was only forced to do so when [respondent] told him that if he did not accept the offer, other creditors would grab the same. "By way of affirmative defenses, the [petitioner] pointed out that [respondent] has no cause of action against him as the [respondent] failed to comply with the essential requisites for an action for reformation of instrument. He moreover alleged that the [respondent] is in estoppel because, by his own admission, he signed the document knowing that the same did not express the true intention of the parties. Further, [petitioner] claimed that there was a valid transfer of the property herein since the consideration is not only the actual amount written in the instrument but it also includes the outstanding obligation of [respondent] to the [petitioner] amounting to almost P1 million. DICSaH "As counterclaim, [petitioner] averred that, because of this baseless complaint, he suffered mental anguish, wounded feelings and besmirched reputation, entitling him to moral damages amounting to P20,000.00, and that in order to deter others from doing similar acts, exemplary damages amounting to P20,000.00 should likewise be awarded in his favor. [Petitioner] also prayed for attorney's fees and litigation expenses claiming that, because he was constrained to litigate, he was forced to hire the services of counsel. xxx xxx xxx

"Trial ensued and thereafter the trial court rendered its Decision dated February 24, 2000 dismissing the complaint while finding the [petitioner's] counterclaim meritorious. In making said ruling, the lower court, citing Article 1350 (should be 1359) of the New Civil Code, found that [respondent] failed to establish the existence of all the requisites for an action for reformation by clear, convincing and competent evidence. Considering [respondent's] own testimony that he read the document and fully understood the same, signing it without making any complaints to his lawyer, the trial court held that the evidence on record shows that the subject instrument had been freely and voluntarily entered into by the parties and that the same expresses the true intention of the parties. The court further noted that the [respondent's] wife even signed the document and that the same had been duly

acknowledged by the parties before a notary public as their 'true act and voluntary deed.' "The trial court likewise observed that, contrary to [respondent's] claim that the transaction was a mere mortgage of the property, the terms of the instrument are clear and unequivocable that the property subject of the document was 'sold, transferred, ceded and conveyed' to the [petitioner] 'by way of absolute sale,' and hence, no extrinsic aids are necessary to ascertain the intention of the parties as the same is determinable from the document itself. Moreover, said court emphasized that considering the fact that [respondent] is an educated person, having studied in an exclusive school like Ateneo de Davao, and an experienced businessman, he is presumed to have acted with due care and to have signed the instrument with full knowledge of its contents and import. [Respondent's] claim that he merely borrowed money from the [petitioner] and mortgaged the property subject of litigation to guarantee said loan was thus found to be specious by the court, which found that the [respondent] was actually indebted to the [petitioner] for almost a million pesos and that the true consideration of the sale was in fact said outstanding obligation. HAcaCS "With respect to [respondent's] alleged possession of the property and payment of real estate taxes, both of which were relied upon by the [respondent] to boost his assertion that the transaction was merely an equitable mortgage, the trial court said that his claim of possession is belied by the fact that the actual occupants of the property recognize that the [petitioner] owns the same and in fact said occupants prevented [respondent's] wife from entering the premises. The court, noting that the [petitioner] also paid the realty taxes, was also of the opinion that [respondent] merely made such payments in order to lay the basis of his allegation that the contract was a mere equitable mortgage. "Accordingly, the court held that [respondent] is also not entitled to his other claims and that his unfounded action caused [petitioner] to an award for moral damages, in addition to the expenses he incurred in defending his cause, i.e. services of a lawyer and transportation and other expenses, which justifies an award for the reimbursement of his expenses and attorney's fees." 5 Ruling of the Court of Appeals Granting respondent's appeal, the appellate court ruled that the Contract entered into by the parties should be deemed an equitable mortgage, because the consideration for the sale was grossly inadequate. By continuing to harvest the crops and supervise his workers, respondent remained in control of the property. True, upon the institution of this case, petitioner paid the required real estate taxes that were still in arrears. Respondent, however paid the taxes for 1995, 1996 and 1997 the years between the dates when the alleged absolute sale was entered into on October 1, 1993, and when this case was instituted on March 5, 1997. 6

Granting respondent's prayer for reformation of the Contract, the CA ruled that the instrument failed to reflect the true intention of the parties because of petitioner's inequitable conduct. 7 Hence, this Petition. 8 The Issues Petitioner raises the following issues for this Court's consideration: "I. Whether o[r] not the Court of Appeals erred in ruling that there was inadequate consideration. SCaEcD "II. Whether o[r] not the Court of Appeals erred in ruling that the respondent remained in possession of the land in question. "III. Whether or not the Court of Appeals erred in ruling that the taxes were not paid by the petitioner. "IV. Whether or not the Court of Appeals erred in ruling that reformation is proper." 9 Simply put, these are the issues to be resolved: (1) whether the agreement entered into by the parties was one for equitable mortgage or for absolute sale; and (2) whether the grant of the relief of contract reformation was proper. The Court's Ruling The Petition has no merit. First Issue: Equitable Mortgage An equitable mortgage has been 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." 10 The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of the Civil Code as follows:

"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; cTECIA (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) (5) When the purchaser retains for himself a part of the purchase price; 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 the usury laws." Furthermore, Article 1604 of the Civil Code provides that "[t]he provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale." In the present case, three of the instances enumerated in Article 1602 grossly inadequate consideration, possession of the property, and payment of realty taxes attended the assailed transaction and thus showed that it was indeed an equitable mortgage. Inadequate Consideration Petitioner Go avers that the amount of P20,000 was not unusually inadequate. He explains that the present parties entered into a Dacion en Pago, whereby respondent conveyed the subject property as payment for his outstanding debts to petitioner debts supposedly amounting to P985,243.70. 11 To substantiate his claim, petitioner presented the checks that respondent had issued, as well as the latter's testimony purportedly admitting the genuineness and due execution of the checks and the existence of the outstanding debts. 12 Petitioner Go contends that respondent failed to establish by sufficient evidence that those debts had already been paid. 13 Petitioner relies on the trial court's finding that respondent knowingly and intentionally entered into a contract of sale, not an equitable mortgage. 14 On the other hand, Respondent Bacaron argues that the value of the property at the time of the alleged sale was P120,000 per hectare, and that the indicated sale amount of P20,000 was thus grossly iniquitous. 15 Allegedly, the previous cash

advances secured from petitioner's father had been settled, as evidenced by the fact that petitioner did not negotiate further or encash the checks; the latter could have done so, if the obligation was still extant. 16 Respondent points out that he paid for that obligation with the coprax he had previously delivered to the father. 17 Petitioner allegedly admitted this fact, though inadvertently, when he testified that respondent had already paid some of the latter's previous cash advances. 18 Otherwise, petitioner would have then set off his own debt to respondent (amounting to P214,000) against the amount of almost one million pesos that the latter supposedly owed him. 19 Checks have the character of negotiability. At the same time, they may constitute evidence of indebtedness. 20 Those presented by petitioner may indeed evince respondent's indebtedness to him in the amounts stated on the faces of those instruments. He, however, acknowledges (1) that respondent paid some of the obligations through the coprax delivered to petitioner's father; and (2) that petitioner owed and subsequently paid respondent P214,000. 21 The parties' respective arguments show that the sum of P20,000, by itself, is inadequate to justify the purported absolute Transfer of Rights. 22 Petitioner's claim that there was a dacion en pago is not reflected on the instrument executed by the parties. That claim, however, confirms the inadequacy of the P20,000 paid in consideration of the Transfer of Rights; hence, the Contract does not reflect the true intention of the parties. As to what their true intention was whether dacion en pago or equitable mortgage will have to be determined by some other means. TaHDAS Possession According to Article 1602(2) of the New Civil Code, one of the instances showing that a purported contract of sale is presumed to be an equitable mortgage is when the supposed vendor remains in possession of the property even after the conclusion of the transaction. In general terms, possession is the holding of a thing or the enjoyment of a right, whether by material occupation or by the fact that the right or, as in this case, the property is subjected to the will of the claimant. 23 In Director of Lands v. Heirs of Abaldonado, 24 the gathering of the products of and the act of planting on the land were held to constitute occupation, possession and cultivation. In the present case, the witnesses of respondent swore that they had seen him gather fruits and coconuts on the property. Based on the cited case, the witnesses' testimonies sufficiently establish that even after the execution of the assailed Contract, respondent has remained in possession of the property. The testimonies proffered by petitioner's witnesses merely indicated that they were tenants of the property. Petitioner only informed them that he was the new owner of the property. This attempt at a factual presentation hardly signifies that he exercised possession

over the property. As held by the appellate court, petitioner's other witness (Redoa) was unconvincing, because he could not even say whether he resided within the premises. 25 The factual findings of the trial court and the CA are conflicting and, hence, may be reviewed by this Court. 26 Normally, the findings of the trial court on the credibility of witnesses should be respected. Here, however, their demeanor while testifying is not at issue. What is disputed is the substance of their testimonies the facts to which they testified. Assuming that the witnesses of petitioner were indeed credible, their testimonies were insufficient to establish that he enjoyed possession over the property. DACTSH Payment of Realty Taxes Finally, petitioner asserts that the trial court's finding that he paid the realty taxes should also be given corresponding weight. 27 Respondent counters with the CA's findings that it was he who paid realty taxes on the property. The appellate court concluded that he had paid taxes for the years 1995, 1996 and 1997 within each of those years; hence, before the filing of the present controversy. In contrast, petitioner paid only the remaining taxes due on October 17, 1997, or after the case had been instituted. This fact allegedly proves that respondent has remained in possession of the property and continued to be its owner. 28 He argues that if he had really transferred ownership, he would have been foolish to continue paying for those taxes. 29 On this point, we again rule for respondent. Petitioner indeed paid the realty taxes on the property for the years 1980 to 1997. The records show that the payments were all simultaneously made only on October 31, 1997, evidently in the light of the Complaint respondent had filed before the trial court on March 5, 1997. 30 On the other hand, respondent continued to pay for the realty taxes due on the property for the years 1995, 1996 and 1997. 31 That the parties intended to enter into an equitable mortgage is bolstered by respondent's continued payment of the real property taxes subsequent to the alleged sale. Payment of those taxes is a usual burden attached to ownership. Coupled with continuous possession of the property, it constitutes evidence of great weight that a person under whose name the realty taxes were declared has a valid and rightful claim over the land. 32 That the parties intended to enter into an equitable mortgage is also shown by the fact that the "seller" was driven to obtain the loan at a time when he was in urgent need of money; and that he signed the Deed of Sale, despite knowing that it did not express the real intention of the parties. 33 In the present proceedings, the collapse of his business prompted respondent to obtain the loan. 34 Petitioner himself

admitted that at the time they entered into the alleged absolute sale, respondent had suffered from serious business reversals. 35 Second Issue: Reformation of Instrument Petitioner claims that the CA erred in granting the remedy of reformation of contracts. He avers that the failure of the instrument to express the parties' true agreement was not due to his mistake; or to fraud, inequitable conduct, or accident. 36 We rule for respondent. cSICHD Ultimately, it is the intention of the parties that determines whether a contract is one of sale or of mortgage. 37 In the present case, one of the parties to the contract raises as an issue the fact that their true intention or agreement is not reflected in the instrument. Under this circumstance, parol evidence becomes admissible and competent evidence to prove the true nature of the instrument. 38 Hence, unavailing is the assertion of petitioner that the interpretation of the terms of the Contract is unnecessary, and that the parties clearly agreed to execute an absolute deed of sale. His assertion does not hold, especially in the light of the provisions of Article 1604 of the Civil Code, under which even contracts purporting to be absolute sales are subject to the provisions of Article 1602. Moreover, under Article 1605 of the New Civil Code, the supposed vendor may ask for the reformation of the instrument, should the case be among those mentioned in Articles 1602 and 1604. Because respondent has more than sufficiently established that the assailed Contract is in fact an equitable mortgage rather than an absolute sale, he is allowed to avail himself of the remedy of reformation of contracts. WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED. TCEaDI SO ORDERED.

[G.R. No. 151217. September 8, 2006.] SPOUSES CESAR R. ROMULO and NENITA S. ROMULO, petitioners, vs. SPOUSES MOISES P. LAYUG, JR., and FELISARIN LAYUG, respondents. DECISION TINGA, J p: This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Court of Appeals' Decision 1 and Resolution 2 in CA-G.R. CV No. 63965. Said Decision reversed and set aside the Decision 3 of the Regional Trial Court (RTC), Branch 258, Paraaque City, which nullified the Deed of Absolute Sale and Contract of Lease executed between herein petitioners and respondents. ATCEIc The following factual antecedents are matters of record. On April 11, 1996, petitioners Spouses Cesar and Nenita Romulo filed a verified Complaint for Cancellation of Title, Annulment of Deed of Absolute Sale and Contract of Lease with Damages against respondents Spouses Moises and Felisarin Layug. The complaint was docketed as Civil Case No. 96-0172 and raffled to Branch 258 of the RTC of Paraaque. 4 Petitioners averred in their complaint that sometime in 1986, they obtained from respondents a loan in the amount of P50,000.00 with a monthly interest of 10%, which subsequently ballooned to P580,292.00. To secure the payment of the loan, respondents allegedly duped petitioners into signing a Contract of Lease and a Deed of Absolute Sale covering petitioners' house and lot located at Phase II, BF Homes, Sucat, Paraaque and covered by Transfer Certificate of Title (TCT) No. S71528. The Deed of Absolute Sale purportedly facilitated the cancellation of petitioners' title on the house and lot and the issuance of TCT No. 20489 in the name of respondents. Thus, petitioners prayed for the nullification of the Deed of Absolute Sale, the contract of lease and TCT No. 20489, and the award of moral and exemplary damages. 5 Respondents denied petitioners' allegations. In their Answer, 6 they vouched for the validity of the Deed of Absolute Sale, particularly as having been voluntarily executed by the parties for the purpose of extinguishing petitioners' indebtedness to respondents. As consideration of the sale, respondents allegedly paid the amount of P200,000.00 in addition to the writing off of petitioners' obligation to them. That they allowed petitioners to occupy the house and lot as lessees thereof was founded on the trust they reposed on petitioners, claimed respondents. 7 Prior to the filing of Civil Case No. 96-0172, respondent Moises Layug, Jr. ("Moises") filed Civil Case No. 9422, an action for ejectment, against petitioners to compel the latter to vacate the house and lot allegedly sold by petitioners to Moises and subsequently rented out by him to petitioners. Moises alleged that petitioners

violated the terms of the Contract of Lease when the latter failed to pay any rental or exercise their option to repurchase the house and lot and refused to vacate the property despite demand. The Metropolitan Trial Court (MeTC), Branch 77, Paraaque dismissed the complaint for lack of cause of action. 8 The RTC, Branch 257, Paraaque, likewise dismissed Moises' appeal based on its finding that the parties did not intend to enter into a lease agreement. 9 The Court of Appeals denied Moises' petition for review on the ground of late filing. 10 Upon elevation to this Court, Moises' petition for review on certiorari was denied with finality by this Court. 11 On June 21, 1999, the trial court rendered judgment in favor of petitioners in Civil Case No. 96-0172. The dispositive portion of the decision reads: WHEREFORE, the plaintiffs having been able to prove their claim by preponderance of evidence, judgment is hereby rendered in their favor and against spouses Moises P. Layug and Felisarin Layug whereby the Contract of Lease as well as the Deed of Sale allegedly executed by the herein parties are hereby declared NULL and VOID and of no force and effect and the Register of Deeds of the City of Paraaque is hereby ordered to cancel Transfer Certificate of Title No. 20489 registered in the names of MOISES P. LAYUG married to FELISARIN LAYUG and to issue a new one in the name of Spouses Cesar R. Romulo and Nenita S. Romulo, upon the payment of the required fees by the plaintiffs. cDTaSH Likewise, defendants Spouses Moises P. Layug and Felisarin Layug are hereby ordered to pay jointly and severally Spouses Cesar R. Romulo and Nenita S. Romulo the following, to wit: 1. 2. 3. 4. The amount of P100,000.00 as and by way of moral damages; The amount of P80,000.00 as exemplary damages; The amount of P50,000.00 as and by way of attorney's fees; and The costs of suit.

SO ORDERED. 12 Respondents elevated the matter to the Court of Appeals, questioning, among others, the trial court's finding that the contract between petitioners and respondents was an equitable mortgage. 13 The Court of Appeals reversed and set aside the RTC Decision, mainly on the ground that petitioners failed to present sufficient evidence to prove their allegation that their signatures to the Deed of Absolute Sale were obtained fraudulently. Their motion for reconsideration rebuffed, 14 petitioners filed the instant petition raising the lone issue of whether or not the transaction between the parties constitutes an equitable mortgage.

On this issue, the RTC and the Court of Appeals differ in opinion. The trial court based its declaration that an equitable mortgage was intended by the parties on the finding that petitioners remained in possession of the house and lot even after the property was supposedly sold to respondents. The trial court also gave evidentiary weight to the decisions of the MeTC and RTC dismissing the action for ejectment in Civil Case No. 9422, where both courts found that petitioners neither vacated the property nor paid any rental even after the execution of the Deed of Absolute Sale. The Court of Appeals disagreed and declared that an absolute sale was contemplated by the parties based on the express stipulations in the Deed of Absolute Sale and on the acts of ownership by respondents subsequent to its execution. Whether or not the parties intended an equitable mortgage is a factual issue. As a general rule, factual review is beyond the province of this Court. One of the exceptions to the rule is exemplified by the instant case where the factual findings of the RTC and Court of Appeals are contradictory. aAHISE That petitioners obtained loans from respondents between 1985 and 1987, which remained unpaid up to the time of the execution of the assailed Deed of Absolute Sale, is established. 15 That petitioners signed the assailed instrument is also not disputed. Indeed, they admitted having signed said document qualifying, however, that they were forced by respondents to execute the same for the purpose of securing their indebtedness to respondents. 16 Respondents, on the other hand, insisted that the parties executed the Deed of Absolute Sale as an honest-togoodness sales transaction. Respondents, however, admitted further that in addition to the amount of P200,000.00 stipulated in the Deed of Absolute Sale, the parties agreed to write off petitioners' loan as consideration of the sale, although this clause was not expressed in the instrument. 17 From respondents' admission, it can be gathered that the assailed Deed of Absolute Sale does not reflect the true arrangement of the parties. Now, is petitioners' submission that the parties actually agreed to subject the house and lot as security for their unpaid obligation supported by the evidence? Did the parties execute the assailed Deed of Absolute Sale with the intention of subjecting petitioners' house and lot covered by the deed as a mere security for the payment of their debt? The form of the instrument cannot prevail over the true intent of the parties as established by the evidence. We have also decreed that in determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and immediately after execution of the agreement. 18 In order to ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered. Once the intention of

the parties has been ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms. 19 As such, documentary and parol evidence may be submitted and admitted to prove such intention. And, in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. 20 Between 1985 and 1987, petitioner Nenita Romulo ("Nenita") obtained from respondent Felisarin Layug ("Felisarin") loans in various amounts totaling around P500,000.00. Being close friends at that time, Felisarin did not require any written instrument to secure payment, other than the title to the house and lot, which Nenita handed to Felisarin sometime in 1988. 21 When respondents demanded payment of the loan, petitioners defaulted. Nevertheless, as admitted by Layug, despite her repeated demands, she allowed petitioners some more time within which to pay their debts. 22 Felisarin claimed that eventually petitioners offered their house and lot as payment for their debt because petitioners no longer had any money. 23 However, even after the execution of the assailed Deed of Absolute Sale, respondents continued to grant petitioners loan accommodations as evidenced by the three promissory notes executed by petitioner Cesar Romulo. 24 Respondents' continuing to lend money to petitioners does not make sense if the intention of the parties was really to extinguish petitioners' outstanding obligation. The logical and inevitable conclusion is that respondents deemed it wise to formalize a security instrument on petitioners' house and lot by executing the Deed of Absolute Sale after realizing that petitioners could no longer fully satisfy their obligation to respondents. At that time, as petitioners were hard-pressed to come up with funds to pay their loan, they were hardly in a position to bargain. The preponderance of evidence shows that they signed knowing that said documents did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. "Necessitous men are not, truly speaking, free men; but to answer a present emergency will submit to any terms that the crafty may impose upon them." 25 The circumstances surrounding the execution of the Deed of Absolute Sale, particularly the fact that respondents continued to extend some loans to petitioners after its execution, precludes the Court from declaring that the parties intended the transfer of the property from one to the other by way of sale. aTIEcA Consistent with the foregoing state of the evidence, Articles 1604 and 1602 of the Civil Code come into play. The articles provide that when the parties to a contract of sale actually intended such contract to secure the payment of an obligation, it shall be presumed to be an equitable mortgage: 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) 5) When the vendor binds himself to pay the taxes on the thing sold; When the purchaser retains for himself a part of the purchase price;

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. (Emphasis supplied.) Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. For the presumption of equitable mortgage to arise, two requisites must be satisfied, namely: 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. Under Article 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Article 1602 be present. 26 To stress, the existence of any one of the conditions under Article 1602, not a concurrence, or an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage. 27 It must be emphasized too, however, that there is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. In fact, it is often a question difficult to resolve and is frequently made to depend on the surrounding circumstances of each case. When in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in controversy. 28 The Court has not hesitated to declare a purported contract of sale as an equitable mortgage even when only one of the enumerated circumstances under Article 1602 is proved. 29 In the case at bar, petitioners remained in possession of the house and lot even after the execution of the Deed of Absolute Sale. Moreover, they remained in possession of the property for more than the reasonable time that would suggest that petitioners were mere lessees thereof. For one, it took respondents more than five years from the time of the execution of the Deed of Absolute Sale and the Contract of Lease to file the action for ejectment. Within this period, petitioners neither paid any rental nor exercised the option to buy purportedly the leased property from respondents. Incidentally, in the decisions of the MeTC and the RTC in the separate action for ejectment, both lower courts observed that when petitioners were made to sign a blank document, which turned out to be a Contract of Lease of their house and lot, they were of the belief that the

blank document would serve only as guaranty for the payment of their obligation to respondents. CIScaA The claim that petitioners' possession of the house and lot was by sheer tolerance of respondents is specious. Respondents could not explain why they allowed petitioners more than five years to look for another place to transfer. These circumstances only support the conclusion that the parties never really intended to transfer title to the property. Under paragraph 2 of Article 1602, where the purported vendor remains in possession of the property subject of the sale and it can be inferred that the true intention of the parties was to secure an existing debt, the transaction shall be deemed an equitable mortgage. Under paragraph 1 of Article 1602, where the purchase price is inadequate, a contract of sale is also presumed to be an equitable mortgage. Based on respondents' evidence, petitioners' property was valued at P700,000.00 but the assailed Deed of Absolute Sale stated a consideration of only P200,000.00. Contrary to the appellate court's declaration that the inadequacy of the purchase price is not sufficient to set aside the sale, the Court finds the same as clearly indicative of the parties' intention to make the property only a collateral security of petitioners' debt. The Court is not convinced that petitioners would allow the sale of their residential property for even less than half of its market value. The appellate court ruled that petitioners failed to rebut the presumption of the genuineness and due execution of the questioned Deed of Absolute Sale. Based on the examination of the assailed instrument and the Contract of Lease and the testimonies of the parties, the Court cannot sustain respondents' claim that petitioners offered to sell their house and lot in satisfaction of their indebtedness. As observed by the trial court, the Contract of Lease appears to have been signed sometime in November 1988 or before the execution of the Deed of Sale. Respondents were unable to explain why they had leased the property to petitioners before its supposed purchase by respondents. Furthermore, the records disclose that it was only after the institution of the ejectment case did petitioners learn about the cancellation of their title to the property although under the assailed Deed of Absolute Sale, petitioners were obliged to bear the expenses of its execution and registration. These circumstances lend credence to petitioners' claim of the surreptitious manner by which respondents made them sign certain documents without completely disclosing the real import thereof. The Supreme Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. 30 Though petitioners did not raise in issue the appellate court's reversal of the award of damages in their favor, the Court has the discretion to pass upon this matter and determine whether or not there is sufficient justification for the award of damages. TICAcD

The trial court described respondents' acts as "malevolent," necessitating the award for moral and exemplary damages. An award of moral damages would require certain conditions to be met, to wit: (1) first, there must be an injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) second, there must be a culpable act or omission factually established; (3) third, the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) fourth, the award of damages is predicated on any of the cases stated in Article 2219. 31 However, petitioners are not completely without fault. Had they exercised ordinary diligence in their affairs, petitioners could have avoided executing documents in blank. Respondents' wrongful act, although the proximate cause of the injury suffered by petitioners, was mitigated by petitioners' own contributory negligence. Hence, the award of moral and exemplary damages must be reduced to one-half of the amounts awarded by the trial court. 32 WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV 63965 are REVERSED and SET ASIDE and the Decision of the Regional Trial Court, Branch 258, Paraaque City in Civil Case No. 96-0172 is REINSTATED with a MODIFICATION that the award of moral and exemplary damages is REDUCED to P50,000.00 and P40,000.00, respectively. Costs against respondents. SaTAED SO ORDERED.

[G.R. No. 170282. December 18, 2008.] ALEXANDER and JEAN J. BACUNGAN, petitioners, vs. COURT OF APPEALS and SPS. NAPOLEON and VICTORIA VELO, respondents. DECISION TINGA, J p: This is a petition for review on certiorari 1 under Rule 45 of the 1997 Rules of Civil Procedure, assailing the decision 2 and resolution 3 of the Court of Appeals (CA) in CA-G.R. CV No. 64370. The Decision dated 21 March 2005 reversed and set aside the judgment 4 of dismissal by the Regional Trial Court (RTC), Branch 53, Pangasinan in the action for reconveyance filed by respondents against petitioners, while the resolution denied petitioners' motion for reconsideration of the CA decision. DcIHSa The following factual antecedents are matters of record. Respondents Napoleon and Victoria Velo instituted an action for reconveyance with damages against petitioners Alexander and Jean Jimeno Bacungan before the RTC of Rosales, Pangasinan. In the complaint, 5 docketed as Civil Case No. 1085-R, respondents alleged that they were the registered owners of 18 parcels of land situated in Rosales, Pangasinan and embraced in Transfer Certificate of Title (TCT) Nos. 34998, 36022, 35158, 36017, 18128, 26761, 36020, 28387, 35585, 25739, 36023, 40059, 40055, 40060, 40057, 40056, 36967 and 35268. 6 Respondents claimed that sometime in February of 1993, they had experienced business reversals and financial difficulties and had sought assistance from petitioners in securing a loan. Petitioners allegedly proposed that they would obtain the loan from the bank provided that respondents secure the transfer of the titles to petitioners that would be used as security for the loan. Respondents agreed, executed the corresponding deeds of sale and caused the cancellation and issuance of new TCTs over the properties in favor of petitioners. However, respondents claimed that after petitioners had obtained the new titles, they never applied for a loan with the bank but had secretly negotiated for the sale of the properties to third parties. 7 ECSHAD In their answer, 8 petitioners asserted that respondents offered to sell to them 23 parcels of land, 18 of which were used as collateral for the loan respondents had obtained from Traders Royal Bank. Petitioners claimed to have bought 22 parcels of land and executed the corresponding deeds of sale on 26 February 1993 and 10 March 1993. They also allegedly paid in full respondents' obligation with said bank but only 18 certificates of title released by the bank were delivered to petitioners. Petitioners further maintained that out of their gratuitousness, they returned one of the deeds of sale to respondents and considered the sale as cancelled. Petitioners

averred that the amounts they paid to respondents, as well as their payments to the bank, were more than enough as consideration of the 23 contracts. 9 After trial on the merits, the RTC rendered a decision on 20 April 1999, dismissing the complaint for lack of merit. The RTC gave evidentiary weight on the notarized deeds of sale, the presumed validity and due execution of which, according to the RTC, were not overcome by the uncorroborated testimony of respondent Victoria Velo. The RTC held that in any case, respondents admitted to have voluntarily consented to the simulation of the contracts, thus, the principle of in pari delicto must prevail and both parties were at fault and should be left at where the law finds them. cHaDIA Respondents elevated the matter to the CA via a petition for review, arguing that the contracts between respondents and petitioners were simulated. On 21 March 2005, the CA rendered the assailed decision, reversing the RTC's judgment. The dispositive portion of the CA's decision reads: WHEREFORE, the assailed decision dated 20 April 1999 of the Regional Trial Court of Rosales, Pangasinan is SET ASIDE. Judgment is hereby rendered: 1. Declaring the Deeds of Sale covering parcels of land under TCT Nos. 34998, 36022, 35158, 36017, 18128, 26761, 36020, 28381, 35585, 25739, 36023, 40059, 40055, 40060, 40057, 40056, 36967 and 35268 as simulated; and 2. Ordering the defendants-appellees to reconvey the aforesaid properties to the plaintiffs-appellants. SO ORDERED. 10 In reversing the RTC decision, the CA held that by their contemporaneous and subsequent acts, the deeds of sale were simulated as the parties did not intend to be bound by them at all. Among the indicators pointed out by the appellate court in support of its conclusion were the gross inadequacy of prices, respondents' failure to receive any part of the purchase price stated in the deeds of sale, the offer by petitioners to return some of the certificates of title and petitioner Alexander Bacungan's admission that the sale was simulated. 11 AcICHD Petitioners filed a motion for reconsideration, 12 raising the CA's failure to consider the amounts tendered by petitioners for the redemption of the properties as well as the amounts advanced by petitioners as payments of the properties. On 7 November 2005, the CA issued the assailed resolution, denying petitioners' motion for reconsideration. Hence, the instant petition, raising the following arguments: (1) the deeds of sale embody the real agreement of the parties and are not nullified by the gross inadequacy of the prices; (2) the contracts of sale cannot be simulated because

prior to their execution, petitioner extended a loan to respondents which was used to redeem the mortgaged properties; and (3) respondents admitted that the only agreement was the contracts of sale; thus, the appellate court erred in interpreting the acts of the parties before and after their execution. 13 aHSAIT The petition is partly meritorious. Respondents and petitioners advance contrasting claims. Petitioners would have this Court uphold the validity of the deeds of sale while respondents seek their nullification. Neither is claiming that they had agreed other terms and conditions not embodied in the deeds of sale or that the deeds of sale do not embody their real agreement. However, after a perusal of the records of the case, the Court finds that the resolution of the controversy cannot be limited only to determining whether the deeds of sale were void. Such issue may still be considered and resolved by the Court in the interest of substantial justice, if it finds that to do so is necessary to arrive at a just decision, or when an issue is closely related to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete resolution of the case. 14 aSAHCE After a careful examination of the records of the case, the Court finds that the deeds of absolute sale do not embody the real intention of the parties. The records reveal that respondents had earlier executed several real estate mortgages over the properties to secure the payment of the total amount of P350,000.00. 15 Respondents defaulted on the payments, prompting the bank to foreclose the properties. However, as illustrated in the testimony of respondent Victoria Velo, respondents and petitioners devised a plan in which they agreed that in exchange for the apparent transfer of ownership of the parcels of land to petitioners, the latter would provide for the funds for the redemption of the properties from the bank in addition to the loan that petitioners would obtain from the bank. Thus, respondents were able to redeem the properties for the amount of P369,000.00 that was advanced by way of mortgage to them by petitioners. 16 The amount approximates the total loans in the amount of P350,000.00 secured by the properties subject of the real estate mortgages executed by respondents. 17 IcaEDC Thereafter, respondents executed several deeds of sale purporting to transfer the 18 parcels of lands for a total consideration of P232,000.00. The parties further agreed that upon the transfer of the properties in the name of petitioners, the latter would obtain another loan from the bank using the properties as collateral. Petitioners were supposed to remit the loan proceeds to respondents after deducting the amount of P369,000.00 lent by petitioners to respondents and, thereafter, allow respondents to buy back the properties. However, because petitioners had failed to secure a loan from the bank after the transfer of the titles in their names, respondents instituted the present action to nullify the deeds of sale on the ground that the sale was simulated.

This kind of arrangement, where the ownership of the land is supposedly transferred to the buyer who provides for the funds to redeem the property from the bank but nonetheless allows the seller to later on buy back the properties, is in the nature of an equitable mortgage governed by Articles 1602 and 1604 of the Civil Code, which provide: AEIHaS Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) (2) When the price of a sale with right to repurchase is unusually inadequate; 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) (5) When the purchaser retains for himself a part of the purchase price; When the vendor binds himself to pay the taxes on the thing sold;

(6) In any 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. EScaIT 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 the usury laws. Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, two requisites must be satisfied, namely: 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. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence or an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage. 18 In the instant case, three telling circumstances indicating that an equitable mortgage exists are present. First, as established by the CA, the price of each of the properties was grossly inadequate. Second, petitioners retained part of the "purchase price" when they failed to turn over to the respondents the loan that they were supposed to secure from the bank. Third, petitioners insisted that part of the

consideration of the sale consisted of amounts previously borrowed by respondents from them, indicating that petitioners were using the properties as "security" for the payment of respondents' other loans from them. DHSaCA The CA concluded that the sale was simulated because of the gross inadequacy of the prices and the failure by respondents to receive the purchase price. Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of price does not even affect the validity of a contract of sale, unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract. Inadequacy of cause will not invalidate a contract unless there has been fraud, mistake or undue influence. 19 That respondents did not receive the purchase price is not entirely correct. As already discussed above, the consideration for the transaction was to secure the payment of respondents' loan to petitioners. Also, the CA's conclusion that petitioner Alexander Bacungan admitted that the sale was simulated is not supported by the records of the case. Petitioners merely admitted that previous to the execution of the deeds of sale, respondents had borrowed other sums of money from them. ADEaHT All told, while the deeds of sale do not reflect the true intention of the parties, their real agreement must nonetheless be recognized and enforced. While neither party claimed that the real agreement was an equitable mortgage, the factual circumstances of the case nudge the Court to declare the real agreement as such and enforce the rights and liabilities of the parties accordingly. This being the case, the proper remedy availed by either party was to institute an action for the reformation of the deeds of sale in order to reflect the true intention of the parties. However, instead of dismissing the complaint altogether, the just and expeditious manner is to settle once and for all the rights and obligations of the parties under the equitable mortgage. It has been established that petitioners advanced the sum of P369,000.00 to respondents that prompted the latter to transfer the properties to petitioners. Thus, before the respondents can recover the said amount, respondents must first return the amount of P369,000.00 to petitioners. In Lustan v. Court Appeals, 20 where the Court established the reciprocal obligations of the parties under an equitable mortgage, the Court ordered the reconveyance of the property to the rightful owner therein upon the payment of the loan within 90 days from the finality of this decision. cDHAaT WHEREFORE, the petition for review on certiorari is PARTLY GRANTED and the decision and resolution of the Court of Appeals in CA-G.R. CV No. 64370 are AFFIRMED with the following MODIFICATIONS:

1)

DECLARING the Deeds of Absolute Sale as equitable mortgages; and

2) ORDERING petitioners to RECONVEY to respondents the properties covered by Transfer Certificate of Title Nos. 34998, 36022, 35158, 36017, 18128, 26761, 36020, 28381, 35585, 25739, 36023, 40059, 40055, 40060, 40057, 40056, 36967 AND 35268 of the Register of Deeds of Pangasinan UPON THE PAYMENT OF P369,000.00 by respondents within NINETY DAYS FROM THE FINALITY OF THIS DECISION. SO ORDERED.

[G.R. No. 159048. October 11, 2005.] BENNY GO, petitioner, vs. ELIODORO BACARON, respondent. DECISION PANGANIBAN, J p: The present Contract, which purports to be an absolute deed of sale, should be deemed an equitable mortgage for the following reasons: (1) the consideration has been proven to be unusually inadequate; (2) the supposed vendor has remained in possession of the property even after the execution of the instrument; and (3) the alleged seller has continued to pay the real estate taxes on the property. aCSDIc The Case Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to set aside the October 17, 2002 Decision 2 and the May 20, 2003 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 67218. The assailed Decision disposed as follows:

"WHEREFORE, premises considered, the Decision dated February 24, 2000 of the Regional Trial Court of Davao City, Branch 12, in Civil Case No. 25,101-97 is hereby REVERSED and SET ASIDE and a new one is hereby rendered ordering the reformation of the subject instrument, such that the same must be considered a mortgage contract and not a transfer of right. Costs against [petitioner]." 4 The assailed Resolution denied Reconsideration. The Facts The antecedents are narrated by the CA as follows: "As evidenced by the Transfer of Rights dated October 1, 1993, Eliodoro Bacaron conveyed a 15.3955-hectare parcel of land located in Langub, Talomo, Davao City, in favor of Benny Go for P20,000.00. "About a year thereafter, Bacaron, seeking to recover his property, went to Go to pay his alleged P20,000.00 'loan' but the latter refused to receive the same and to return his property saying that the transaction between the two of them was a sale and not a mortgage as claimed by Bacaron. cdtai 2006 "Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein respondent], filed a Complaint for Reformation of Instrument with Damages and prayer for the issuance of a writ of preliminary injunction, with the Regional Trial Court of Davao

City, Branch 12, against the [petitioner] Benny Go, which case was docketed as Civil Case No. 25,101-97. CDAcIT "In his Complaint, [respondent] alleged that in the middle part of 1993, he suffered business reversals which prompted him, being in urgent need of funds, to borrow P20,000.00 from the [petitioner]. He however averred that prior to extending said loan to him, the [petitioner] required him to execute a document purporting to be a Transfer of Rights but was told that the same would only be a formality as he could redeem the unregistered land the moment he pays the loan. Admitting that he signed the instrument despite knowing that the same did not express the true intention of the parties' agreement, i.e., that the transaction was a mere equitable mortgage, the [respondent] explained that he did so only because he was in a very tight financial situation and because he was assured by the [petitioner] that he could redeem his property. To support this claim, [respondent] stressed the fact that the consideration in the instrument was merely P20,000.00, which is grossly inadequate as the selling price of a 15-hectare land considering that, at that time, the market value of land in Davao City amounts to P100,000.00 per hectare. [Respondent] narrated that a year thereafter, or in a middle part of 1994, he was able to raise the P20,000.00 and went to the [petitioner] to pay his loan but the latter refused to accept his payment, insisting that the transaction entered into by the parties was not an equitable mortgage, as the [respondent] insists, but a real transfer of right over the property. Because of said refusal, [respondent] continued, he was compelled to refer the matter to his lawyer in order to request the [petitioner] to accept his payment otherwise he would file the necessary action in court. Despite said formal demand by the [respondent], however, [petitioner] allegedly continued to refuse to recognize the 'equitable mortgage', prompting [respondent] to consign the P20,000.00 with the Clerk of Court of the RTC of Davao City, Branch 12. He thus insisted that it is [petitioner] who is 'dead wrong' in not recognizing the equitable mortgage since, aside from the fact that the consideration was unusually inadequate, [respondent] allegedly remained in possession of the property. DCATHS "[Respondent] thus prayed for an award for moral damages, in view of the [petitioner's] evident bad faith in refusing to recognize the equitable mortgage, and for attorney's fees as [petitioner's] alleged stubbornness compelled him to engage the services of counsel. He likewise sought an award for exemplary damages to deter others from committing similar acts and at the same time asked the court to issue a writ of preliminary injunction and/or temporary restraining order to prevent [petitioner] from dispossessing [respondent] of the subject property or from disposing of the same in favor of third parties as these acts would certainly work injustice for and cause irreparable damage to the [respondent]. The prayer for the issuance of a restraining order was however denied by the court in an Order. "[Petitioner] filed his Answer on May 5, 1997, denying [respondent's] claim that the transaction was only an equitable mortgage and not an actual transfer of right. He

asserted that the truth of the matter was that when [respondent] suffered business reverses, his accounts with the [petitioner], as evidenced by postdated checks, cash vouchers and promissory notes, remained unpaid and his total indebtedness, exclusive of interests, amounted to P985,423.70. [Petitioner] further averred that, in order to avoid the filing of cases against him, [respondent] offered to pay his indebtedness through dacion en pago, giving the land in question as full payment thereof. In addition, he stressed that considering that the property is still untitled and the [respondent] bought the same from one Meliton Bacarro for only P50,000.00, it is most unreasonable for him to agree to accept said land in exchange for over a million pesos of indebtedness. He claimed though that he was only forced to do so when [respondent] told him that if he did not accept the offer, other creditors would grab the same. "By way of affirmative defenses, the [petitioner] pointed out that [respondent] has no cause of action against him as the [respondent] failed to comply with the essential requisites for an action for reformation of instrument. He moreover alleged that the [respondent] is in estoppel because, by his own admission, he signed the document knowing that the same did not express the true intention of the parties. Further, [petitioner] claimed that there was a valid transfer of the property herein since the consideration is not only the actual amount written in the instrument but it also includes the outstanding obligation of [respondent] to the [petitioner] amounting to almost P1 million. DICSaH "As counterclaim, [petitioner] averred that, because of this baseless complaint, he suffered mental anguish, wounded feelings and besmirched reputation, entitling him to moral damages amounting to P20,000.00, and that in order to deter others from doing similar acts, exemplary damages amounting to P20,000.00 should likewise be awarded in his favor. [Petitioner] also prayed for attorney's fees and litigation expenses claiming that, because he was constrained to litigate, he was forced to hire the services of counsel. xxx xxx xxx

"Trial ensued and thereafter the trial court rendered its Decision dated February 24, 2000 dismissing the complaint while finding the [petitioner's] counterclaim meritorious. In making said ruling, the lower court, citing Article 1350 (should be 1359) of the New Civil Code, found that [respondent] failed to establish the existence of all the requisites for an action for reformation by clear, convincing and competent evidence. Considering [respondent's] own testimony that he read the document and fully understood the same, signing it without making any complaints to his lawyer, the trial court held that the evidence on record shows that the subject instrument had been freely and voluntarily entered into by the parties and that the same expresses the true intention of the parties. The court further noted that the [respondent's] wife even signed the document and that the same had been duly

acknowledged by the parties before a notary public as their 'true act and voluntary deed.' "The trial court likewise observed that, contrary to [respondent's] claim that the transaction was a mere mortgage of the property, the terms of the instrument are clear and unequivocable that the property subject of the document was 'sold, transferred, ceded and conveyed' to the [petitioner] 'by way of absolute sale,' and hence, no extrinsic aids are necessary to ascertain the intention of the parties as the same is determinable from the document itself. Moreover, said court emphasized that considering the fact that [respondent] is an educated person, having studied in an exclusive school like Ateneo de Davao, and an experienced businessman, he is presumed to have acted with due care and to have signed the instrument with full knowledge of its contents and import. [Respondent's] claim that he merely borrowed money from the [petitioner] and mortgaged the property subject of litigation to guarantee said loan was thus found to be specious by the court, which found that the [respondent] was actually indebted to the [petitioner] for almost a million pesos and that the true consideration of the sale was in fact said outstanding obligation. HAcaCS "With respect to [respondent's] alleged possession of the property and payment of real estate taxes, both of which were relied upon by the [respondent] to boost his assertion that the transaction was merely an equitable mortgage, the trial court said that his claim of possession is belied by the fact that the actual occupants of the property recognize that the [petitioner] owns the same and in fact said occupants prevented [respondent's] wife from entering the premises. The court, noting that the [petitioner] also paid the realty taxes, was also of the opinion that [respondent] merely made such payments in order to lay the basis of his allegation that the contract was a mere equitable mortgage. "Accordingly, the court held that [respondent] is also not entitled to his other claims and that his unfounded action caused [petitioner] to an award for moral damages, in addition to the expenses he incurred in defending his cause, i.e. services of a lawyer and transportation and other expenses, which justifies an award for the reimbursement of his expenses and attorney's fees." 5 Ruling of the Court of Appeals Granting respondent's appeal, the appellate court ruled that the Contract entered into by the parties should be deemed an equitable mortgage, because the consideration for the sale was grossly inadequate. By continuing to harvest the crops and supervise his workers, respondent remained in control of the property. True, upon the institution of this case, petitioner paid the required real estate taxes that were still in arrears. Respondent, however paid the taxes for 1995, 1996 and 1997 the years between the dates when the alleged absolute sale was entered into on October 1, 1993, and when this case was instituted on March 5, 1997. 6

Granting respondent's prayer for reformation of the Contract, the CA ruled that the instrument failed to reflect the true intention of the parties because of petitioner's inequitable conduct. 7 Hence, this Petition. 8 The Issues Petitioner raises the following issues for this Court's consideration: "I. Whether o[r] not the Court of Appeals erred in ruling that there was inadequate consideration. SCaEcD "II. Whether o[r] not the Court of Appeals erred in ruling that the respondent remained in possession of the land in question. "III. Whether or not the Court of Appeals erred in ruling that the taxes were not paid by the petitioner. "IV. Whether or not the Court of Appeals erred in ruling that reformation is proper." 9 Simply put, these are the issues to be resolved: (1) whether the agreement entered into by the parties was one for equitable mortgage or for absolute sale; and (2) whether the grant of the relief of contract reformation was proper. The Court's Ruling The Petition has no merit. First Issue: Equitable Mortgage An equitable mortgage has been 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." 10 The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated in Article 1602 of the Civil Code as follows:

"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; cTECIA (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) (5) When the purchaser retains for himself a part of the purchase price; 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 the usury laws." Furthermore, Article 1604 of the Civil Code provides that "[t]he provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale." In the present case, three of the instances enumerated in Article 1602 grossly inadequate consideration, possession of the property, and payment of realty taxes attended the assailed transaction and thus showed that it was indeed an equitable mortgage. Inadequate Consideration Petitioner Go avers that the amount of P20,000 was not unusually inadequate. He explains that the present parties entered into a Dacion en Pago, whereby respondent conveyed the subject property as payment for his outstanding debts to petitioner debts supposedly amounting to P985,243.70. 11 To substantiate his claim, petitioner presented the checks that respondent had issued, as well as the latter's testimony purportedly admitting the genuineness and due execution of the checks and the existence of the outstanding debts. 12 Petitioner Go contends that respondent failed to establish by sufficient evidence that those debts had already been paid. 13 Petitioner relies on the trial court's finding that respondent knowingly and intentionally entered into a contract of sale, not an equitable mortgage. 14 On the other hand, Respondent Bacaron argues that the value of the property at the time of the alleged sale was P120,000 per hectare, and that the indicated sale amount of P20,000 was thus grossly iniquitous. 15 Allegedly, the previous cash

advances secured from petitioner's father had been settled, as evidenced by the fact that petitioner did not negotiate further or encash the checks; the latter could have done so, if the obligation was still extant. 16 Respondent points out that he paid for that obligation with the coprax he had previously delivered to the father. 17 Petitioner allegedly admitted this fact, though inadvertently, when he testified that respondent had already paid some of the latter's previous cash advances. 18 Otherwise, petitioner would have then set off his own debt to respondent (amounting to P214,000) against the amount of almost one million pesos that the latter supposedly owed him. 19 Checks have the character of negotiability. At the same time, they may constitute evidence of indebtedness. 20 Those presented by petitioner may indeed evince respondent's indebtedness to him in the amounts stated on the faces of those instruments. He, however, acknowledges (1) that respondent paid some of the obligations through the coprax delivered to petitioner's father; and (2) that petitioner owed and subsequently paid respondent P214,000. 21 The parties' respective arguments show that the sum of P20,000, by itself, is inadequate to justify the purported absolute Transfer of Rights. 22 Petitioner's claim that there was a dacion en pago is not reflected on the instrument executed by the parties. That claim, however, confirms the inadequacy of the P20,000 paid in consideration of the Transfer of Rights; hence, the Contract does not reflect the true intention of the parties. As to what their true intention was whether dacion en pago or equitable mortgage will have to be determined by some other means. TaHDAS Possession According to Article 1602(2) of the New Civil Code, one of the instances showing that a purported contract of sale is presumed to be an equitable mortgage is when the supposed vendor remains in possession of the property even after the conclusion of the transaction. In general terms, possession is the holding of a thing or the enjoyment of a right, whether by material occupation or by the fact that the right or, as in this case, the property is subjected to the will of the claimant. 23 In Director of Lands v. Heirs of Abaldonado, 24 the gathering of the products of and the act of planting on the land were held to constitute occupation, possession and cultivation. In the present case, the witnesses of respondent swore that they had seen him gather fruits and coconuts on the property. Based on the cited case, the witnesses' testimonies sufficiently establish that even after the execution of the assailed Contract, respondent has remained in possession of the property. The testimonies proffered by petitioner's witnesses merely indicated that they were tenants of the property. Petitioner only informed them that he was the new owner of the property. This attempt at a factual presentation hardly signifies that he exercised possession

over the property. As held by the appellate court, petitioner's other witness (Redoa) was unconvincing, because he could not even say whether he resided within the premises. 25 The factual findings of the trial court and the CA are conflicting and, hence, may be reviewed by this Court. 26 Normally, the findings of the trial court on the credibility of witnesses should be respected. Here, however, their demeanor while testifying is not at issue. What is disputed is the substance of their testimonies the facts to which they testified. Assuming that the witnesses of petitioner were indeed credible, their testimonies were insufficient to establish that he enjoyed possession over the property. DACTSH Payment of Realty Taxes Finally, petitioner asserts that the trial court's finding that he paid the realty taxes should also be given corresponding weight. 27 Respondent counters with the CA's findings that it was he who paid realty taxes on the property. The appellate court concluded that he had paid taxes for the years 1995, 1996 and 1997 within each of those years; hence, before the filing of the present controversy. In contrast, petitioner paid only the remaining taxes due on October 17, 1997, or after the case had been instituted. This fact allegedly proves that respondent has remained in possession of the property and continued to be its owner. 28 He argues that if he had really transferred ownership, he would have been foolish to continue paying for those taxes. 29 On this point, we again rule for respondent. Petitioner indeed paid the realty taxes on the property for the years 1980 to 1997. The records show that the payments were all simultaneously made only on October 31, 1997, evidently in the light of the Complaint respondent had filed before the trial court on March 5, 1997. 30 On the other hand, respondent continued to pay for the realty taxes due on the property for the years 1995, 1996 and 1997. 31 That the parties intended to enter into an equitable mortgage is bolstered by respondent's continued payment of the real property taxes subsequent to the alleged sale. Payment of those taxes is a usual burden attached to ownership. Coupled with continuous possession of the property, it constitutes evidence of great weight that a person under whose name the realty taxes were declared has a valid and rightful claim over the land. 32 That the parties intended to enter into an equitable mortgage is also shown by the fact that the "seller" was driven to obtain the loan at a time when he was in urgent need of money; and that he signed the Deed of Sale, despite knowing that it did not express the real intention of the parties. 33 In the present proceedings, the collapse of his business prompted respondent to obtain the loan. 34 Petitioner himself

admitted that at the time they entered into the alleged absolute sale, respondent had suffered from serious business reversals. 35 Second Issue: Reformation of Instrument Petitioner claims that the CA erred in granting the remedy of reformation of contracts. He avers that the failure of the instrument to express the parties' true agreement was not due to his mistake; or to fraud, inequitable conduct, or accident. 36 We rule for respondent. cSICHD Ultimately, it is the intention of the parties that determines whether a contract is one of sale or of mortgage. 37 In the present case, one of the parties to the contract raises as an issue the fact that their true intention or agreement is not reflected in the instrument. Under this circumstance, parol evidence becomes admissible and competent evidence to prove the true nature of the instrument. 38 Hence, unavailing is the assertion of petitioner that the interpretation of the terms of the Contract is unnecessary, and that the parties clearly agreed to execute an absolute deed of sale. His assertion does not hold, especially in the light of the provisions of Article 1604 of the Civil Code, under which even contracts purporting to be absolute sales are subject to the provisions of Article 1602. Moreover, under Article 1605 of the New Civil Code, the supposed vendor may ask for the reformation of the instrument, should the case be among those mentioned in Articles 1602 and 1604. Because respondent has more than sufficiently established that the assailed Contract is in fact an equitable mortgage rather than an absolute sale, he is allowed to avail himself of the remedy of reformation of contracts. WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED. TCEaDI SO ORDERED.

[G.R. No. 146651. January 17, 2002.] RONALDO P. ABILLA and GERALDA A. DIZON, petitioners, vs. CARLOS ANG GOBONSENG, JR. and TERESITA MIMIE ONG, respondents. Romero Arreza & Magtanong Law Office for petitioners. Rotelio U. Lumjod for private respondents. SYNOPSIS Petitioners sued respondents for specific performance, recovery of sum of money and damages claiming that they incurred expenses in the preparation of the deed of sale and an option to buy. Respondents consistently alleged that the transaction was an equitable mortgage and not a pacto de retro sale or a sale with option to buy. They maintained this stance even when the case reached the Court of Appeals. Both the trial and appellate courts rendered judgment adverse to respondents. However, after the finality of the decision of the appellate court, respondents abandoned their theory and insisted that they are now entitled to exercise the right of repurchase pursuant to Article 1606 of the Civil Code. EcHIDT In the parallel case of Vda. de Macoy v. Court of Appeals it was held that the application of the third paragraph of Article 1606 of the Civil Code is predicated upon the bona fides of the vendor a retro and that it must appear that there was a belief on his part that the agreement was in reality a mortgage. With the findings of the courts that the transaction was a pacto de retro sale, the losing parties cannot now be allowed to change their theory and consequently exercise the right of repurchase. SYLLABUS REMEDIAL LAW; ACTIONS; PARTIES; NOT ALLOWED TO CHANGE THEIR THEORY AFTER RENDITION OF ADVERSE DECISION WHICH ATTAINED FINALITY. At the outset, it must be stressed that it has been respondents' consistent claim that the transaction subject hereof was an equitable mortgage and not a pacto de retro sale or a sale with option to buy. Even after the Court of Appeals declared the transaction to be a pacto de retro sale, respondents maintained their view that the transaction was an equitable mortgage. Seeing the chance to turn the decision in their favor, however, respondents abandoned their theory that the transaction was an equitable mortgage and adopted the finding of the Court of Appeals that it was in fact a pacto de retro sale. Respondents now insist that they are entitled to exercise the right to repurchase pursuant to the third paragraph of Article 1606 of the Civil Code. The Court held that the petitioners therein raised the defense that the contract was not a sale with right to repurchase but an equitable mortgage. The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro. It must appear that there was a belief on his part, founded on

facts attendant upon the execution of the sale with pacto de retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to the property ostensibly sold, but merely to give it as security for a loan or other obligation. . . . This Court has already had occasion to rule on the proper interpretation of the provision in question. In Adorable v. Inacala, where the proofs established that there could be no honest doubt as to the parties' intention, that the transaction was clearly and definitely a sale with pacto de retro, the Court adjudged the vendor a retro not to be entitled to the benefit of the third paragraph of Article 1606. In the case at bar, both the trial court and the Court of Appeals were of the view that the subject transaction was truly a pacto de retro sale; and that none of the circumstances under Article 1602 of the Civil Code exists to warrant a conclusion that the transaction subject of the "Deed of Sale" and "Option to Buy" was an equitable mortgage. The Court of Appeals correctly noted that if respondents really believed that the transaction was indeed an equitable mortgage, as a sign of good faith, they should have, at the very least, consigned with the trial court the amount of P896,000.00, representing their alleged loan, on or before the expiration of the right to repurchase on August 21, 1983. Clearly, therefore, the declaration of the transaction as a pacto de retro sale will not, under the circumstances, entitle respondents to the right of repurchase set forth under the third paragraph of Article 1606 of the Civil Code. EHSTDA DECISION YNARES-SANTIAGO, J p: May the vendors in a sale judicially declared as a pacto de retro exercise the right of repurchase under Article 1606, third paragraph, of the Civil Code, after they have taken the position that the same was an equitable mortgage? This is the legal question raised in this petition for review assailing the January 14, 2001 Order 1 of the Regional Trial Court of Dumaguete City, Branch 41, in Civil Case No. 8148, which granted herein respondent spouses the right to repurchase the seventeen lots 2 subject of the pacto de retro sale within thirty (30) days from the finality of the order. The undisputed facts are as follows: Petitioner spouses instituted against respondents an action for specific performance, recovery of sum of money and damages, docketed as Civil Case No. 8148 of the Regional Trial Court of Dumaguete City, Branch XLII, seeking the reimbursement of the expenses they incurred in connection with the preparation and registration of two public instruments, namely a "Deed of Sale" 3 and an "Option to Buy." 4 In their answer, respondents raised the defense that the transaction covered by the "Deed of Sale" and "Option to Buy," which appears to be a Deed of Sale with Right of Repurchase, was in truth, in fact, in law, and in legal construction, a mortgage. 5

On October 29, 1990, the trial court ruled in favor of petitioners and declared that the transaction between the parties was not an equitable mortgage. Citing Villarica v. Court of Appeals, 6 it ratiocinated that neither was the said transaction embodied in the "Deed of Sale" and "Option to Buy" a pacto de retro sale, but a sale giving respondents until August 31, 1983 within which to buy back the seventeen lots subject of the controversy. The dispositive portion thereof reads: IN THE LIGHT OF THE FOREGOING, it is the considered opinion of this Court that plaintiffs have proven by preponderance of evidence their case and judgment is therefore rendered in their favor as follows: 1. Ordering defendants to pay plaintiffs the sum of P171,483.40 representing the total expenses incurred by plaintiffs in the preparation and registration of the Deed of Sale, amount paid to the Bank of Asia and America (IBAA) and capital gains tax with legal rate of interest from the time the same was incurred by plaintiffs up to the time payment is made by defendants; P10,000.00 as attorney's fees; P15,000.00 moral damages; P10,000.00 expenses of litigation and to pay cost. 2. The Philippine National Bank, Dumaguete City Branch is directed to release in favor of plaintiffs, the spouses Ronaldo P. Abilla and Gerald A. Dizon all the money deposited with the said bank, representing the rentals of a residential house erected inside in one of the lots in question; 3. For insufficiency of evidence, defendants' counterclaim is ordered dismissed.

SO ORDERED. 7 On appeal by respondents, the Court of Appeals ruled that the transaction between the parties was a pacto de retro sale, and not an equitable mortgage. 8 The decretal portion thereof states: WHEREFORE, the decision appealed from is MODIFIED by deleting the award of attorney's fees. In other respects the decision of the lower court is AFFIRMED. Costs against defendant-appellants. SO ORDERED. 9 On November 10, 1997, the Court of Appeals denied the motion for reconsideration of the foregoing decision. Respondents filed a petition for review with this Court which was docketed as G.R. No. 131358; however, the same was dismissed on February 11, 1998, for having been filed out of time. 10 The motion for reconsideration thereof was denied with finality on June 17, 1998. 11 Undaunted, respondents filed a second motion for reconsideration, claiming that since the transaction subject of the controversy was declared a pacto de retro sale

by the Court of Appeals, they can therefore repurchase the property pursuant to the third paragraph of Article 1606 of the Civil Code. The issue of the applicability of Article 1606 of the Civil Code was raised by the respondents only in their motion for clarification with the Court of Appeals, and not before the trial court and on appeal to the Court of Appeals. Thus, respondent's second motion for reconsideration was denied. 12 The denial became final and executory on February 8, 1999. 13 On February 23, 1999, respondents filed with the trial court in Civil Case No. 8148 an urgent motion to repurchase the lots in question with tender of payment. The motion was, however, denied on November 10, 1999 14 by Judge Ibarra B. Jaculbe, Jr., who subsequently inhibited himself from the case. On January 14, 2001, Branch 41 of the Regional Trial Court of Dumaguete City, to which the case was reraffled, set aside the November 10, 1999 order and granted respondents' motion to repurchase. Hence, the instant recourse. At the outset, it must be stressed that it has been respondents' consistent claim that the transaction subject hereof was an equitable mortgage and not a pacto de retro sale or a sale with option to buy. Even after the Court of Appeals declared the transaction to be a pacto de retro sale, respondents maintained their view that the transaction was an equitable mortgage. Seeing the chance to turn the decision in their favor, however, respondents abandoned their theory that the transaction was an equitable mortgage and adopted the finding of the Court of Appeals that it was in fact a pacto de retro sale. Respondents now insist that they are entitled to exercise the right to repurchase pursuant to the third paragraph of Article 1606 of the Civil Code, which reads: However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase. The question now is, can respondents avail of the aforecited provision? following the theory of the respondents which was sustained by the trial court, the scenario would be that although respondents failed in their effort to prove that the contract was an equitable mortgage, they could nonetheless still repurchase the property within 30 days from the finality of the judgment declaring the contract to be truly a pacto de retro sale. However, under the undisputed facts of the case at bar, this cannot be allowed. In the parallel case of Vda. de Macoy v. Court of Appeals, 15 the petitioners therein raised the defense that the contract was not a sale with right to repurchase but an equitable mortgage. They further argued as an alternative defense that even assuming the transaction to be a pacto de retro sale, they can nevertheless

repurchase the property by virtue of Article 1606, third paragraph of the Civil Code. It was held that the said provision was inapplicable, thus: The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro. It must appear that there was a belief on his part, founded on facts attendant upon the execution of the sale with pacto de retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to the property ostensibly sold, but merely to give it as security for a loan or other obligation. In that event, if the matter of the real nature of the contract is submitted for judicial resolution, the application of the rule is meet and proper; that the vendor a retro be allowed to repurchase the property sold within 30 days from rendition of final judgment declaring the contract to be a true sale with right to repurchase. Conversely, if it should appear that the parties' agreement was really one of sale transferring ownership to the vendee, but accompanied by a reservation to the vendor of the right to repurchase the property and there are no circumstances that may reasonably be accepted as generating some honest doubt as to the parties' intention, the proviso is inapplicable. The reason is quite obvious. If the rule were otherwise, it would be within the power of every vendor a retro to set at naught a pacto de retro, or resurrect an expired right of repurchase, by simply instituting an action to reform the contract known to him to be in truth a sale with pacto de retro into an equitable mortgage. As postulated by the petitioner, "to allow herein private respondents to repurchase the property by applying said paragraph . . . to the case at bar despite the fact that the stipulated redemption period had already long expired when they instituted the present action, would in effect alter or modify the stipulation in the contract as to the definite and specific limitation of the period for repurchase (2 years from date of sale or only until June 25, 1958) thereby not simply increasing but in reality resuscitating the expired right to repurchase . . . and likewise the already terminated and extinguished obligation to resell by herein petitioner." The rule would thus be made a tool to spawn, protect and even reward fraud and bad faith, a situation surely never contemplated or intended by the law. This Court has already had occasion to rule on the proper interpretation of the provision in question. In Adorable v. Inacala, where the proofs established that there could be no honest doubt as to the parties' intention, that the transaction was clearly and definitely a sale with pacto de retro, the Court adjudged the vendor a retro not to be entitled to the benefit of the third paragraph of Article 1606. 16 In the case at bar, both the trial court and the Court of Appeals were of the view that the subject transaction was truly a pacto de retro sale; and that none of the circumstances under Article 1602 of the Civil Code exists to warrant a conclusion that the transaction subject of the "Deed of Sale" and "Option to Buy" was an equitable mortgage. The Court of Appeals correctly noted that if respondents really believed that the transaction was indeed an equitable mortgage, as a sign of good faith, they should have, at the very least, consigned with the trial court the amount

of P896,000.00, representing their alleged loan, on or before the expiration of the right to repurchase on August 21, 1983. Clearly, therefore, the declaration of the transaction as a pacto de retro sale will not, under the circumstances, entitle respondents to the right of repurchase set forth under the third paragraph of Article 1606 of the Civil Code. WHEREFORE, in view of all the foregoing, the instant petition is GRANTED and the January 14, 2001 Order of the Regional Trial Court of Dumaguete City, Branch 41, in Civil Case No. 8148 is REVERSED and SET ASIDE. SO ORDERED.

[G.R. No. 141613. December 16, 2005.] SENEN B. AGUILAR, petitioner, vs. VIRGILIO B. AGUILAR and ANGEL B. AGUILAR, respondents. ALEJANDRO C. SANGALANG, intervenor-respondent. DECISION SANDOVAL-GUTIERREZ, J p: Assailed in this petition for review on certiorari are the Decision 1 and Resolution 2 of the Court of Appeals, dated June 11, 1999 and January 11, 2000, respectively, in CA-G.R. CV No. 55750. ICASEH The parties in this case are brothers, except Alejandro Sangalang, herein intervenor-respondent. As will be subsequently discussed, this is the second time that the brothers Aguilar seek the intervention of this Court regarding the same facts and the same subject matter. The first was in Aguilar v. Court of Appeals, G.R. No. 76351 decided on October 29, 1993 against Senen B. Aguilar. 3 It is time to writ finis to this family wrangling. On October 28, 1993, Senen and Virgilio purchased a house and lot located in Paraaque City, Metro Manila for the benefit of their father, Maximiano Aguilar (now deceased). The brothers wanted their father to enjoy his retirement in a quiet neighborhood. On February 23, 1970, they executed a written agreement stipulating that their shares in the house and lot would be equal; and that Senen would live with their father on condition that he would pay the Social Security System (SSS) the remaining loan obligation of the former owners. In 1974, their father died. Virgilio then demanded that Senen vacate the house and that the property be sold, the proceeds to be divided between them. Senen refused to comply with Virgilio's demand. On January 12, 1979, Virgilio filed a complaint with the Court of First Instance (now Regional Trial Court) of Rizal at Pasay City for specific performance. Virgilio prayed that Senen be compelled to sell the property so that the proceeds could be divided between them. However, during the pre-trial, neither Senen nor his counsel appeared. Thus, Senen was declared as in default by the trial court and Virgilio was allowed to present his evidence ex-parte. AaHcIT On July 26, 1979, the trial court rendered its Decision, declaring the brothers coowners of the house and lot and are entitled to equal shares; and ordering that the property be sold, the proceeds to be divided equally between them. The trial court

also ordered Senen to vacate the property and to pay Virgilio rentals with interests corresponding to the period from January 1975 until he leaves the premises. On appeal, docketed as CA-G.R. CV No. 03933, the Court of Appeals reversed the trial court's Decision. Virgilio then filed with this Court a petition for review on certiorari, docketed as G.R. No. 76351. On October 29, 1993, this Court rendered its Decision, the dispositive portion of which reads: "WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals dated 16 October 1986 is REVERSED and SET ASIDE. The decision of the trial court in Civil Case No. 6912-P dated 26 July 1971 is REINSTATED, with the modification that respondent Senen B. Aguilar is ordered to vacate the premises in question within ninety (90) days from receipt of this decision, and to pay petitioner Virgilio B. Aguilar, a monthly rental of P1,200.00 with interest at the legal rate from the time he received the decision of the trial court directing him to vacate until he effectively leaves the premises. The trial court is further directed to take immediate steps to implement this decision, conformably with Art. 498 of the Civil Code and the Rules of Court. This decision is final and executory. SO ORDERED." On March 27, 1995, Senen filed with the Regional Trial Court, Branch 260, Paraaque City, an action for legal redemption against Virgilio and another brother, Angel, docketed as Civil Case No. 95-039. In his complaint, Senen alleged that while he knows that Virgilio sold his 1/2 share of the property to Angel in January 1989, however, he (Senen) was not furnished any written notice of the sale. Consequently, as a co-owner, he has the right to redeem the property. Meanwhile, on November 27, 1995, pursuant to this Court's Decision in G.R. No. 76351, the property was sold at public auction to Alejandro C. Sangalang, intervenor-respondent herein. Virgilio then received his share of the proceeds as well as the rental payments due from Senen. By then, Virgilio had moved to California, USA. It was only on January 25, 1997 that he was served, through the Philippine Consulate in San Francisco, a copy of Senen's complaint in Civil Case No. 95-039. On February 24, 1997, Virgilio filed a motion to dismiss the complaint for lack of cause of action and forum shopping.

In an Order dated June 27, 1997, the trial court dismissed Civil Case No. 05-039 on the ground of laches, holding that Senen incurred a delay of seven (7) years before asserting his right to redeem the property in question. On appeal, the Court of Appeals affirmed the assailed Order of the trial court. Hence, the instant petition for review on certiorari. The sole issue for our resolution is whether the Court of Appeals erred in holding that Senen's complaint for legal redemption in Civil Case No. 05-039 is barred by laches. Legal redemption (retracto legal de comuneros) is a privilege created by law, partly by reason of public policy and partly for the benefit of the redemptioner to afford him a way out of a disagreeable or inconvenient association into which he has been thrust. 4 With respect to redemption by co-owners, in case the share of a co-owner is sold to a third person, the governing law is Article 1620 of the Civil Code which provides: "ART. 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 rate. 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." The purpose behind Article 1620 is to provide a method for terminating the coownership and consolidating the dominion in one sole owner. 5 Article 1623 of the same Code also provides: "ART. 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 vendee, 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 vendee that he has given written notice thereof to all possible redemptioners. The right of redemption of co-owners excludes that of adjoining owners." From the above provisions, the following are the requisites for the exercise of legal redemption: (1) There must be a co-ownership; (2) one of the co-owners sold his right to a stranger; (3) the sale was made before the partition of the co-owned property; (4) the right of redemption must be exercised by one or more co-owners within a period of thirty days to be counted from the time that he or they were

notified in writing by the vendee or by the co-owner vendor; and (5) the vendee must be reimbursed for the price of the sale. aSIDCT In this case, the sale took place in January 1989. Petitioner admits that he has actual knowledge of the sale. However, he only asserted his right to redeem the property in March 1995 by filing the instant complaint. Both the trial court and the Appellate Court ruled that this was seven (7) years late. Petitioner, however, now contends that there being no written notice to him of the sale by the vendee or vendor, the thirty-day redemption period has not prescribed. Petitioner's contention lacks merit. The old rule is that a written notice of the sale by the vendor to his co-owners is indispensable for the latter to exercise their retracto legal de comuneros. 6 More recently, however, we have relaxed the written notice requirement. Thus, in Si v. Court of Appeals, 7 we ruled that a co-owner with actual notice of the sale is not entitled to a written notice for such would be superfluous. The law does not demand what is unnecessary. Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which could or should have been done earlier through the exercise of due diligence. 8 Otherwise stated, laches is the negligence or omission to assert a right within a reasonable time warranting a presumption that the party entitled to assert it has either abandoned or declined to assert it. 9 Its elements are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation for which the complaint seeks a remedy; (2) delay in asserting the complainant's rights, the complainant having had knowledge or notice of the defendant's conduct as having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right in which he bases his suit; and (4) injury or prejudice to the defendant in the event, relief is accorded to the complainant, or the suit is not held barred. 10 Petitioner has actual knowledge of the sale of Virgilio's share to Angel in 1989. As provided by Article 1623, he has thirty days from such actual knowledge within which to exercise his right to redeem the property. Inexplicably, petitioner did not take any action. He waited for seven (7) years before filing his complaint. Definitely, such an unexplained delay is tantamount to laches. To be sure, to uphold his right would unduly cause injury to respondent-intervenor, a purchaser in good faith and for value. Moreover, by the time Senen filed Civil Case No. 95-039 for legal redemption, his right was no longer available to him. We have held that after a property has been subdivided and distributed among the co-owners, the community has terminated and there is no reason to sustain any right of pre-emption or redemption. 11

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 55750 are AFFIRMED. Costs against petitioner. TcCEDS SO ORDERED.

[G.R. No. 141993. March 17, 2006.] NARCISA AVILA, assisted by her husband Bernardo Avila, Spouses JANUARIO N. ADLAWAN and NANETTE A. ADLAWAN, NATIVIDAD MACAPAZ, assisted by her husband EMILIO MACAPAZ, FRANCISCA N. ADLAWAN and LEON NEMEO, petitioners, vs. Spouses BENJAMIN BARABAT and JOVITA BARABAT, respondents. DECISION CORONA, J p: This petition for review on certiorari under Rule 45 of the Rules of Court assails the July 30, 1999 decision 1 and January 19, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 50899. CETIDH The subject of this controversy is a portion of a 433-square meter parcel of land located in Poblacion, Toledo City, Cebu. The entire property is designated as cadastral lot no. 348 registered in the name of Anunciacion Bahena vda. de Nemeo. Upon her death, ownership of the lot was transferred by operation of law to her five children, petitioners Narcisa Avila, Natividad Macapaz, Francisca Adlawan, Leon Nemeo and Jose Bahena. These heirs built their respective houses on the lot. In 1964, respondent Benjamin Barabat leased a portion of the house owned by Avila. His co-respondent, Jovita Barabat, moved in with him in 1969 when they got married. Avila subsequently relocated to Cagayan de Oro City. She came back to Toledo City in July 1979 to sell her house and share in the lot to her siblings but no one showed interest in it. She then offered it to respondents who agreed to buy it. Their agreement was evidenced by a private document dated July 17, 1979 which read: ALANG SA KASAYURAN SA TANAN: Nga ako, NARCISA AVILA, nagpuyo sa siyudad sa Cagayan de Oro, 52 aos ang panu-igon, minyo ug may mga anak magatimaan ning maong kasulatan nga akong guibaligya sa kantidad nga walo ka libo ka pesos (P8,000.00) ang bahin nga balay ug yuta nga sinunod ko sa akong mga ginikanan ngadto sa magtiayon nga Benjamin ug Jovita Barabat, mga lumulupyo sa siyudad sa Toledo. TCaEIc Nga ang maong lote ug balay ana-a mahimutang sa Poblacion, Toledo City kansang mga utlanan mao kining musunod: Atubangan N. Rafols Street

Dapit sa Tuo yuta ug mga panimalay sa Magsuong Natividad Macapaz, Francisca Adlawan,

Jose Bahena ug Leoning Nemeno Dapit sa wala Dapit sa luyo Tiniman-an: (Sgd.) Narcisa Avila 2 Respondents stopped paying rentals to Avila and took possession of the property as owners. They also assumed the payment of realty taxes on it. Sometime in early 1982, respondents were confronted by petitioner Januario Adlawan who informed them that they had until March 1982 only to stay in Avila's place because he was buying the property. Respondents replied that the property had already been sold to them by Avila. They showed Adlawan the July 17, 1979 document executed by Avila. On January 6, 1983, respondents received a letter from Atty. Joselito Alo informing them that Avila had sold her house and share in lot no. 348 to his clients, the spouses Januario and Nanette Adlawan. Considering the sale to the spouses Adlawan as prejudicial to their title and peaceful possession of the property, they demanded that Avila execute a public document evidencing the sale of the property to them but Avila refused. ECcTaH Respondents filed a complaint for quieting of title with the Regional Trial Court (RTC) of Toledo City, Branch 29. 3 Docketed as Civil Case No. T-53, the complaint was subsequently amended to include annulment of the deed of sale to the spouses Adlawan, specific performance, partition and damages as additional causes of action. Respondents anchored their claim over the property to the July 17, 1979 private document which they presented as Exhibit "A." Avila denied having offered to sell her property to respondents. She claimed that respondents gave her an P8,000 loan conditioned on her signing a document constituting her house and share in lot no. 348 as security for its payment. She alleged that she innocently affixed her signature on Exhibit "A" which was prepared by respondents and which they now claim as a private deed of sale transferring ownership to them. The trial court rendered its May 9, 1995 decision in favor of respondents. It declared Exhibit "A" as a valid and lawful deed of sale. It nullified the subsequent deed of sale between Avila and the spouses Adlawan. Avila was ordered to execute a formal and notarized deed of sale in favor of respondents. It also held petitioners liable for moral damages and attorney's fees. EHSADa kanal sa tubig lote nga kumon sa magsuong Nemeno

Aggrieved, petitioners filed an appeal with the Court of Appeals. In its July 30, 1999 decision, the appellate court affirmed the decision of the RTC in toto. Petitioners sought a reconsideration but it was denied. Hence, this petition. Petitioners claim that the appellate court erred in ruling that the transaction between respondents and Avila was an absolute sale, not an equitable mortgage. They assert that the facts of the case fell within the ambit of Article 1602 in relation to Article 1604 of the Civil Code on equitable mortgage because they religiously paid the realty tax on the property and there was gross inadequacy of consideration. In this connection, Articles 1602 and 1604 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; ASEcHI (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) (5) When the purchaser retains for himself a part of the purchase price; When the vendor binds himself to pay the taxes of 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 the usury laws. ECSaAc xxx xxx xxx

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. They also claim that the court erred in denying them the right to redeem the property and in ruling that there was implied partition by the acts of the parties. We rule in favor of respondents. For Articles 1602 and 1604 to apply, two requisites must concur: (1) the parties entered into a contract denominated as a contract of sale and (2) their intention was to secure an existing debt by way of mortgage. 4 Here, both the trial and

appellate courts found that Exhibit "A" evidenced a contract of sale. They also agreed that the circumstances of the case show that Avila intended her agreement with respondents to be a sale. Both courts were unanimous in finding that the subsequent acts of Avila revealed her intention to absolutely convey the disputed property. It was only after the perfection of the contract, when her siblings began protesting the sale, that she wanted to change the agreement. DASCIc Furthermore, contrary to petitioners' claim, the trial court found that it was respondents who took over the payment of real property taxes after the execution of Exhibit "A." There is no reason to depart from these factual findings because, as a rule, factual findings of the trial court, when adopted and confirmed by the Court of Appeals, are binding and conclusive on the Court and generally will not be reviewed on appeal to us. 5 There is no reason for us to deviate from this rule. Petitioners' claim of gross inadequacy of selling price has no basis. They failed to introduce evidence of the correct price at the time the land was sold to respondents in 1979. How can we therefore conclude that the price was grossly inadequate? In the absence of evidence as to the fair market value of a parcel of land at the time of its sale, we cannot reasonably conclude that the price at which it was sold was inadequate. 6 Petitioners' rely on Article 1623 in relation to Article 1620 of the Civil Code to justify their right of redemption. This is incorrect. DcaCSE These provisions state: Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or 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. xxx xxx xxx

Art. 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. IDSEAH The right of redemption of co-owners excludes that of adjoining owners. Petitioners' right to redeem would have existed only had there been co-ownership among petitioners-siblings. But there was none. For this right to be exercised, co-

ownership must exist at the time the conveyance is made by a co-owner and the redemption is demanded by the other co-owner or co-owner(s). 7 However, by their own admission, petitioners were no longer co-owners when the property was sold to respondents in 1979. The co-ownership had already been extinguished by partition. The regime of co-ownership exists when the ownership of an undivided thing or right belongs to different persons. 8 By the nature of co-ownership, a co-owner cannot point to any specific portion of the property owned in common as his own because his share in it remains intangible and ideal. 9 Every act intended to put an end to indivision among co-heirs is deemed to be a partition. 10 Here, the particular portions pertaining to petitioners had been ascertained and they in fact already took possession of their respective parts. The following statement of petitioners in their amended answer 11 as one of their special and affirmative defenses was revealing: F-8. That all defendants [i.e., petitioners] in this case who are co-owners of lot 348 have their own respective buildings constructed on the said lot in which case it can be safely assumed that that their respective shares in the lot have been physically segregated although there is no formal partition of the land among themselves. 12 (emphasis supplied) SHCaEA Being an express judicial admission, it was conclusive on petitioners unless it was made through palpable mistake or that no such admission was in fact made. 13 Petitioners proved neither and were therefore bound by it. The purpose of partition is to separate, divide and assign a thing held in common among those to whom it belongs. 14 By their own admission, petitioners already segregated and took possession of their respective shares in the lot. Their respective shares were therefore physically determined, clearly identifiable and no longer ideal. Thus, the co-ownership had been legally dissolved. With that, petitioners' right to redeem any part of the property from any of their former coowners was already extinguished. As legal redemption is intended to minimize coownership, 15 once a property is subdivided and distributed among the co-owners, the community ceases to exist and there is no more reason to sustain any right of legal redemption. 16 Under the law, subject to certain conditions, owners of adjoining urban land have the pre-emptive right to a lot before it is sold to third parties, or the redemptive right if it has already been sold. In particular, Article 1622 of the Civil Code provides: Art. 1622. Whenever a piece of urban land is so small and so situated in that a major portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation, is about to be re-sold, the owner of any adjoining land has a right of pre-emption at a reasonable price. CITSAc

If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a reasonable price. When two or more owners of adjoining lands wish to exercise the rights of preemption or redemption, the owner whose intended use of the land in question appears best justified shall be preferred. However, this provision does not apply here. Aside from the fact that petitioners never raised it as an issue, the conditions provided for its application were not met. While the property may be considered as urban land, it was not shown or even alleged that its area and location would render a major portion of no practical use within a reasonable time. Neither was there any allegation to the effect that the disputed property was bought merely for speculation. WHEREFORE, the petition is hereby DENIED. The July 30, 1999 decision and January 19, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 50899 are AFFIRMED. ISCHET Costs against petitioners. SO ORDERED.

[G.R. No. 162421. August 31, 2007.] NELSON CABALES and RITO CABALES, petitioners, vs. COURT OF APPEALS, JESUS FELIANO and ANUNCIACION FELIANO, respondents. DECISION PUNO, C.J p: This is a petition for review on certiorari seeking the reversal of the decision 1 of the Court of Appeals dated October 27, 2003, in CA-G.R. CV No. 68319 entitled "Nelson Cabales and Rito Cabales v. Jesus Feliano and Anunciacion Feliano," which affirmed with modification the decision 2 of the Regional Trial Court of Maasin, Southern Leyte, Branch 25, dated August 11, 2000, in Civil Case No. R-2878. The resolution of the Court of Appeals dated February 23, 2004, which denied petitioners' motion for reconsideration, is likewise herein assailed. SCHTac The facts as found by the trial court and the appellate court are well established. ACcaET Rufino Cabales died on July 4, 1966 and left a 5,714-square meter parcel of land located in Brgy. Rizal, Sogod, Southern Leyte, covered by Tax Declaration No. 17270 to his surviving wife Saturnina and children Bonifacio, Albino, Francisco, Leonora, Alberto and petitioner Rito. cSIADa On July 26, 1971, brothers and co-owners Bonifacio, Albino and Alberto sold the subject property to Dr. Cayetano Corrompido for P2,000.00, with right to repurchase within eight (8) years. The three (3) siblings divided the proceeds of the sale among themselves, each getting a share of P666.66. acHETI The following month or on August 18, 1971, Alberto secured a note ("vale") from Dr. Corrompido in the amount of P300.00. cSaADC In 1972, Alberto died leaving his wife and son, petitioner Nelson. On December 18, 1975, within the eight-year redemption period, Bonifacio and Albino tendered their payment of P666.66 each to Dr. Corrompido. But Dr. Corrompido only released the document of sale with pacto de retro after Saturnina paid for the share of her deceased son, Alberto, including his "vale" of P300.00. CcHDSA On even date, Saturnina and her four (4) children Bonifacio, Albino, Francisco and Leonora sold the subject parcel of land to respondents-spouses Jesus and Anunciacion Feliano for P8,000.00. The Deed of Sale provided in its last paragraph, thus: It is hereby declared and understood that the amount of TWO THOUSAND TWO HUNDRED EIGHTY SIX PESOS (2,286.00) corresponding and belonging to the Heirs

of Alberto Cabales and to Rito Cabales who are still monitors upon the execution of this instrument are held in trust by the VENDEE and to be paid and delivered only to them upon reaching the age of 21. EcDSTI On December 17, 1985, the Register of Deeds of Southern Leyte issued Original Certificate of Title No. 17035 over the purchased land in the names of respondentsspouses. DEICTS On December 30, 1985, Saturnina and her four (4) children executed an affidavit to the effect that petitioner Nelson would only receive the amount of P176.34 from respondents-spouses when he reaches the age of 21 considering that Saturnina paid Dr. Corrompido P966.66 for the obligation of petitioner Nelson's late father Alberto, i.e., P666.66 for his share in the redemption of the sale with pacto de retro as well as his "vale" of P300.00. DIETcC On July 24, 1986, 24-year old petitioner Rito Cabales acknowledged receipt of the sum of P1,143.00 from respondent Jesus Feliano, representing the former's share in the proceeds of the sale of subject property. CDHAcI In 1988, Saturnina died. Petitioner Nelson, then residing in Manila, went back to his father's hometown in Southern Leyte. That same year, he learned from his uncle, petitioner Rito, of the sale of subject property. In 1993, he signified his intention to redeem the subject land during a barangay conciliation process that he initiated. DCASEc On January 12, 1995, contending that they could not have sold their respective shares in subject property when they were minors, petitioners filed before the Regional Trial Court of Maasin, Southern Leyte, a complaint for redemption of the subject land plus damages. DTIcSH In their answer, respondents-spouses maintained that petitioners were estopped from claiming any right over subject property considering that (1) petitioner Rito had already received the amount corresponding to his share of the proceeds of the sale of the project property, and (2) that petitioner Nelson failed to consign to the court the total amount of the redemption price necessary for legal redemption. They prayed for the dismissal of the case on the grounds of laches and prescription. CASTDI No amicable settlement was reached at pre-trial. Trial ensued and on August 11, 2000, the trial court ruled against petitioners. It held that (1) Alberto or, by his death, any of his heirs including petitioner Nelson lost their right to subject land when not one of them repurchased it from Dr. Corrompido; (2) Saturnina was effectively subrogated to the rights and interests of Alberto when she paid for Alberto's share as well as his obligation to Dr. Corrompido; and (3) petitioner Rito had no more right to redeem his share to subject property as the sale by Saturnina, his legal guardian pursuant to Section 7, Rule 93 of the Rules of Court, was perfectly

valid; and it was shown that he received his share of the proceeds of the sale on July 24, 1986, when he was 24 years old. HcTEaA On appeal, the Court of Appeals modified the decision of the trial court. It held that the sale by Saturnina of petitioner Rito's undivided share to the property was unenforceable for lack of authority or legal representation but that the contract was effectively ratified by petitioner Rito's receipt of the proceeds on July 24, 1986. The appellate court also ruled that petitioner Nelson is co-owner to the extent of oneseventh (1/7) of subject property as Saturnina was not subrogated to Alberto's rights when she repurchased his share to the property. It further directed petitioner Nelson to pay the estate of the late Saturnina Cabales the amount of P966.66, representing the amount which the latter paid for the obligation of petitioner Nelson's late father Alberto. Finally, however, it denied petitioner Nelson's claim for redemption for his failure to tender or consign in court the redemption money within the period prescribed by law. DCHaTc In this petition for review on certiorari, petitioners contend that the Court of Appeals erred in (1) recognizing petitioner Nelson Cabales as co-owners of subject land but denied him the right of legal redemption, and (2) not recognizing petitioner Rito Cabales as co-owner of subject land with similar right of legal redemption. First, we shall delineate the rights of petitioners to subject land. When Rufino Cabales died intestate, his wife Saturnina and his six (6) children, Bonifacio, Albino, Francisco, Leonora, Alberto and petitioner Rito, survived and succeeded him. Article 996 of the New Civil Code provides that "[i]f a widow or widower and legitimate children or descendants are left, the surviving spouse has in the succession the same share as that of each of the children." Verily, the seven (7) heirs inherited equally on subject property. Petitioner Rito and Alberto, petitioner Nelson's father, inherited in their own rights and with equal shares as the others. But before partition of subject land was effected, Alberto died. By operation of law, his rights and obligations to one-seventh of subject land were transferred to his legal heirs his wife and his son petitioner Nelson. We shall now discuss the effects of the two (2) sales of subject land to the rights of the parties. The first sale with pacto de retro to Dr. Corrompido by the brothers and co-owners Bonifacio, Albino and Alberto was valid but only as to their pro-indiviso shares to the land. When Alberto died prior to repurchasing his share, his rights and obligations were transferred to and assumed by his heirs, namely his wife and his son, petitioner Nelson. But the records show that it was Saturnina, Alberto's mother, and not his heirs, who repurchased for him. As correctly ruled by the Court of Appeals, Saturnina was not subrogated to Alberto's or his heirs' rights to the property when she repurchased the share.

In Paulmitan v. Court of Appeals, 3 we held that a co-owner who redeemed the property in its entirety did not make her the owner of all of it. The property remained in a condition of co-ownership as the redemption did not provide for a mode of terminating a co-ownership. 4 But the one who redeemed had the right to be reimbursed for the redemption price and until reimbursed, holds a lien upon the subject property for the amount due. 5 Necessarily, when Saturnina redeemed for Alberto's heirs who had then acquired his pro-indiviso share in subject property, it did not vest in her ownership over the pro-indiviso share she redeemed. But she had the right to be reimbursed for the redemption price and held a lien upon the property for the amount due until reimbursement. The result is that the heirs of Alberto, i.e., his wife and his son petitioner Nelson, retained ownership over their pro-indiviso share. Upon redemption from Dr. Corrompido, the subject property was resold to respondents-spouses by the co-owners. Petitioners Rito and Nelson were then minors and as indicated in the Deed of Sale, their shares in the proceeds were held in trust by respondents-spouses to be paid and delivered to them upon reaching the age of majority. As to petitioner Rito, the contract of sale was unenforceable as correctly held by the Court of Appeals. Articles 320 and 326 of the New Civil Code 6 state that: Art. 320. The father, or in his absence the mother, is the legal administrator of the property pertaining to the child under parental authority. If the property is worth more than two thousand pesos, the father or mother shall give a bond subject to the approval of the Court of First Instance. Art. 326. When the property of the child is worth more than two thousand pesos, the father or mother shall be considered a guardian of the child's property, subject to the duties and obligations of guardians under the Rules of Court. In other words, the father, or, in his absence, the mother, is considered legal administrator of the property pertaining to the child under his or her parental authority without need of giving a bond in case the amount of the property of the child does not exceed two thousand pesos. 7 Corollary to this, Rule 93, Section 7 of the Revised Rules of Court of 1964, applicable to this case, automatically designates the parent as legal guardian of the child without need of any judicial appointment in case the latter's property does not exceed two thousand pesos, 8 thus: Sec. 7. Parents as guardians. When the property of the child under parental authority is worth two thousand pesos or less, the father or the mother, without the necessity of court appointment, shall be his legal guardian . . . 9 Saturnina was clearly petitioner Rito's legal guardian without necessity of court appointment considering that the amount of his property or one-seventh of subject

property was P1,143.00, which is less than two thousand pesos. However, Rule 96, Sec. 1 10 provides that: Section 1. To what guardianship shall extend. A guardian appointed shall have the care and custody of the person of his ward, and the management of his estate, or the management of the estate only, as the case may be. The guardian of the estate of a nonresident shall have the management of all the estate of the ward within the Philippines, and no court other than that in which such guardian was appointed shall have jurisdiction over the guardianship. Indeed, the legal guardian only has the plenary power of administration of the minor's property. It does not include the power of alienation which needs judicial authority. 11 Thus, when Saturnina, as legal guardian of petitioner Rito, sold the latter's pro-indiviso share in subject land, she did not have the legal authority to do so. Article 1403 of the New Civil Code provides, thus: Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; xxx xxx xxx

Accordingly, the contract of sale as to the pro-indiviso share of petitioner Rito was unenforceable. However, when he acknowledged receipt of the proceeds of the sale on July 24, 1986, petitioner Rito effectively ratified it. This act of ratification rendered the sale valid and binding as to him. aDIHCT With respect to petitioner Nelson, on the other hand, the contract of sale was void. He was a minor at the time of the sale. Saturnina or any and all the other co-owners were not his legal guardians with judicial authority to alienate or encumber his property. It was his mother who was his legal guardian and, if duly authorized by the courts, could validly sell his undivided share to the property. She did not. Necessarily, when Saturnina and the others sold the subject property in its entirety to respondents-spouses, they only sold and transferred title to their pro-indiviso shares and not that part which pertained to petitioner Nelson and his mother. Consequently, petitioner Nelson and his mother retained ownership over their undivided share of subject property. 12 But may petitioners redeem the subject land from respondents-spouses? Articles 1088 and 1623 of the New Civil Code are pertinent: Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided they do so within

the period of one month from the time they were notified in writing of the sale by the vendor. Art. 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. Clearly, legal redemption may only be exercised by the co-owner or co-owners who did not part with his or their pro-indiviso share in the property held in common. As demonstrated, the sale as to the undivided share of petitioner Rito became valid and binding upon his ratification on July 24, 1986. As a result, he lost his right to redeem subject property. SEHTAC However, as likewise established, the sale as to the undivided share of petitioner Nelson and his mother was not valid such that they were not divested of their ownership thereto. Necessarily, they may redeem the subject property from respondents-spouses. But they must do so within thirty days from notice in writing of the sale by their co-owners vendors. In reckoning this period, we held in Alonzo v. Intermediate Appellate Court, 13 thus: . . . we test a law by its results; and likewise, we may add, by its purposes. It is a cardinal rule that, in seeking the meaning of the law, the first concern of the judge should be to discover in its provisions the intent of the lawmaker. Unquestionably, the law should never be interpreted in such a way as to cause injustice as this is never within the legislative intent. An indispensable part of that intent, in fact, for we presume the good motives of the legislature, is to render justice. Thus, we interpret and apply the law not independently of but in consonance with justice. Law and justice are inseparable, and we must keep them so. . . . . . . While we may not read into the law a purpose that is not there, we nevertheless have the right to read out of it the reason for its enactment. In doing so, we defer not to "the letter that killeth" but to "the spirit that vivifieth," to give effect to the lawmaker's will. In requiring written notice, Article 1088 (and Article 1623 for that matter) 14 seeks to ensure that the redemptioner is properly notified of the sale and to indicate the date of such notice as the starting time of the 30-day period of redemption. Considering the shortness of the period, it is really necessary, as a general rule, to pinpoint the precise date it is supposed to begin, to obviate the problem of alleged delays, sometimes consisting of only a day or two.

In the instant case, the right of redemption was invoked not days but years after the sale was made in 1978. We are not unmindful of the fact that petitioner Nelson was a minor when the sale was perfected. Nevertheless, the records show that in 1988, petitioner Nelson, then of majority age, was informed of the sale of subject property. Moreover, it was noted by the appellate court that petitioner Nelson was likewise informed thereof in 1993 and he signified his intention to redeem subject property during a barangay conciliation process. But he only filed the complaint for legal redemption and damages on January 12, 1995, certainly more than thirty days from learning about the sale. In the face of the established facts, petitioner Nelson cannot feign ignorance of the sale of subject property in 1978. To require strict proof of written notice of the sale would be to countenance an obvious false claim of lack of knowledge thereof, thus commending the letter of the law over its purpose, i.e., the notification of redemptioners. The Court is satisfied that there was sufficient notice of the sale to petitioner Nelson. The thirty-day redemption period commenced in 1993, after petitioner Nelson sought the barangay conciliation process to redeem his property. By January 12, 1995, when petitioner Nelson filed a complaint for legal redemption and damages, it is clear that the thirty-day period had already expired. As in Alonzo, the Court, after due consideration of the facts of the instant case, hereby interprets the law in a way that will render justice. 15 Petitioner Nelson, as correctly held by the Court of Appeals, can no longer redeem subject property. But he and his mother remain co-owners thereof with respondents-spouses. Accordingly, title to subject property must include them. IN VIEW WHEREOF, the petition is DENIED. The assailed decision and resolution of the Court of Appeals of October 27, 2003 and February 23, 2004 are AFFIRMED WITH MODIFICATION. The Register of Deeds of Southern Leyte is ORDERED to cancel Original Certificate of Title No. 17035 and to issue in lieu thereof a new certificate of title in the name of respondents-spouses Jesus and Anunciacion Feliano for the 6/7 portion, and petitioner Nelson Cabales and his mother for the remaining 1/7 portion, pro indiviso. SO ORDERED. TacADE

G.R. No. 157954

March 24, 2006

PAZ GALVEZ, CARLOS TAM, and TYCOON PROPERTIES, INC., Petitioners, vs. HON. COURT OF APPEALS and PORFIRIO GALVEZ, Respondents. DECISION CHICO-NAZARIO, J.: The factual antecedents of this case reveal that Timotea F. Galvez died intestate on 28 April 1965.1 She left behind her children Ulpiano and Paz Galvez. Ulpiano, who died on 24 July 1959,2 predeceased Timotea and was survived by his son, Porfirio Galvez. Timotea left a parcel of land situated at Pagdaraoan, San Fernando, La Union, covered by Tax Declaration No. 396453 and more particularly described as follows: A parcel of unirrigated riceland situated at Brgy. Pagdaraoan, San Fernando, La Union under Tax Declaration No. 39645, series of 1957, with an area of 4,304.5 square meters, more or less bounded on the North by Valentin and Isidoro Sobrepea; on the East by Nicolas Ducusin; on the South by Victor Ducusin; and on the West by the National Highway.4 Considering that all the other compulsory heirs of Timotea already received their respective shares,5 the property passed by succession, both to Timoteas daughter, Paz Galvez, and to the formers grandson, Porfirio, the latter succeeding by right of representation as the son of Ulpiano. Porfirio Galvez was surprised to discover that on 4 May 1970,6 Paz Galvez executed an affidavit of adjudication stating that she is the true and lawful owner of the said property. Tax Declarations No. 157497 and No. 123428 were then issued in the name of Paz Galvez. On 22 June 1992, without the knowledge and consent of Porfirio Galvez, Paz Galvez sold the property to Carlos Tam for a consideration of Ten Thousand Pesos (P10,000.00) by way of a Deed of Absolute Sale.9 Carlos Tam thereafter filed an application for registration of said parcel of land under Land Registration Case No. 2278 before the Regional Trial Court (RTC) of San Fernando, La Union. On 21 January 1994, Original Certificate of Title No. 0-2602 of the Registry of Deeds of San Fernando, La Union, was issued in the name of Carlos Tam.10 Subsequently, on 27 September 1994, Carlos Tam sold the property to Tycoon Properties, Inc. through a Deed of Absolute Sale executed by the former in favor of the latter.11 As a result, the title of Carlos Tam over the property was cancelled and a new one, Transfer Certificate of Title (TCT) No. T-4039012 was issued in favor of Tycoon Properties, Inc.

On 12 May 1994, Porfirio Galvez filed Civil Case No. 4895 before the RTC, Branch 26, of San Fernando, La Union, for Legal Redemption with Damages and Cancellation of Documents13 against Paz Galvez and Carlos Tam. The Complaint was later amended to implead as additional defendant, Tycoon Properties, Inc.14 When Tycoon Properties, Inc. filed its Answer, it also filed a cross-claim against Carlos Tam. In a decision15 dated 15 December 1999, the trial court held: WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: 1. declaring null and void the Affidavit of Adjudication executed by defendant PAZ GALVEZ dated May 4, 1970; 2. declaring null and void the Deed of Absolute Sale over the property originally covered by Tax Declaration No. 39645 executed by PAZ GALVEZ in favor of CARLOS TAM; 3. the Original Certificate of Title No. 0-2602, in the name of CARLOS TAM be considered cancelled; 4. The Deed of Sale between CARLOS TAM and TYCOON PROPERTIES, Inc. is hereby ordered cancelled with Transfer Certificate of Title No. T-40390, being null and void; 5. That CARLOS TAM shall receive from the Clerk of Court, San Fernando City, La Union the amount of Ten Thousand (P10,000.00) pesos, as redemption of the property pursuant to law; 6. That the property covered by Transfer Certificate of Title No. T-40390, be reconveyed (whole property) to PORFIRIO GALVEZ, he having redeemed one-half () of the property from CARLOS TAM and other half of the property belongs to him as co-heir of TIMOTEA FLORES GALVEZ. 7. Defendant PAZ GALVEZ and CARLOS TAM shall be liable solidarily for the actual damages of the plaintiff in the amount of Ten Thousand (P10,000.00) pesos as well as moral damages in the amount of Fifty Thousand (P50,000.00) Pesos, together with attorney's fees in the amount of Ten Thousand (P10,000.00) Pesos acceptance fee and Five Hundred (P500.00) per appearance fee.16 Petitioners Paz Galvez, Carlos Tam and Tycoon Properties, Inc. appealed the decision to the Court of Appeals.17 In a decision of the Court of Appeals dated 28 August 2002,18 the appellate court resolved to affirm the decision of the trial court. Petitioners filed a Motion for Reconsideration which was denied in a resolution dated 14 April 2003.19

Not contented with the decision of the Court of Appeals, petitioners are now before this Court via Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioners Carlos Tam and Tycoon Properties, Memorandum20 but raised the same issues to wit: I THE HONORABLE COURT OF APPEALS ERRED WHEN IT REFUSED TO HOLD THAT RESPONDENT'S CLAIM OVER THE SUBJECT PROPERTY, WHICH IS BASED ON AN IMPLIED TRUST, HAS ALREADY PRESCRIBED BECAUSE THE ACTION WAS FILED 24 YEARS AFER PETITIONER REPUDIATED THE SAID TRUST. II THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO RECOGNIZE THAT RESPONDENT'S CLAIM IS ALREADY BARRED BY LACHES BECAUSE HE FAILED TO ASSERT HIS ALLEGED RIGHT FOR ALMOST TWENTY FOUR (24) YEARS. III THE HONORABLE COURT ERRED IN FAILING TO RECOGNIZE THAT PETITIONERS [CARLOS TAM AND] TYCOON PROPERTIES ARE BUYERS IN GOOD FAITH AND FOR VALUE AND HAS THE RIGHT TO RELY ON THE FACE OF THE TITLE.21 In assailing the decisions of the trial and appellate courts, petitioners cite Article 145122 of the Civil Code and claim that an implied or constructive trust which prescribes in ten years, was established between Paz Galvez and Porfirio Galvez. It is petitioners unflinching stand that the implied trust was repudiated when Paz Galvez executed an Affidavit of Self-Adjudication on 4 May 1970, registered the same before the Register of Deeds of La Union on 4 June 1970 and secured a new tax declaration in her name. From 4 May 1970 to the time the complaint was filed on 12 May 1994, 24 years have passed, hence, the action is clearly barred both by prescription and laches. We find the petition bereft of merit. Ostensibly, this case is governed by the rules on co-ownership23 since both Paz Galvez and Porfirio Galvez are obviously co-owners of the disputed property having inherited the same from a common ancestor. Article 494 of the Civil Code provides that "[a] prescription shall not run in favor of a co-owner or co-heir against his coowners or co-heirs as long as he expressly or impliedly recognizes the coownership." Inc. separately filed their

It is a fundamental principle that a co-owner cannot acquire by prescription the share of the other co-owners, absent any clear repudiation of the co-ownership.24 In Santos v. Santos,25 citing the earlier case of Adille v. Court of Appeals,26 this Court found occasion to rule that: Prescription, as a mode of terminating a relation of co-ownership, must have been preceded by repudiation (of the co-ownership). The act of repudiation, in turn, is subject to certain conditions: (1) a co-owner repudiates the co-ownership; (2) such an act of repudiation is clearly made known to the other co-owners; (3) the evidence thereon is clear and conclusive; and (4) he has been in possession through open, continuous, exclusive, and notorious possession of the property for the period required by law. For title to prescribe in favor of a co-owner there must be a clear showing that he has repudiated the claims of the other co-owners and the latter has been categorically advised of the exclusive claim he is making to the property in question. The rule requires a clear repudiation of the co-ownership duly communicated to the other co-owners.27 It is only when such unequivocal notice has been given that the period of prescription will begin to run against the other coowners and ultimately divest them of their own title if they do not seasonably defend it.28 To sustain a plea of prescription, it must always clearly appear that one who was originally a joint owner has repudiated the claims of his co-owners, and that his coowners were apprised or should have been apprised of his claim of adverse and exclusive ownership before the alleged prescriptive period began to run.29 In Salvador v. Court of Appeals,30 it was held that the possession of a co-owner is like that of a trustee and shall not be regarded as adverse to the other co-owner but in fact beneficial to all of them. The case of Huang v. Court of Appeals31 is instructive on the creation of trust relationships. Trust is a fiduciary relationship with respect to property which involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary or cestui que trust. Trust is either express or implied. Express trust is created by the intention of the trustor or of the parties. Implied trust comes into being by operation of law. The latter kind is either constructive or resulting trust. A constructive trust is imposed where a person holding title to property is subject to an equitable duty to convey it to another on

the ground that he would be unjustly enriched if he were permitted to retain it. The duty to convey the property arises because it was acquired through fraud, duress, undue influence or mistake, or through breach of a fiduciary duty, or through the wrongful disposition of anothers property. On the other hand, a resulting trust arises where a person makes or causes to be made a disposition of property under circumstances which raise an inference that he does not intend that the person taking or holding the property should have the beneficial interest in the property. It is founded on the presumed intention of the parties, and as a general rule, it arises where, and only where such may be reasonably presumed to be the intention of the parties, as determined from the facts and circumstances existing at the time of the transaction out of which it is sought to be established. Acts which may be considered adverse to strangers may not be considered adverse insofar as co-owners are concerned. Thus, Salvador v. Court of Appeals reiterated what acts constitute proof of exclusive ownership amounting to repudiation, emphasizing that the act must be borne out of clear and convincing evidence of acts of possession which unequivocably amounts to an ouster or deprivation of the right of the other co-owner. The case of Pangan v. Court of Appeals32 enumerated the following as constituting acts of repudiation: Filing by a trustee of an action in court against the trustor to quiet title to property, or for recovery of ownership thereof, held in possession by the former, may constitute an act of repudiation of the trust reposed on him by the latter. The issuance of the certificate of title would constitute an open and clear repudiation of any trust, and the lapse of more than 20 years, open and adverse possession as owner would certainly suffice to vest title by prescription. An action for the reconveyance of land based on implied or constructive trust prescribes within 10 years. And it is from the date of the issuance of such title that the effective assertion of adverse title for purposes of the statute of limitation is counted. The prescriptive period may only be counted from the time petitioners repudiated the trust relation in 1955 upon the filing of the complaint for recovery of possession against private respondents so that the counterclaim of the private respondents contained in their amended answer wherein they asserted absolute ownership of the disputed realty by reason of the continuous and adverse possession of the same is well within the 10-year prescriptive period. There is clear repudiation of a trust when one who is an apparent administrator of property causes the cancellation of the title thereto in the name of the apparent beneficiaries and gets a new certificate of title in his own name.

It is only when the defendants, alleged co-owners of the property in question, executed a deed of partition and on the strength thereof obtained the cancellation of the title in the name of their predecessor and the issuance of a new one wherein they appear as the new owners of a definite area each, thereby in effect denying or repudiating the ownership of one of the plaintiffs over his alleged share in the entire lot, that the statute of limitations started to run for the purposes of the action instituted by the latter seeking a declaration of the existence of the co-ownership and of their rights thereunder. In this case, we find that Paz Galvez effected no clear and evident repudiation of the co-ownership. The execution of the affidavit of self-adjudication does not constitute such sufficient act of repudiation as contemplated under the law as to effectively exclude Porfirio Galvez from the property. This Court has repeatedly expressed its disapproval over the obvious bad faith of a co-heir feigning sole ownership of the property to the exclusion of the other heirs essentially stating that one who acts in bad faith should not be permitted to profit from it to the detriment of others. In the cases of Adille33 and Pangan34 where, as in this case, a co-heir was excluded from his legal share by the other co-heir who represented himself as the only heir, this Court held that the act of exclusion does not constitute repudiation. On the issue of prescription, while admittedly prescription operates as a bar to recovery of property, the ten-year period commenced to run from date of registration. In this case, Carlos Tam obtained his title to the property on 21 January 1994. Since the complaint of Porfirio Galvez was filed on 12 May 1994, the same was well within the ten-year period to file the action. On the matter of laches, it is hornbook doctrine that laches is a creation of equity and its application is controlled by equitable considerations. Laches cannot be used to defeat justice or perpetrate fraud and injustice.35 Neither should its application be used to prevent the rightful owners of a property from recovering what has been fraudulently registered in the name of another.36 The equitable remedy of laches is, therefore, unavailing in this case. Finally, petitioners claim that if the sale would be nullified, the nullification should extend only to the one-half share of Porfirio Galvez37 but not to the share of Paz Galvez, who, by her overt act of selling the property, manifested her intention to dispose of her part. Notably, Porfirio Galvezs complaint was captioned "legal redemption with damages, cancellation of documents and reconveyance of share."38 In his prayer, he sought for the reconveyance of his one-half share in the property and at the same time be subrogated to the other half pertaining to Paz Galvez and sold to Carlos Tam after reimbursement of the amount which the latter paid for the property.

The pertinent provisions of the Civil Code on legal redemption are as follows: ART. 1619. Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title. ART. 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. In the case of Hermoso v. Court of Appeals,39 this Court, in interpreting the provision of the law on legal redemption, held: The purpose of Article 1067 (of the old Civil Code, now Article 1088 of the present Civil Code) is to keep strangers to the family out of a joint ownership, if, as is often the case, the presence of outsiders be undesirable and the other heir or heirs be willing and in a position to repurchase the share sold (De Jesus vs. Manlapus, 81 Phil. 144). While there should be no question that an heir may dispose his right before partition (Rivero vs. Serrano [CA] 46 O.G. 642; Wenceslao vs. Calimon, 46 Phil. 906; Hernaez vs. Hernaez, 32 Phil. 214), a co-heir would have had to pay only the price for which the vendee acquired it (Hernaez vs. Hernaez, Ibid.). It is a one-way street. It is always in favor of the redemptioner since he can compel the vendee to sell to him but he cannot be compelled by the vendee to buy the alienated property. In another case, 40 this Court reiterated that: 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." The rule on redemption is liberally construed in favor of the original owner of the property and the policy of the law is to aid rather than defeat him in the exercise of his right of redemption.41

Thus, petitioners cannot be accommodated in this respect and we agree with the trial court when it held: The provision of Art. 1088 of the Civil Code of the Philippines is very clear on the matter. Art. 1088, provides: "Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided they do so within the period of one (1) month from the time they were notified in writing of the sale by the vendor." There was no written notice sent to Porfirio Galvez by Paz Galvez when she sold her share over the land to Carlos Tam. Porfirio Galvez only discovered on May 12, 1994 that the land was sold to Carlos Tam. Art. 1620, Civil Code of the Philippines, provides: Art. 1620. "A co-owner of a thing may exercise the right of redemption in case the share of all the other co-owners or 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." No written notice of the sale was given by Paz Galvez (vendor) to Porfirio Galvez, the co-owner as required under Art. 1623 of the Civil Code. The written notice is mandatory. Hence, the right to redeem commenced when plaintiff sought to exercise it by instituting the complaint in the instant case on June 12, 1994. The complaint of legal redemption may be filed even several years after the consummation of sale (Zosima Verdad vs. Court of Appeals, et al.; G.R. No. 10972, April 29, 1996).42 As to petitioners Carlos Tam and Tycoon Properties, Inc.s claim that they are buyers in good faith, same fails to persuade. A purchaser in good faith and for value is one who buys the property without notice that some other person has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in the same property. So it is that the "honesty of intention" which constitutes good faith implies a freedom from knowledge of circumstances which ought to put a person on inquiry.43 Suffice it to state that both the trial and appellate courts found otherwise as "Tam did not exert efforts to determine the previous ownership of the property in question"44 and relied only on the tax declarations in the name of Paz Galvez.45 It

must be noted that Carlos Tam received a copy of the summons and the complaint on 22 September 1994. This notwithstanding, he sold the property to Tycoon Properties, Inc. on 27 September 1994. Significantly, Carlos Tam is also an owner of Tycoon Properties, Inc. to the extent of 45%.46 A notice of lis pendens dated 8 July 1997 filed with the Registry of Deeds of the Province of La Union was inscribed on TCT No. T- 40390.47 Despite the inscription, Tycoon Properties, Inc. mortgaged the land to Far East Bank and Trust Company for the sum of P11,172,600.48 All these attendant circumstances negate petitioners claim of good faith. Wherefore, premises considered, the decision of the Court of Appeals dated 28 August 2002 and its Resolution dated 14 April 2003 are Affirmed. Costs against petitioners. SO ORDERED.

[G.R. No. 66101. November 21, 1984.] SPOUSES JOSE FABIA and ANITA FABIA, petitioners, vs. INTERMEDIATE APPELLATE COURT, ANGEL MARARAC and REMEDIOS ALEJANDRO, EUGENIO, GILDO and ROMEO, ALL SURNAMED MARARAC, represented by their mother CARLINA RAFANAN, respondents. Roberto V . Merrera for petitioners. Tomas de Leon, Jr. for respondents. SYLLABUS 1. CIVIL LAW; PROPERTY; RURAL LAND DISTINGUISHED FROM URBAN LAND; RULE ON STATUTORY CONSTRUCTION; LEGISLATIVE INTENT MUST BE UPHELD. It is not easy to fix, with such exactitude as to furnish a sure norm for all cases, the line that separates the rural from the urban. The Code has avoided, without doubt deliberately any definition on this point (Francisco, Sales, 1955 Ed., p. 879, citing 10 Manresa 372). The word "rural" has been defined as relating to or constituting tenement in land adapted and used for agricultural or pastoral purposes. It is one which, regardless of site, is principally used for the purpose of obtaining products from the soil as opposed to urban lands which are principally for the purpose of residence (3 Castan 124). However, the very same word has been defined as relating to, or associated with, or typical of the country, the word being derived from the Latin word "ruralis" meaning country. It pertains to the country as distinguished from a city or town. Thus, as is the belief of respondent appellate court, "The focal or determining factor is generally the location of the property." Both definitions are undoubtedly correct insofar as the word is ordinarily and commonly used or understood. However, it is the legal definition of the word with which we are concerned. We are dealing here with the exercise of a right based on a provision of law. It is the meaning intended by the framers of the law which we must seek to uphold (82 CJS 636). The sense in which the words are used furnishes the rule of construction. (In Re Winton Lumber Co., 63 P. 2d, p. 664) A sentence or paragraph in a statute cannot be analyzed with respect to some preconceived pattern in the reader's mind, but it must be analyzed with respect to that which the author attempted to define. (State vs. Brunswick, 47 N.E. 2d., 916) Thus, a construction of the word "rural" that is in consonance with the legislative purpose must be followed. 2. ID.; OBLIGATIONS AND CONTRACTS; LEGAL REDEMPTION; "USE" OF PROPERTY FOR AGRICULTURAL PURPOSES, ESSENTIAL REQUISITE. As expressed in Del Pilar vs. Catinding (35 Phil. 263) the reason for the law in question is to foster the development of agricultural areas by adjacent owners who may desire the increase for the improvement of their own land. The intention of the law in giving this right of redemption is to protect agriculture, by the union of small agricultural lands and those adjoining thereto under one single owner for their better

exploitation. (Tolentino, The Civil Code of the Philippines, Annotated, Volume V, 1959 Edition, p. 161) In view of this legislative objective, the "use" of property for agricultural purpose is essential in order that the same be characterized as rural land for purposes of legal redemption under Article 1621 of the Civil Code. The consideration of the use and destination of the lands and that of the customs of each town will be the data that ought to be taken into account in order to decide fitly the cases where the qualification appears doubtful (10 Manresa 372). The small parcel of land one hectare or less in area, must be dedicated to agriculture before the owners of adjoining lands may claim a right of redemption under Article 1621 of the Civil Code. 3. REMEDIAL LAW; RULES ON EVIDENCE; ADMISSIONS; DESCRIPTION OF LAND IN RESPONDENTS' COMPLAINT BINDS THEM WHERE NO PALPABLE MISTAKE HAS BEEN SHOWN. "A parcel of residential land with a superficial area of 1120 square meters, more or less. Bounded on the North by Saturnino Fernandez; on the East by Joaquin Mararac; on the South by Camino Vecinal; and on the West by Ciriaco Manlincon. Its visible limits are earth dikes and bamboo fences on all sides. Declared in the name of Leonardo Mararac under Tax Declaration No. 17620 with an assessment value of P2,020.00 for the current year. Not registered under Act 496 or under the Spanish Mortgage Law." We, therefore, apply Section 2, Rule 129 of the Rules of Court which provides: "Admissions made by the parties in the pleadings, or in the course of the trial or proceedings do not require proof and cannot be contradicted unless previously shown to have been made through palpable mistake." No such palpable mistake has been shown. Evidence militates against the respondents' contention that the above description does not bind them. The description was merely copied from the deed of sale between the property original owners and the petitioners when the self-same document was presented by the respondents as their own evidence, marked as Exhibit B, of the petitioner's Declaration of Property for Tax Purposes which contains the assessor's official finding and classification that the land covered by the declaration is residential. 4. CIVIL LAW; OBLIGATIONS AND CONTRACTS: LEGAL REDEMPTION; SUBJECT PROPERTY BEING PRIMARILY RESIDENTIAL CAN NOT BE CONSIDERED RURAL FOR PURPOSES OF LEGAL REDEMPTION. The character of the locality, the streets, the neighboring and surrounding properties give a clear picture of a residential area. Lots, including the disputed property, with residential houses line the streets. There are concrete and semi-concrete houses, a chapel, an elementary school, and a public artesian well. Evidence consisting of photographs of the petitioners' land show a one-storey nipa and bamboo house. Trees and plants abound on the petitioner's property, yet, the same do not, by their mere presence make the lot agricultural. As correctly held by the lower court: ". . . the ordinary Philippine residence is traditionally profuse with trees and plants for home sufficiency, esthetic appreciation, and ecological balance." In fact, the lots neighboring the land in question are likewise planted with trees and plants and some even have fish-wells.

Truly a residential home lot is not converted into agricultural land by the simple reservation of a plot for the cultivation of garden crops or the planting of bananas and some fruit trees. Nor can an orchard or agricultural land be considered residential simply because a portion thereof has been criss-crossed with asphalt and cement roads with buildings here and there (Republic of the Philippines vs. Lara, 50 O.G. 5778). We have to apply the rule of reason based on the specific facts of each case. The land, subject matter of the petition, being primarily residential, cannot be considered as rural for purposes of legal redemption under the law. 5. ID.; ID.; ID.; CANNOT BE INVOKED WHERE ADJACENT PROPERTY IS URBAN. A further requisite laid down by the law to enable legal redemption of adjoining lands is that both the land of the one exercising the right and the adjacent property sought to be redeemed should be rural or destined for agricultural exploitation. If either, is urban or both are urban, there is no right of redemption. Again, the intention of the law in providing for this right of redemption must be borne in mind. If the land adjacent to that which is sought to be redeemed is not agricultural, then the redemption is in vain, it does not answer the purpose behind the law. So that, if one of the tenements is urban, the right of legal redemption allowed under this article cannot be invoked (Cortes vs. Flores, 47 Phil. 992; Sentencia, May 12, 1902; Baltazar vs. Court of Appeals, 104 SCRA 619). Undeniably, the land adjoining that which is sought to be redeemed is a piece of residential land on which the respondents live. The stipulation of facts of the parties recites: "1. Plaintiffs reside on a lot east of the land in question and adjacent to it; (Italics supplied). . . " Again, this is deemed an admission by the respondents of the residential character of their own land thus disqualifying them from rightfully redeeming the property in question. DECISION GUTIERREZ, JR., J p: This is a petition for certiorari to review the decision of the respondent Intermediate Appellate Court dated October 21, 1983, the dispositive portion of which reads: "WHEREFORE, the decision appealed from is hereby reversed and set aside and another one is rendered allowing plaintiffs-appellants to redeem the property described in paragraph 3 of their complaint within thirty (30) days from issuance of the order of execution by depositing with the Court in the name of defendantsappellees the sum of P8,000.00 as purchase price after which the defendantsappellees shall execute a deed of sale of the same land in favor of plaintiffsappellants for the sum of P8,000.00. No Costs." Petitioners Jose and Anita Fabia were originally the defendants in a case filed by the respondents with the Court of First Instance of Pangasinan, Branch II. Respondents filed the case entitled "Angel Mararac, et al., plaintiffs versus Jose Fabia, et al.,

defendants" to exercise their right of legal redemption under Article 1621 of the Civil Code over a parcel of land sold to the petitioners. The Code provides: "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. "This 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." xxx xxx xxx

The antecedent facts are summarized in the stipulation of facts submitted by the parties during the pre-trial conference in the Court of First Instance, to wit: "1. "2. Plaintiffs reside on a lot east of the land in question and adjacent to it; The lot is owned by the plaintiffs in common;

"3. The land in question formerly belonged to Hugo Mararac who sold the same to the spouses Leonardo Mararac and Monica Resuello; "4. Hugo Mararac sold the land in question to Leonardo Mararac and Monica Resuello on March 27, 1971; "5. At that time, the lot now owned by plaintiffs was owned by plaintiff Angel Mararac and Juanito Mararac, who was the husband of plaintiff Carlina Rafanan who died in 1976; "6. Leonardo Mararac and Monica Resuello sold to the defendants the land in question on February 25, 1975; "7. At that time, the lot in eastern side of the land in question was owned by Angel Mararac and his brother, Juanito Mararac; "8. On April 8, 1975, defendants declared the land for tax purposes;

"9. At the time of sale of the land in question to the defendants in 1975 there was no offer to exercise right of legal redemption; "10. At the time of the sale of the land in question to Leonardo Mararac and Monica Resuello in 1971, there was no offer of legal redemption; "11. There was no legal redemption offered during the period between the first and second sale; "12. The southern boundary of the lot in question is a barrio road with approximate area of 10 meters wide;

"13. The land in question in relation to plaintiffs' lot is not separated by ravine, by brook, trail, road or other servitude for the benefit of others; "14. The land in question is fenced and was fenced even before the first sale in March 27, 1971; "15. Defendants own rural lands other than the land in question;

"16. From Barangay Balogo, to Basing along the road touching the southern boundary of the land in question are lines of houses on both sides; "17. House of plaintiffs is along the said road;

"18. A portion of the land in question on the side farther from the road, is used as a fishwell; "19. Plaintiffs offered to redeem the land in the amount paid by the defendants as well as an amount for the return of investment of the property and interest, and payments of attorney's fees and are able and willing to make the payment." The trial court rendered a decision in favor of the petitioners stating inter alia that: "Considering now the evidence presented by the plaintiffs, the Court finds that they have not presented a preponderance of evidence to support their claim for legal redemption. This is so for their very own complaint which is in effect a complaint for legal redemption of rural land cites the very land itself as 'residential land.' Neither do the plaintiffs show anywhere in their evidence that the said land is rural. In fact, in the documents they presented, Exhibits A and B, the land in question is clearly described as 'residential land.' Nowhere in the testimony of plaintiffs' witnesses is the Land in question described as 'rural land' and neither do they describe the land adjoining the land in question, the ownership of which adjoining land is the basis for their claim of legal redemption, as rural land. Plaintiffs' testimony that they reside on the adjoining land gives rise to the conclusion that such land is also residential. In fact, the transcript of the stenographic notes of the ocular inspection of the land in question conducted on February 28, 1978 show that opposite the land in question across the barangay road of 36 meters, is the Barangay Artesian Well, the concrete house and poultry of Mr. Ciriaco Rellosa, the store of Arturo Rellosa and along the same barangay road are lines of concrete and semi-concrete and nipa houses and along the same road are the Barangay Chapel and the Barangay Elementary School of Balogo, Binmaley, Pangasinan. However, behind the land in question, as in the case with the other lots along the Barangay Road, are fishponds. Hence, from the foregoing, it is clear that the land in question is a residential area and is not rural or devoted to agriculture. The fact that the lot is enclosed with a bamboo fence and has 9 fruit bearing coconut trees, 45 coconut trees not yet bearing fruit, about 120 banana plants, two bamboo clumps, on its northern part a fishwell newly constructed and on its eastern side hollow blocks and sand and gravel, do not

militate against its being residential for the ordinary Philippine residence is traditionally profuse with trees and plants for home sufficiency, esthetic appreciation and ecological balance. Hence, the lot in question being satisfactorily shown to be residential, Article 1621 of the Civil Code of the Philippines is inapplicable for it applies only to rural lands. Neither can plaintiff claim legal redemption under Article 1622 which applies to urban lands, since his complaint does not allege that the land is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time, and having been bought merely for speculative purposes (Ortega v. Orcino, et al., 38 SCRA 276)." On appeal, the respondent Intermediate Appellate Court reversed the decision of the trial court holding that: prLL "It is clear to Us that the focal or determining factor is generally the location of the property. If it is in the city or town resembling a city, meaning the 'poblacion', it is urban property. If it is situated in the sitios, barrios or barangays, other than a city or town resembling a city, it is rural land, or one located in the countryside. "The land described in the complaint, and sought to be redeemed, is a piece of rural lands. It is situated in a barrio, or Barrio Balogo, Binmaley, Pangasinan. It does not straddle the national highway or provincial road, considering its adjoining boundaries. On the land are agricultural improvements, namely, 9 fruit-bearing coconut trees, 49 non-bearing coconut trees, about 120 banana plants, and 2 bamboo clumps, xxx xxx xxx

"WHEREFORE, the decision appealed from is hereby reversed and set aside and another one is rendered allowing plaintiffs-appellants to redeem the property described in paragraph 3 of their complaint within thirty (30) days from issuance of the order of execution by depositing with the court in the name of defendantsappellees the sum of P8,000.00 as purchase price after which the defendantsappellees shall execute a deed of sale of the same land in favor of plaintiffsappellants for the sum of P8,000.00. No costs." This petition for certiorari was filed to finally determine the true character of the land in question and to adjudicate the rights of the parties with regard to the same. The issues are: (1) whether or not the land in question may be considered rural for purposes of legal redemption under Section 2, Chapter 7, Title VI, New Civil Code; and (2) if so, are respondents guilty of laches so as to prevent them, nevertheless, from redeeming the property in question? Petitioners cite definitions by Castan of urban and rural lands to wit: "(1) Rural land defined (Product-Producing Lands)

"Regardless of site, if the principal purpose is to obtain products from the soil, the lease is of rural lands. Hence, as used here rural lands are those where the lessee principally is interested in soil products (3 Castan 124). "(2) Urban Lands defined (Non-Product Producing Lands)

"Lands leased principally for purposes of residence are called urban lands (See 3 Castan 124)." Petitioners submit that the land, being primarily used for residential purposes, is not subject to legal redemption under Article 1621 of the New Civil Code. They point out that the complaint itself describes the land in question as residential, which description is but a reproduction of the description in the deed of absolute sale executed by Leonardo Mararac and Monica Resuello in favor of the spouses Fabia. They rely on the rule that admissions made in the complaint are judicial admissions, which must bind the plaintiffs-respondents (Sveriges Angfartygs Assurance Forening v. Qua Chee Gan, 21 SCRA 12; Santiago v. Delos Santos, 61 SCRA 146). On the other hand, the respondents maintain that the land was utilized by the petitioners exclusively for agricultural purposes from the time it was purchased on February 25, 1975, up to the time the lower court conducted its ocular inspection on February 28, 1978. The land is located in a barrio Barrio Balogo, Binmaley, Pangasinan which is an agricultural district. Its residents engage in rural pursuits. The respondents contend that this being the case, the land should also be classified as rural following the doctrine laid down in Enriquez v. Devanadera (62 O.G. March 3, 1956 citing Stees v. Bermeier, 98 N.W. 648, 650, 91 Minn. 513); that the locality should be considered rural when the persons occupying it are engaged in rural pursuits. It is not easy to fix, with such exactitude as to furnish a sure norm for all cases, the line that separates the rural from the urban. The Code has avoided, without doubt deliberately, any definition on this point (Francisco, Sales, 1955 Ed., p. 879, citing 10 Manresa 372). The word "rural" has been defined as relating to or constituting tenement in land adapted and used for agricultural or pastoral purposes. It is one which, regardless of site, is principally used for the purpose of obtaining products from the soil as opposed to urban lands which are principally for the purpose of residence (3 Castan 124). However, the very same word has been defined as relating to, or associated with, or typical of the country, the word being derived from the Latin word "ruralis" meaning country. It pertains to the country as distinguished from a city or town. Thus, as is the belief of respondent appellate court, "the focal or determining factor is generally the location of the property."

Both definitions are undoubtedly correct insofar as the word is ordinarily and commonly used or understood. However, it is the legal definition of the word with which we are concerned. We are dealing here with the exercise of a right based on a provision of law. It is the meaning intended by the framers of the law which we must seek to uphold. (82 CJS 636). The sense in which the words are used furnishes the rule of construction. (In Re Winton Lumber Co., 63 P. 2d, p. 664) A sentence or paragraph in a statute cannot be analyzed with respect to some preconceived pattern in the reader's mind, but it must be analyzed with respect to that which the author attempted to define. (State v. Brunswick, 47 N.E. 2d., 916) Thus, a construction of the word "rural" that is in consonance with the legislative purpose must be followed. LLjur As expressed in Del Pilar v. Catindig (35 Phil. 263) the reason for the law in question is to foster the development of agricultural areas by adjacent owners who may desire the increase for the improvement of their own land." The intention of the law in giving this right of redemption is to protect agriculture, by the union of small agricultural lands and those adjoining thereto under one single owner for their better exploitation. (Tolentino, The Civil Code of the Philippines, Annotated, Volume V, 1959 Edition, p. 161) In view of this legislative objective, the "use" of property for agricultural purpose is essential in order that the same be characterized as rural land for purposes of legal redemption under Article 1621 of the Civil Code. The consideration of the use and destination of the lands and that of the customs of each town will be the data that ought to be taken into account in order to decide fitly the cases where the qualification appears doubtful (10 Manresa 372). The small parcel of land one hectare or less in area, must be dedicated to agriculture before the owners of adjoining lands may claim a right of redemption under Article 1621 of the Civil Code. Thus, rural lands are distinguished from urban tenements: xxx xxx xxx

"(2) By its purpose or being for agricultural, fishing or timber exploitation, and not for dwelling, industry or commerce. xxx xxx xxx

(Sentencia of May 8, 1944). The respondents have failed to satisfy the above criterion. The land in question cannot be legally classified as rural land since it is principally used for residential rather than agricultural purposes. From the respondent's complaint alone, the land is admittedly residential having been described as follows:

"A parcel of residential land with a superficial area of 1120 square meters, more or less. Bounded on the North by Saturnino Fernandez; on the East by Joaquin Mararac; on the South by Camino Vecinal; and on the West by Ciriaco Manlincon. Its visible limits are earth dikes and bamboo fences on all sides. Declared in the name of Leonardo Mararac under Tax Declaration No. 17620 with an assessment value of P2,020.00 for the current year. Not registered under Act 496 or under the Spanish Mortgage Law." We, therefore, apply Section 2, Rule 129 of the Rules of Court which provides: "Admissions made by the parties in the pleadings, or in the course of the trial or proceedings do not require proof and cannot be contradicted unless previously shown to have been made through palpable mistake." No such palpable mistake has been shown. Evidence militates against the respondents' contention that the above description does not bind them. The description was merely copied from the deed of sale between the property's original owners and the petitioners when the self-same document was presented by the respondents as their own evidence, marked as Exhibit B, of the petitioner's Declaration of Property for Tax Purposes which contains the assessor's official finding and classification that the land covered by the declaration is residential. LibLex The character of the locality, the streets, the neighboring and surrounding properties give a clear picture of a residential area. Lots, including the disputed property, with residential houses line the streets. There are concrete and semiconcrete houses, a chapel, an elementary school, and a public artesian well. Evidence consisting of photographs of the petitioners' land show a one-storey nipa and bamboo house. Trees and plants abound on the petitioner's property, yet, the same do not, by their mere presence make the lot agricultural. As correctly held by the lower court: " . . . the ordinary Philippine residence is traditionally profuse with trees and plants for home sufficiency, esthetic appreciation, and ecological balance." In fact, the lots neighboring the land in question are likewise planted with trees and plants and some even have fishwells. Truly a residential home lot is not converted into agricultural land by the simple reservation of a plot for the cultivation of garden crops or the planting of bananas and some fruit trees. Nor can an orchard or agricultural land be considered residential simply because a portion thereof has been criss-crossed with asphalt and cement roads with buildings here and there (Republic of the Philippines v. Lara, 50 O.G. 5778). We have to apply the rule of reason based on the specific facts of each case. The land, subject matter of the petition, being primarily residential, cannot be considered as rural for purposes of legal redemption under the law. A further requisite laid down by the law to enable legal redemption of adjoining lands is that both the land of the one exercising the right and the adjacent property

sought to be redeemed should be rural or destined for agricultural exploitation. If either, is urban or both are urban, there is no right of redemption. Again, the intention of the law in providing for this right of redemption must be borne in mind. If the land adjacent to that which is sought to be redeemed is not agricultural, then the redemption is in vain, it does not answer the purpose behind the law. So that, if one of the tenements is urban, the right of legal redemption allowed under this article cannot be invoked (Cortes v. Flores, 47 Phil. 992; Sentencia, May 12, 1902; Baltazar v. Court of Appeals, 104 SCRA 619). Undeniably, the land adjoining that which is sought to be redeemed is a piece of residential land on which the respondents live. The stipulation of facts of the parties recites: "1. Plaintiffs reside on a lot east of the land in question and adjacent to it; (Italics supplied) xxx xxx xxx

Again, this is deemed an admission by the respondents of the residential character of their own land thus disqualifying them from rightfully redeeming the property in question. Thus, the circumstances under which legal redemption may be exercised not having been found present in the case at bar, the respondents have no right to enforce against the petitioners. LLjur WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The decision of the respondent Intermediate Appellate Court is REVERSED and SET ASIDE. The judgment of the former Court of First Instance is REINSTATED. SO ORDERED.

[G.R. No. 150060. August 19, 2003.] PRIMARY STRUCTURES CORP. represented herein by its President ENGR. WILLIAM C. LIU, petitioner, vs. SPS. ANTHONY S. VALENCIA and SUSAN T. VALENCIA, respondents. Jose M Perez for petitioner. Petronio V. Elesterio for private respondents. SYNOPSIS Petitioner is the registered owner of Lot 4523. Adjacent thereto are parcels of land identified as Lots no. 4527, 4528 and 4529, which were sold by owner Mendoza to respondent spouses in December 1994. When petitioner learned of the sale in January 1996, it signified its intention to redeem the lots, invoking the right afforded under Articles 1621 and 1623 of the Civil Code. Respondent spouses, however, refused to sell. SHECcD The Court upheld the right of petitioner and gave it 30 days from finality of the Court's decision to exercise its right of legal redemption. The trial court found the adjacent lots involved to be rural lands. There was no evidence to show that respondents are not themselves owners of rural lands for the exclusionary clause under Art. 1621 of the Civil Code to apply. As to the requirement that the right of redemption shall not be exercised except within 30 days from notice in writing by the prospective vendor, the Court ruled that there was no sufficient evidence for the compliance of the obligatory written notice. prescribed by the New Civil Code. cTIESa SYLLABUS 1. CIVIL LAW; SPECIAL CONTRACTS; SALES; EXTINGUISHMENT OF SALE; LEGAL REDEMPTION; BY OWNERS OF ADJOINING LOTS; REQUIREMENTS; THAT ADJACENT LOTS ARE BOTH RURAL LANDS. Whenever a piece of rural land not exceeding one hectare is alienated, the law grants to the adjoining owners a right of redemption except when the grantee or buyer does not own any other rural land. In order that the right may arise, the land sought to be redeemed and the adjacent property belonging to the person exercising the right of redemption must both be rural lands. If one or both are urban lands, the right cannot be invoked. Here, the one or both are urban lands, the right cannot be invoked. Here, the trial court found the lots involved to be rural lands and respondents did not dispute it before the Court of Appeals. DacASC 2. ID.; ID.; ID.; ID.; ID.; ID.; EXCEPTION; WHEN BUYER DOES NOT OWN ANY OTHER RURAL LAND. Article 1621 of the Civil Code expresses that the right of redemption it grants to an adjoining owner of the property conveyed may be defeated if it can be shown that the buyer or grantee does not own any other rural

land. The appellate court, sustaining the trial court, has said that there has been no evidence proffered to show that respondents are not themselves owners of rural lands for the exclusionary clause of the law to apply. ACIDTE 3. ID.; ID.; ID.; ID.; ID.; ID.; MUST BE EXERCISED WITHIN 30 DAYS FROM NOTICE IN WRITING BY VENDOR; AFFIDAVIT OF VENDOR TO THAT EFFECT BEFORE SALE RECORDED IN THE REGISTRY OF PROPERTY, NOT SUFFICIENT. Article 1623 of the Civil Code provides that the right of legal pre-emption or redemption shall not be exercised except within thirty days from notice in writing by the prospective vendor, or by the vendor, as the case may be. In stressing the mandatory character of the requirement, the law states that the deed of sale shall not be recorded in the Registry of Property unless the same is accompanied by an affidavit of the vendor that he has given notice thereof to all possible redemptioners. The Court of Appeals has equated the statement in the deed of sale to the effect that the vendors have complied with the provisions of Article 1623 of the Civil Code, as being the written affirmation under oath, as well as the evidence, that the required written notice to petitioner under Article 1623 has been met. Respondents, like the appellate court, overlook the fact that petitioner is not a party to the deed of sale between respondents and Mendoza and has had no hand in the preparation and execution of the deed of sale. It could not thus be considered a binding equivalent of the obligatory written notice prescribed by the Code. ITAaHc DECISION VITUG, J p: On appeal is the decision of the Court of Appeals in CA-G.R. CV No. 59960, promulgated on 13 February 2001, which has affirmed in toto the decision of the Regional Trial Court of Cebu City dismissing the complaint of petitioners for legal redemption over certain rural lots sold to respondents. aIDHET Petitioner is a private corporation based in Cebu City and the registered owner of Lot 4523 situated in Liloan, Cebu, with an area of 22,214 square meters. Adjacent to the lot of petitioner are parcels of land, identified to be Lot 4527, Lot 4528, and Lot 4529 with a total combined area of 3,751 square meters. The three lots, aforenumbered, have been sold by Hermogenes Mendoza to respondent spouses sometime in December 1994. Petitioner learned of the sale of the lots only in January, 1996, when Hermogenes Mendoza sold to petitioner Lot No. 4820, a parcel also adjacent to Lot 4523 belonging to the latter. Forthwith, it sent a letter to respondents, on 30 January 1996, signifying its intention to redeem the three lots. On 30 May 1996, petitioner sent another letter to respondents tendering payment of the price paid to Mendoza by respondents for the lots. Respondents, in response, informed petitioner that they had no intention of selling the parcels. Thereupon, invoking the provisions of Articles 1621 and 1623, petitioner filed an action against respondents to compel the latter to allow the legal redemption. Petitioner claimed

that neither Mendoza, the previous owner, nor respondents gave formal or even just a verbal notice of the sale of the lots as so required by Article 1623 of the Civil Code. After trial, the Regional Trial Court of Cebu dismissed petitioner's complaint and respondents' counterclaim; both parties appealed the decision of the trial court to the Court of Appeals. The appellate court affirmed the assailed decision. Basically, the issues posed for resolution by the Court in the instant petition focus on the application of Article 1621 and Article 1623 of the Civil Code, which read: "ART. 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. cEaACD "This 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." "ART. 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." Whenever a piece of rural land not exceeding one hectare is alienated, the law grants to the adjoining owners a right of redemption except when the grantee or buyer does not own any other rural land. 1 In order that the right may arise, the land sought to be redeemed and the adjacent property belonging to the person exercising the right of redemption must both be rural lands. If one or both are urban lands, the right cannot be invoked. 2 The trial court found the lots involved to be rural lands. Unlike the case of Fabia vs. Intermediate Appellate Court 3 (which ruled, on the issue of whether a piece of land was rural or not, that the use of the property for agricultural purpose would be essential in order that the land might be characterized as rural land for purposes of legal redemption), respondents in the instant case, however, did not dispute before the Court of Appeals the holding of the trial court that the lots in question are rural lands. In failing to assail this factual finding on appeal, respondents would be hardput to now belatedly question such finding and to ask the Court to still entertain that issue.

Article 1621 of the Civil Code expresses that the right of redemption it grants to an adjoining owner of the property conveyed may be defeated if it can be shown that the buyer or grantee does not own any other rural land. The appellate court, sustaining the trial court, has said that there has been no evidence proffered to show that respondents are not themselves owners of rural lands for the exclusionary clause of the law to apply. With respect to the second issue, Article 1623 of the Civil Code provides that the right of legal pre-emption or redemption shall not be exercised except within thirty days from notice in writing by the prospective vendor, or by the vendor, as the case may be. In stressing the mandatory character of the requirement, the law states that the deed of sale shall not be recorded in the Registry of Property unless the same is accompanied by an affidavit of the vendor that he has given notice thereof to all possible redemptioners. THaCAI The Court of Appeals has equated the statement in the deed of sale to the effect that the vendors have complied with the provisions of Article 1623 of the Civil Code, as being the written affirmation under oath, as well as the evidence, that the required written notice to petitioner under Article 1623 has been met. Respondents, like the appellate court, overlook the fact that petitioner is not a party to the deed of sale between respondents and Mendoza and has had no hand in the preparation and execution of the deed of sale. It could not thus be considered a binding equivalent of the obligatory written notice prescribed by the Code. In Verdad vs. Court of Appeals 4 this court ruled: "We hold that the right of redemption was timely exercised by private respondents. Concededly, no written notice of the sale was given by the Burdeos heirs (vendors) to the co-owners required under Article 1623 of the Civil Code "xxx xxx xxx

Hence, the thirty-day period of redemption had yet to commence when private respondent Rosales sought to exercise the right of redemption on 31 March 1987, a day after she discovered the sale from the Office of the City Treasurer of Butuan City, or when the case was initiated, on 16 October 1987, before the trial court. "The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status. "Even in Alonzo vs. Intermediate Appellate Court (150 SCRA 259), relied upon by petitioner in contending that actual knowledge should be an equivalent to a written notice of sale, the Court made it clear that it was not reversing the prevailing jurisprudence; said the Court:

"'We realize that in arriving at our conclusion today, we are deviating from the strict letter of the law, which the respondent court understandably applied pursuant to existing jurisprudence. The said court acted properly as it had no competence to reverse the doctrines laid down by this Court in the above-cited cases. In fact, and this should be clearly stressed, we ourselves are not abandoning the De Conejero and Buttle doctrines. What we are doing simply is adopting an exception to the general rule, in view of the peculiar circumstances of this case.' "In Alonzo, the right of legal redemption was invoked several years, not just days or months, after the consummation of the contracts of sale. The complaint for legal redemption itself was there filed more than thirteen years after the sales were conducted." 5 WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of Appeals is REVERSED and SET ASIDE. Petitioner is hereby given a period of thirty days from finality of this decision within which to exercise its right of legal redemption. No costs. aDCIHE

G.R. No. 164819

March 9, 2007

JERTY PASCUAL CONTRERAS (deceased), represented by her mother, LOURDES PASCUAL, Petitioner, vs. THE HONORABLE COURT OF APPEALS, Former Twelfth Division, and SPOUSES DANILO ALCANTARA and ISABELITA ALCANTARA, Respondents. DECISION TINGA, J.: The antecedents that have given rise to this petition for review allude to several potentially interesting questions of law borne out of a complicated factual milieu. Yet the issues actually raised by this petition are relatively trivial, and can be disposed of against petitioner with ease. It is established that years before the emergence of the present controversy, a house (subject house) owned by Eulalia Leis (Leis) was constructed on a parcel of land (subject land) owned by Filomena Gatchalian (Gatchalian). This segregate ownership of land and improvement, unreconciled to date, has ultimately spawned the present dispute. As early as 1949, Leis openly manifested her rights to the subject house which was constructed on the subject land situated on San Jose Street, Antipolo, Rizal through a Tax Declaration she had secured that year.1 While the house had been initially constructed with light materials, and covering an area of 25.25 square meters,2 it appears that by 1974, the house had been renovated and built out of strong materials and with an expanded floor space.3 By this time, the house had been mortgaged to the Rural Bank of Teresa (Rizal), Inc. (RBTRI), which would eventually acquire ownership over the house after the mortgagor had failed to pay the loan and redeem the house. However, in 1980, respondent Isabelita Bumatay (Isabelita), the daughter of Leis, purchased the house back from the bank, as evidenced by a deed of sale. A different trail of ownership attaches to the subject land. It was owned by Gatchalian when the house was first constructed thereon by Leis by around 1949. Eventually, ownership of the land passed to the spouses Felipe Matawaran and Ofelia Oliveros (spouses Matawaran), though the records do not bear how they acquired such property. In 1980, the spouses Matawaran executed two real estate mortgage contracts with the Capitol City Development Bank (CCDB), covering the land, together with the house, as security for a loan of P200,000.00. Specifically, the mortgage deeds stated that the mortgaged property includes a two-storey residential building with a floor area of 220 sq. meters.4

After the spouses had failed to pay the loan, CCDB foreclosed on the mortgage and acquired the mortgaged property in 1984.5 After no redemption was made, CCDB consolidated title to the property with Transfer Certificate of Title (TCT) No. 115486 issued in its name.6 In the meantime, Isabelita, who had since married respondent Danilo Alcantara, had purchased in July of 1983, from Florencio Oliveros, a 76 square meter lot adjacent to the house which she earlier bought from RBTRI.7 It is not clear whether the spouses Alcantara had resided in the house, but beginning in 1987 they rented out the lower floors of the house to petitioner Jerty Contreras (Contreras), who resided therein. CCDB advertised its intention to sell the subject land, but there were no buyers from 1986 until 1990. In March 1990, CCDB and Contreras entered into a Contract to Sell involving the subject land, "together with the improvements existing thereon."8 This was followed by a Deed of Absolute Sale dated 13 November 1990 wherein Contreras purchased from CCDB, for the amount of P212,400.00, the subject land "together with the improvements existing thereon."9 Even before the Deed of Absolute Sale was executed, the Alcantaras wrote CCDB concerning the Contract to Sell between it and Contreras. Therein, they informed the bank that they were the owners of the adjacent lot; that they had not been made aware of the Contract to Sell until after its execution; and that they were willing to avail of their preferential right to purchase as provided by the Civil Code.10 In 1991, the Alcantaras filed a Complaint with the Regional Trial Court (RTC) of Antipolo, Rizal, seeking the annulment of the Deed of Absolute Sale between Contreras and CCDB.11 Impleaded as defendants were Contreras and her husband Renato, CCDB, and the spouses Matawaran. The case was docketed as Civil Case No. 91-222 and raffled to Branch 71 of the Antipolo RTC. In their complaint, the Alcantaras identified the lot on which the house stood as Lot A-4 of the subdivision plan (LRC) Psd-282785, as identified in TCT No. N-37840 in the name of the spouses Matawaran, and its replacement in TCT No. 115486, which was issued in the name of CCDB. The Alcantaras asserted their ownership over the house even as the land on which it stood belonged to a different party. As such, they argued that the Matawaran spouses had no capacity to include the house as part of the property mortgaged to CCDB, as they were not the owners of the structure. In turn, CCDB could not have acquired ownership of the house when it foreclosed on the mortgage and, consequently too, the sale between CCDB and Contreras could not have included the house either.

Still, the Alcantaras prayed for the annulment of the Deed of Absolute Sale between CCDB and Contreras. Reiterating their ownership of the lot adjacent to the subject land, the Alcantaras claimed that they are entitled to exercise their right of preemption and redemption under Article 1622 of the Civil Code, and thus specifically prayed that the trial court "[allow] the plaintiffs to exercise their right of preemption and redemption under Article 1622 of the Civil Code of the Philippines." A claim for damages was also posed in the complaint. An attempt by Contreras to move for the dismissal of the case was initially successful but the victory proved to be short-lived as the RTC reconsidered its earlier order of dismissal. She then filed her answer with a counterclaim for damages, wherein she asserted that the subject house was included in the sale between the CCDB and herself. This answer was filed by Atty. Melanio Zoreta in behalf not only of Contreras, but of all defendants, "save Matawaran and Oliveros."12 CCDB, through a different counsel, would eventually file its own answer independent of the Contreras spouses. An accompanying motion manifested that CCDB had not been aware that Atty. Zoreta, who had represented the bank in all of its court cases, was also acting as counsel for Contreras.13 While CCDBs new answer also prayed for the dismissal of the complaint, it also lodged a cross-claim against the Contreras and the Matawaran spouses, seeking to hold them liable to CCDB "in the remote event that judgment is rendered against" the bank. The Matawaran spouses also filed their own Answer,14 wherein they admitted that the Alcantaras are the owners of the subject house, even as it was built on their former property. The Matawarans further claimed that they never misrepresented to CCDB that they had owned the subject house, and that the bank had very well known that the house was actually owned by the Alcantaras.15 In the midst of the trial that ensued, Contreras died and was substituted by her parents, Francisco and Lourdes Pascual.16 On 15 April 1997, the RTC rendered a Decision17 that affirmed the Alcantaras ownership over the subject house; ordered the surrender of possession of the house to the Alcantaras; declared the Deed of Absolute Sale dated 13 November 1990 as null and void; and ordered the conveyance by CCDB to the Alcantaras of "the subject property described as Lot A-4 covered by TCT No. 115486 upon payment by [the Alcantaras] to [CCDB] the amount of P212,400.00, but which amount should be returned to defendant spouses Francisco and Lourdes Pascual by the defendant bank."18 In ruling in this manner, the RTC found that the evidence clearly established the Alcantaras ownership of the subject house, as evidenced by the Deed of Sale between RBTRI and Isabelita, the various tax declarations, the testimony of Lourdes Pascual that petitioner had rented the house from the Alcantaras beginning in 1987,

and the declaration of the Matawarans that they were not the owners of the house. These facts, found by the RTC, were sufficient to "negate the general presumption that the accessory follows the principal." From this finding, the RTC held that it was error on the part of CCDB to have included the subject house in the deed of sale it executed with Contreras when in fact the said house was never included in the mortgage executed by the spouses Matawaran, who had no capacity anyway to mortgage such house. The RTC further held that the Alcantaras were entitled to exercise the right of preemption: It is [a] well-settled rule that the owner of an adjoining land is given the right of preemption when the said land is to be sold. The situation in the instant case may not be exactly the case called for under Article 1622 of the New Civil Code, but the principle laid down under the said rule may be applied in this case in the absence of a particular law. It is only but just and fair that the owner of the adjoining lot is given the right of preemption as it would be more beneficial to him. In the instant case, the Court honestly believes that the plaintiffs, who are not only the owners of the lot adjoining the property foreclosed by the defendant bank, but also owners of the house erected on a portion of the said property, be given the preferential right to buy the property.19 Petitioner appealed the RTC decision to the Court of Appeals.20 On 30 August 2002, the Court of Appeals rendered a decision affirming in toto the RTC.21 The appellate court affirmed the findings that the Alcantaras were then, and still are, the owners of the subject house, and thus the Matawarans could not have included the same in their mortgage agreement with CCDB. The Court of Appeals also held that since the ownership by the Alcantaras of the adjacent lot was never controverted, the RTC had validly applied Articles 1621 and 1622 of the Civil Code, which allow the adjoining owner to exercise the right of pre-emption. The present petition raises only two issues. The first issue deserves scant consideration. Concerning the first issue, petitioner alleges that the copy they had received of the Court of Appeals decision dated 30 August 2002 was not signed by the ponente and the members of the Twelfth Division which had rendered the decision. That said, she points to Section 1, Rule 36 of the Rules of Civil Procedure, which requires that a judgment or final order determining the merits of the case be signed by the judge who prepared the decision. Proof of this allegation is supported by the Petitions Annex "A," which is represented as the copy of the seven (7)-page decision received

by petitioner.22 A cursory look at this Annex indicates that page 6, which is supposed to contain the signatures of the ponente and the concurring justices, is unsigned.23 However, the first five pages bear the initials of the ponente, Associate Justice Elvi John Asuncion,24 while the seventh page bears the signed Certification of the Chairperson of the Twelfth Division, Associate Justice Portia AlioHormachuelos. The first page of the decision attached as Annex "A" also bears the signature of the Division Clerk of Court, Marie Claire Victoria Mabutas-Sordan.25 Petitioners contention could have been a source of worry had the decision, as filed with the official records of the Court of Appeals, failed to bear the signatures of the members of the Twelfth Division. But that is not the case. The decision, as attached to the rollo of the Court of Appeals, does bear the signature of the ponente and the two concurring Justices from the Twelfth Division. Petitioner further admits that the certified photocopy of the decision she secured from the Court of Appeals prior to the filing of this petition reflects the complete signatures of the three members of the Twelfth Division. The signature requirement under Section 1 of Rule 36, which is rooted in the most common of senses, is necessitated as indubitable proof that the judges who prepared and concurred in the decision actually did so. Such proof, in this case, is reflected in the copy of the decision that appears in the official records of the Court of Appeals. Moreover, in this case, there is no difference at all between the unsigned page 6 attached by petitioner, and the signed page 6 that appears on the record. There is no alteration or intercalation in either copy that may have indicated a difference between the decision the justices were actually signing and the decision actually sent to the parties. Considering that the copy sent to petitioner does bear, in all other pages save for the sixth, the initials of the ponente, and the certifications of the clerk of court and the division chairperson, we are wont to believe that the transmission of the unsigned page six to petitioner is nothing more than a clerical error. Insofar as such clerical error may give rise to suspicions of untoward behavior, the Court of Appeals may be faulted. Yet it cannot give rise to the nullification of the decision which, as recorded in the official files of the Court of Appeals, has no such formal infirmity. The second issue raised by petitioner is the claim that the RTC, in ordering the bank to convey the subject land to the Alcantaras upon payment of the amount of P212,400.00, exceeded its jurisdiction by "award[ing] reliefs not asked for by [the Alcantaras]."26 Petitioner alleges that "nowhere in the whole complaint, in the reliefs prayed for or in the evidence presented did [the Alcantaras] ever demand from [petitioner] that the house and lot containing an area of [354] square meters with a residential house erected thereon be sold to them at a measly sum of [P214,400.00].27

As it happens, that "measly sum" happens to be the exact amount for which CCDB had sold the subject property to petitioner, as evidenced by the Deed of Absolute Sale which petitioner herself had attached to her Answer before the RTC.28 It is hardly the case of the trial court pulling a rabbit out of the hat, for the precise relief granted by the RTC is drawn from the Alcantaras specific prayer in their complaint that sought a judgment "allowing the plaintiffs to exercise their right of pre-emption and redemption under Article 1622 of the Civil Code of the Philippines, and directing [CCDB] to instead convey Lot A-4 registered under Transfer Certificate of Title No. N-115486 of the Register of Deeds of Rizal in favor of the plaintiffs."29 Petitioner has taken the effort of reproducing the entire complaint in the text of the present petition30 to stress that what the Alcantaras were merely claiming was "a portion of the house, but never the whole house and lot as what the Regional Trial Court illegally ruled."31 This is erroneous. For one, the complaint proceeded from the premise that the Alcantaras were still the owners of the whole house, and thus sought a judicial affirmation of such ownership. In paragraph 20 of the complaint the Alcantaras further explained that they are also the owners of the adjacent lot, while in paragraph 23 they manifested that they "are now actively asserting their right of ownership over the HOUSE in question and their pre-emptive right over the lot whereon it stands." Finally, in paragraph 29 they asserted that they "should therefore be allowed to exercise their right of pre-emption and redemption under Article 1622 of the Civil Code of the Philippines." Clearly, it is sufficiently alleged in the complaint that the Alcantaras are entitled to exercise their right of pre-emption and redemption under Article 1622 of the Civil Code. They specifically prayed that judgment be rendered entitling them to exercise such right, which under Article 1622 entails the following: Art. 1622. Whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation, is about to be re-sold, the owner of the adjoining land has a right of pre-emption at a reasonable price. If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a reasonable price. xxxx The petition betrays a lack of understanding on petitioners part that the exercise of the right of redemption would entail the reconveyance to petitioner of the subject land on which the house stands. This relief stands apart from the judicial affirmation in the same RTC decision that the Alcantaras are also the owners of the house. It was not the case, as petitioner says, of the Alcantaras lodging a claim only as against the house, as they had also lodged a claim against the subject land

proceeding from their right of redemption under Article 1622. In the case at bar, the trial court found that the Alcantaras were entitled to exercise their rights under Article 1622, but it would not have been sufficient nor correct for it to just make the corresponding pronouncement in the decision and then stop. The relief assailed by petitioner as unwarranted is nothing more but the affordance of the right of redemption to the Alcantaras at the same reasonable price the bank had sold the property to petitioner. We see no error in granting such relief. We are somewhat mystified why petitioner, through this petition, has confined herself to issues that are utterly formalistic in nature, yet ultimately unmeritorious. The decision of the RTC raises a host of potential controversies, such as whether Article 1622 should apply in this case or whether the ownership of the Alcantaras of the house in question was indeed sufficiently proven considering that the main basis of such ownership appears to have been the long-standing regard that her predecessor-in-interest, Leis, was unquestionably the owner of the house. Given the unequivocal rulings of the RTC and the Court of Appeals on the points, it would be expected of petitioner to squarely argue that there was no sufficient proof establishing that the Alcantaras are the owners of the house or that the requisites for applying Article 1622 are present. That petitioner has not couched her arguments clearly to that effect can only lead to the conclusion that she agrees with the findings of the lower courts that the Alcantaras are the owners of the house and that the requisites under Article 1622 have been met. Considering that such questions are ultimately rooted in findings of fact, which the Court is not wont to review, there is no cause for us to deeply inquire into such issues. Since the arguments which are actually raised in the petition lack merit, the expedient dismissal of the petition is in order. WHEREFORE, the petition is DISMISSED. Costs against petitioner. SO ORDERED.

[G.R. No. 109972. April 29, 1996.] ZOSIMA VERDAD, petitioner, vs. THE HON. COURT OF APPEALS, SOCORRO C. ROSALES, AURORA ROSALES, NAPOLEON ROSALES, ANTONIO ROSALES, FLORENDA ROSALES, ELENA ROSALES AND VIRGINIA ROSALES, respondents. Jessie C. Ligan for petitioner. Federico A. Calo for private respondents. SYLLABUS 1. CIVIL LAW; SUCCESSION; RIGHT TO REDEEM PROPERTY AS LEGAL HEIR OF HUSBAND, PART OF WHOSE ESTATE IS A SHARE IN HIS MOTHER'S INHERITANCE. The thrust of the petition before us is the alleged incapacity of private respondent Socorro C. Rosales to redeem the property, she being merely the spouse of David Rosales, a son of Macaria, and not being a co-heir herself in the intestate estate of Macaria. Socorro's right to the property is not because she rightfully can claim heirship in Macaria's estate but that she is a legal heir of her husband, David Rosales, part of whose estate is a share in his mother's inheritance. David Rosales, incontrovertibly, survived his mother's death. When Macaria died her estate passed on to her surviving children, among them David Rosales, who thereupon became co-owners of the property. When David Rosales himself later died, his own estate, which included his undivided interest over the property inherited from Macaria, passed on to his widow Socorro and her co-heirs pursuant to the law on succession. Socorro and herein private respondents, along with the co-heirs of David Rosales, thereupon became co-owners of the property that originally descended from Macaria. 2. ID.; ID.; RIGHT OF REDEMPTION; WRITTEN NOTICE OF SALE, MANDATORY. When their interest in the property was sold by the Burdeos heirs to petitioner, a right of redemption arose in favor of private respondents. This right of redemption was timely exercised by private respondents. Concededly, no written notice of the sale was given by the Burdeos heirs (vendors) to the co-owners required under Article 1623 of the Civil Code. The thirty-day period of redemption had yet to commence when private respondent Rosales sought to exercise the right of redemption on 31 March 1987, a day after she discovered the sale from the Office of the City Treasurer of Butuan City, or when the case was initiated, on 16 October 1987, before the trial court. The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status. DECISION

VITUG, J p: The petitioner, Zosima Verdad, is the purchaser of a 248-square meter residential lot (identified to be Lot No. 529, Ts-65 of the Butuan Cadastre, located along Magallanes Street, now Marcos M. Calo St., Butuan City). Private respondent, Socorro Codero Vda. De Rosales, seeks to exercise a right of legal redemption over the subject property and traces her title to the late Macaria Atega, her mother-inlaw, who died intestate on 08 March 1956. During her lifetime, Macaria contracted two marriages: the first with Angel Burdeos and the second, following the latter's death, with Canuto Rosales. At the time of her own death, Macaria was survived by her son Ramon A. Burdeos and her grandchild (by her daughter Felicidad A. Burdeos) Estela Lozada of the first marriage and her children of the second marriage, namely, David Rosales, Justo Rosales, Romulo Rosales, and Aurora Rosales. Socorro Rosales is the widow of David Rosales who himself, some time after Macaria's death, died intestate without an issue. In an instrument, dated 14 June 1982, the heirs of Ramon Burdeos, namely, his widow Manuela Legaspi Burdeos and children Felicidad and Ramon, Jr., sold to petitioner Zosima Verdad (their interest on) the disputed lot supposedly for the price of P55,460.00. In a duly notarized deed of sale, dated 14 November 1982, it would appear, however, that the lot was sold for only P23,000.00. Petitioner explained that the second deed was intended merely to save on the tax on capital gains. Socorro discovered the sale on 30 March 1987 while she was at the City Treasurer's Office. On 31 March 1987, she sought the intervention of the Lupong Tagapayapa of Barangay 9, Princess Urduja, for the redemption of the property. She tendered the sum of P23,000.00 to Zosima. The latter refused to accept the amount for being much less than the lot's current value of P80,000.00. No settlement having been reached before the Lupong Tagapayapa, private respondents, on 16 October 1987, initiated against petitioner an action for "Legal Redemption with Preliminary Injunction" before the Regional Trial Court of Butuan City. On June 29 1990, following the reception of evidence, the trial court handed down its decision holding, in fine, that private respondents' right to redeem the property had already lapsed. An appeal to the Court of Appeals was interposed by private respondents. The appellate court, in its decision of 22 April 1993, reversed the court a quo; thus: "WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED, and a new one is accordingly entered declaring plaintiff-appellant, Socorro C. Rosales, entitled to redeem the inheritance rights (Art. 1088, NCC) or pro

indiviso share (Art. 1620, NCC) of the Heirs of Ramon Burdeos, Sr. in Lot 529, Ts-65 of the Butuan Cadastre, within the remaining ELEVEN (11) DAYS from finality hereon, unless written notice of the sale and its terms are received in the interim, under the same terms and conditions appearing under Exhibit 'J' and after returning the purchase price of P23,000.00 within the foregoing period. No cost." 1 In her recourse to this Court, petitioner assigned the following "errors:" That "The Honorable Court of Appeals erred in declaring Socorro C. Rosales is entitled to redeem the inheritance rights (Article 1088, NCC) or pro-indiviso share (Article 1620, NCC) of the heirs of Ramon Burdeos, Sr. in Lot 529, Ts-65 of the Butuan Cadastre, for being contrary to law and evidence. "The Honorable Court of Appeals erred in ignoring the peculiar circumstance, in that, the respondents' actual knowledge, as a factor in the delay constitutes laches. "The Honorable Court of Appeals erred in concluding that Socorro C. Rosales, in effect, timely exercised the right of legal redemption when referral to Barangay by respondent signifies bonafide intention to redeem and; that, redemption is properly made even if there is no offer of redemption in legal tender. "The Honorable Court of Appeals erred in ruling that the running of the statutory redemption period is stayed upon commencement of Barangay proceedings." 2 Still, the thrust of the petition before us is the alleged incapacity of private respondent Socorro C. Rosales to redeem the property, she being merely the spouse of David Rosales, a son of Macaria, and not being a co-heir herself in the intestate estate of Macaria. We rule that Socorro can. It is true that Socorro, a daughter-in-law (or, for that matter, a mere relative by affinity), is not an intestate heir of her parents-in-law; 3 however, Socorro's right to the property is not because she rightfully can claim heirship in Macaria's estate but that she is a legal heir of her husband, David Rosales, part of whose estate is a share in his mother's inheritance. David Rosales, incontrovertibly, survived his mother's death. When Macaria died on 08 March 1956 her estate passed on to her surviving children, among them David Rosales, who thereupon became co-owners of the property. When David Rosales himself later died, his own estate, which included his undivided interest over the property inherited from Macaria, passed on to his widow Socorro and her co-heirs pursuant to the law on succession. "ARTICLE 995. In the absence of legitimate descendants and ascendants, and illegitimate children and their descendants, whether legitimate or illegitimate, the surviving spouse shall inherit the entire estate, without prejudice to the rights of brothers and sisters, nephews and nieces, should there be any, under Article 1001.

"xxx

xxx

xxx

ARTICLE 1001. Should brothers and sisters or their children survive with the widow or widower, the latter shall be entitled to one-half of the inheritance and the brothers and sisters or their children to the half." 4 Socorro and herein private respondents, along with the co-heirs of David Rosales, thereupon became co-owners of the property that originally descended from Macaria. When their interest in the property was sold by the Burdeos heirs to petitioner, a right of redemption arose in favor of private respondents; thus: "ARTICLE 1619. Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title." "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." We hold that the right of redemption was timely exercised by private respondents. Concededly, no written notice of the sale was given by the Burdeos heirs (vendors) to the co-owners 5 required under Article 1623 of the Civil Code "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." Hence, the thirty-day period of redemption had yet to commence when private respondent Rosales sought to exercise the right of redemption on 31 March 1987, a day after she discovered the sale from the Office of the City Treasurer of Butuan City, or when the case was initiated, on 16 October 1987, before the trial court. The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status. 6 Even in Alonzo vs. Intermediate Appellate Court, 7 relied upon by petitioner in contending that actual knowledge should be an equivalent to a written notice of sale, the Court made it clear that it was not reversing the prevailing jurisprudence; said the Court:

"We realize that in arriving at our conclusion today, we are deviating from the strict letter of the law, which the respondent court understandably applied pursuant to existing jurisprudence. The said court acted properly as it had no competence to reverse the doctrines laid down by this Court in the above-cited cases. In fact, and this should be clearly stressed, we ourselves are not abandoning the De Conejero and Buttle doctrines. What we are doing simply is adopting an exception to the general rule, in view of the peculiar circumstances of this case." 8 In Alonzo, the right of legal redemption was invoked several years, not just days or months, after the consummation of the contracts of sale. The complaint for legal redemption itself was there filed more than thirteen years after the sales were concluded. Relative to the question posed by petitioner on private respondent's tender of payment, it is enough that we quote, with approval, the appellate court; viz: "In contrast, records clearly show that an amount was offered, as required in Sempio vs. Del Rosario, 44 Phil. 1 and Daza vs. Tomacruz, 58 Phil. 414, by the redemptioner-appellant during the barangay conciliation proceedings (Answer, par. 8) but was flatly rejected by the appellee, not on the ground that it was not the purchase price (though it appeared on the face of the deed of sale, Exh. 'J-1'), nor that it was offered as partial payment thereof, but rather that it was 'unconscionable' based upon its 'present value.' (Answer, par. 8)." 9 All given, we find no error in the appellate court's finding that private respondents are entitled to the redemption of the subject property. WHEREFORE, the petition is DENIED and the assailed decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. 137677

May 31, 2000

ADALIA B. FRANCISCO, petitioner, vs. ZENAIDA F. BOISER, respondent.

MENDOZA, J.: This is a petition for review of the decision of the Court of Appeals in CA-G.R. CV No. 55518 which affirmed in toto the decision of the Regional Trial Court, Branch 122, Caloocan City, dismissing petitioner's complaint for redemption of property against respondent. The facts are as follows: Petitioner Adalia B. Francisco and three of her sisters, Ester, Elizabeth and Adeluisa, were co-owners of four parcels of registered lands1 on which stands the Ten Commandments Building at 689 Rizal Avenue Extension, Caloocan City. On August 6, 1979, they sold 1/5 of their undivided share in the subject parcels of land to their mother, Adela Blas, for P10,000.00, thus making the latter a co-owner of said real property to the extent of the share sold. On August 8, 1986, without the knowledge of the other co-owners, Adela Blas sold her 1/5 share for P10,000.00 to respondent Zenaida Boiser who is another sister of petitioner. On August 5, 1992, petitioner received summons, with a copy of the complaint in Civil Case No. 15510, filed by respondent demanding her share in the rentals being collected by petitioner from the tenants of the building. Petitioner then informed respondent that she was exercising her right of redemption as a co-owner of the subject property. On August 12, 1992, she deposited the amount of P10,000.00 as redemption price with the Clerk of Court. This move to redeem the property was interposed as a permissive counterclaim in Civil Case No. 15510. However, said case was dismissed after respondent was declared non-suited with the result that petitioner's counterclaim was likewise dismissed. On September 14, 1995, petitioner instituted Civil Case No. C-17055 before the Regional Trial Court in Caloocan City. She alleged that the 30-day period for redemption under Art. 1623 of the Civil Code had not begun to run against her since the vendor, Adela Blas, never informed her and the other owners about the sale to respondent. She learned about the sale only on August 5, 1992, after she received the summons in Civil Case No. 15510, together with the complaint.

Respondent, on the other hand, contended that petitioner knew about the sale as early as May 30, 1992, because, on that date, she wrote petitioner a letter2 informing the latter about the sale, with a demand that the rentals corresponding to her 1/5 share of the subject property be remitted to her. Said letter was sent with a copy of the Deed of Sale 3 between respondent and Adela Blas. On the same date, letters4 were likewise sent by respondent to the tenants of the building, namely, Seiko Service Center and Glitters Corporation, informing them of the sale and requesting that, thenceforth, they pay 1/5 of the monthly rentals to respondent. That petitioner received these letters is proved by the fact that on June 8, 1992, she wrote5 the building's tenants advising them to disregard respondent's request and continue paying full rentals directly to her. On August 19, 1996, the trial court dismissed petitioner's complaint for legal redemption. It ruled that Art. 1623 does not prescribe any particular form of notifying co-owners about a sale of property owned in common to enable them to exercise their right of legal redemption.6 While no written notice was given by the vendor, Adela Blas, to petitioner or the other owners, petitioner herself admitted that she had received respondent's letter of May 30, 1992 and was in fact furnished a copy of the deed evidencing such sale.7 The trial court considered the letter sent by respondent to petitioner with a copy of the deed of sale as substantial compliance with the required written notice under Art. 1623 of the New Civil Code.8 Consequently, the 30-day period of redemption should be counted not from August 5, 1992, when petitioner received summons in Civil Case No. 15510, but at the latest, from June 8, 1992, the date petitioner wrote the tenants of the building advising them to continue paying rentals in full to her. Petitioner failed to redeem the property within that period. Petitioner brought the matter to the Court of Appeals, which, on October 26, 1998, affirmed the decision of the Regional Trial Court. She moved for reconsideration, but her motion was denied by the appellate court on February 16, 1999. Hence, this petition. The sole issue presented in this appeal is whether the letter of May 30, 1992 sent by respondent to petitioner notifying her of the sale on August 8, 1986 of Adela Blas' 1/5 share of the property to respondent, containing a copy of the deed evidencing such sale, can be considered sufficient as compliance with the notice requirement of Art. 1623 for the purpose of legal redemption. The trial court and the Court of Appeals relied on the ruling in Distrito v. Court of Appeals9 that Art. 1623 does not prescribe any particular form of written notice, nor any distinctive method for notifying the redemptioner. They also invoked the rulings in De Conejero v. Court of Appeals 10 and Badillo v. Ferrer 11 that furnishing the redemptioner with a copy of the deed of sale is equivalent to giving him the written notice required by law.

On the other hand, petitioner points out that the cited cases are not relevant because the present case does not concern the particular form in which notice must be given. Rather, the issue here is whether a notice sent by the vendee may be given in lieu of that required to be given by the vendor or prospective vendor. 12 Art. 1623 of the Civil Code provides: 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 maybe. 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. In ruling that the notice given by the vendee was sufficient, the appellate court cited the case of Etcuban v. Court of Appeals 1 in which it was held: Petitioner contends that vendors (his co-heirs) should be the ones to give him written notice and not the vendees (defendants or private respondent herein) citing the case of Butte vs. Manuel Uy & Sons. Inc., 4 SCRA 526. Such contention is of no moment. While it is true that written notice is required by the law (Art. 1623), it is equally true that, the same "Art. 1623 does not prescribe any particular form of notice, nor any distinctive method for notifying the redemptioner." So long, therefore, as the latter is informed in writing of the sale and the particulars thereof, the 30 days for redemption start running, and the redemptioner has no real cause to complain. (De Conejero et al v. Court of Appeals, et al., 16 SCRA 775). In the Conejero case, we ruled that the furnishing of a copy of the disputed deed of sale to the redemptioner was equivalent to the giving of written notice required by law in "a more authentic manner than any other writing could have done," and that We cannot adopt a stand of having to sacrifice substance to technicality. More so in the case at bar, where the vendors or co-owners of petitioner stated under oath in the deeds of sale that notice of sale had been given to prospective redemptioners in accordance with Art. 16232 of the Civil Code. "A sworn statement or clause in a deed of sale to the effect that a written notice of sale was given to possible redemptioners or co-owners might be used to determine whether an offer to redeem was made on or out of time, or whether there was substantial compliance with the requirement of said Art. 1623." 14 In Etcuban, notice to the co-owners of the sale of the share of one of them was given by the vendees through their counterclaim in the action for legal redemption. Despite the apparent meaning of Art. 1623, it was held in that case that it was "of no moment" that the notice of sale was given not by the vendor but by the vendees.

"So long as the [co-owner] is informed in writing of the sale and the particulars thereof, the 30 days for redemption stair running, and the redemptioner has no cause to complain," so it was held. The contrary doctrine of Butte v. Manuel Uy and Sons, Inc. 15 was thus overruled sub silencio. However, in the later case of Salatandol v. Retes, 16 decided a year after the Etcuban case, the Court expressly affirmed the ruling in Butte that the notice required by Art. 1623 must be given by the vendor. In Salatandol, the notice given to the redemptioner by the Register of Deeds of the province where the subject land was situated was held to be insuffucient. Resolving the issue of whether such notice was equivalent to the notice from the vendor required under Art. 1623, this Court stated: The appeal is impressed with merit. In Butte vs. Manuel Uy and Sons, Inc., the Court ruled that Art. 1623 of the Civil Code clearly and expressly prescribes that the thirty (30) days for making the pre-emption or redemption are to be counted from notice in writing by the vendor. The Court said: . . . The test of Article 1623 clearly and expressly prescribes that the thirty days for making the redemption are to be counted from notice in writing by the vendor. Under the old law (Civil Code of 1889, Art. 1524), it was immaterial who gave the notice; so long as the redeeming co-owner learned of the alienation in favor of the stranger, the redemption period began to run. It is thus apparent that the Philippine legislature in Article 1623 deliberately selected a particular method of giving notice, and that method must be deemed exclusive (39 Am. Jur., 237; Payne vs. State, 12 S.W. (2d) (528). As ruled in Wampher vs. Lecompte, 150 Atl. 458 (aff'd. in 75 Law Ed. [U.S.] 275) Why these provisions were inserted in the statute we are not informed, but we may assume until the contrary is shown, that a state of facts in respect thereto existed, which warranted the legislature in so legislating. The reasons for requiring that the notice should be given by the seller, and not by the buyer, are easily divined. The seller of an undivided interest is in the best position to know who are his co-owners that under the law must be notified of the sale. Also, the notice by the seller removes all doubts as to fact of the sale, its perfection, and its validity, the notice being a reaffirmation thereof; so that that party notified need not entertain doubt that the seller may still contest the alienation. This assurance would not exist if the notice should be given by the buyer. In the case at bar, the plaintiffs have not been furnished any written notice of sale or a copy thereof by Eufemia Omole, the vendor. Said plaintiffs' right to exercise the legal right of preemption or redemption, given to a co-owner when any one of the

other co-owners sells his share in the thing owned in common to a third person, as provided for in Article 1623 of the Civil Code, has not yet accrued. There was thus a return to the doctrine laid down in Butte. That ruling is sound. In the first place, reversion to the ruling in Butte is proper. Art. 1623 of the Civil Code is clear in requiring that the written notification should come from the vendor or prospective vendor, not from any other person. There is, therefore, no room for construction. Indeed, the principal difference between Art. 1524 of the former Civil Code and Art. 1623 of the present one is that the former did not specify who must give the notice, whereas the present one expressly says the notice must be given by the vendor. Effect must be given to this change in statutory language. In the second place, it makes sense to require that the notice required in Art. 1623 be given by the vendor and by nobody else. As explained by this Court through Justice J.B.L. Reyes in Butte, the vendor of an undivided interest is in the best position to know who are his co-owners who under the law must be notified of the sale. It is likewise the notification from the seller, not from anyone else, which can remove all doubts as to the fact of the sale, its perfection, and its validity, for in a contract of sale, the seller is in the best position to confirm whether consent to the essential obligation of selling the property and transferring ownership thereof to the vendee has been given. Now, it is clear that by not immediately notifying the co-owner, a vendor can delay or even effectively prevent the meaningful exercise of the right of redemption. In the present case, for instance, the sale took place in 1986, but it was kept secret until 1992 when vendee (herein respondent) needed to notify petitioner about the sale to demand 1/5 rentals from the property sold. Compared to serious prejudice to petitioner's right of legal redemption, the only adverse effect to vendor Adela Blas and respondent-vendee is that the sale could not be registered. It is non-binding, only insofar as third persons are concerned. 17 It is, therefore, unjust when the subject sale has already been established before both lower courts and now, before this Court, to further delay petitioner's exercise of her right of legal redemption by requiring that notice be given by the vendor before petitioner can exercise her right. For this reason, we rule that the receipt by petitioner of summons in Civil Case No. 15510 on August 5, 1992 constitutes actual knowledge on the basis of which petitioner may now exercise her right of redemption within 30 days from finality of this decision. Our ruling is not without precedent. In Alonzo v. Intermediate Appellate Court, 18 we dispensed with the need for written notification considering that the redemptioners lived on the same lot on which the purchaser lived and were thus deemed to have actual knowledge of the sales. We stated that the 30-day period of redemption started, not from the date of the sales in 1963 and 1964, but sometime between those years and 1976, when the first complaint for redemption was

actually filed. For 13 years, however, none of the co-heirs moved to redeem the property. We thus ruled that the right of redemption had already been extinguished because the period for its exercise had already expired. In the present case, as previously discussed, receipt by petitioner of summons in Civil Case No. 15510 on August 5, 1992 amounted to actual knowledge of the sale from which the 30-day period of redemption commenced to run. Petitioner had until September 4, 1992 within which to exercise her right of legal redemption, but on August 12, 1992 she deposited the P10,000.00 redemption price. As petitioner's exercise of said right was timely, the same should be given effect. WHEREFORE, in view of the foregoing, the petition is GRANTED and the decision of the Court of Appeals is REVERSED and the Regional Trial Court, Branch 122, Caloocan City is ordered to effect petitioner's exercise of her right of legal redemption in Civil Case No. C-17055. SO ORDERED.

[G.R. No. 133638. April 15, 2005.] PERPETUA VDA. DE APE, petitioner, vs. THE HONORABLE COURT OF APPEALS and GENEROSA CAWIT VDA. DE LUMAYNO, respondents. DECISION CHICO-NAZARIO, J p: Before Us is a petition for review on certiorari of the Decision 1 of the Court of Appeals in CA-G.R. CV No. 45886 entitled, "Generosa Cawit de Lumayno, accompanied by her husband Braulio Lumayno v. Fortunato Ape, including his wife Perpetua de Ape." CAHaST The pertinent facts are as follows: Cleopas Ape was the registered owner of a parcel of land particularly known as Lot No. 2319 of the Escalante Cadastre of Negros Occidental and covered by Original Certificate of Title (OCT) No. RP 1379 (RP-154 [300]). 2 Upon Cleopas Ape's death sometime in 1950, the property passed on to his wife, Maria Ondoy, and their eleven (11) children, namely: Fortunato, Cornelio, Bernalda, Bienvenido, Encarnacion, Loreta, Lourdes, Felicidad, Adela, Dominador, and Angelina, all surnamed Ape. On 15 March 1973, Generosa Cawit de Lumayno (private respondent herein), joined by her husband, Braulio, 3 instituted a case for "Specific Performance of a Deed of Sale with Damages" against Fortunato and his wife Perpetua (petitioner herein) before the then Court of First Instance of Negros Occidental. It was alleged in the complaint that on 11 April 1971, private respondent and Fortunato entered into a contract of sale of land under which for a consideration of P5,000.00, Fortunato agreed to sell his share in Lot No. 2319 to private respondent. The agreement was contained in a receipt prepared by private respondent's son-in-law, Andres Flores, at her behest. Said receipt was attached to the complaint as Annex "A" thereof and later marked as Exhibit "G" for private respondent. The receipt states: April 11, 1971 TO WHOM IT MAY CONCERN: This date received from Mrs. Generosa Cawit de Lumayno the sum of THIRTY PESOS ONLY as Advance Payment of my share in Land Purchased, for FIVE THOUSAND PESOS LOT #2319. (Signed) FORTUNATO APE P30.00 WITNESS:

(Illegible) 4 As private respondent wanted to register the claimed sale transaction, she supposedly demanded that Fortunato execute the corresponding deed of sale and to receive the balance of the consideration. However, Fortunato unjustifiably refused to heed her demands. Private respondent, therefore, prayed that Fortunato be ordered to execute and deliver to her "a sufficient and registrable deed of sale involving his one-eleventh (1/11) share or participation in Lot No. 2319 of the Escalante Cadastre; to pay P5,000.00 in damages; P500.00 reimbursement for litigation expenses as well as additional P500.00 for every appeal made; P2,000.00 for attorney's fees; and to pay the costs. 5 Fortunato and petitioner denied the material allegations of the complaint and claimed that Fortunato never sold his share in Lot No. 2319 to private respondent and that his signature appearing on the purported receipt was forged. By way of counterclaim, the defendants below maintained having entered into a contract of lease with respondent involving Fortunato's portion of Lot No. 2319. This purported lease contract commenced in 1960 and was supposed to last until 1965 with an option for another five (5) years. The annual lease rental was P100.00 which private respondent and her husband allegedly paid on installment basis. Fortunato and petitioner also assailed private respondent and her husband's continued possession of the rest of Lot No. 2319 alleging that in the event they had acquired the shares of Fortunato's co-owners by way of sale, he was invoking his right to redeem the same. Finally, Fortunato and petitioner prayed that the lease contract between them and respondent be ordered annulled; and that respondent be ordered to pay them attorney's fees; moral damages; and exemplary damages. 6 In their reply, 7 the private respondent and her husband alleged that they had purchased from Fortunato's co-owners, as evidenced by various written instruments, 8 their respective portions of Lot No. 2319. By virtue of these sales, they insisted that Fortunato was no longer a co-owner of Lot No. 2319 thus, his right of redemption no longer existed. DHACES Prior to the resolution of this case at the trial court level, Fortunato died and was substituted in this action by his children named Salodada, Clarita, Narciso, Romeo, Rodrigo, Marieta, Fortunato, Jr., and Salvador, all surnamed Ape. 9 During the trial, private respondent testified that she and her husband acquired the various portions of Lot No. 2319 belonging to Fortunato's co-owners. Thereafter, her husband caused the annotation of an adverse claim on the certificate of title of Lot No. 2319. 10 The annotation states: Entry No. 123539 Adverse claim filed by Braulio Lumayno. Notice of adverse claim filed by Braulio Lumayno affecting the lot described in this title to the extent of 77511.93 square meters, more or less, the aggregate area of shares sold to him on the basis of (alleged) sales in his possession. Doc. No. 157, Page No. 33, Book

No. XI, Series of 1967 of Alexander Cawit of Escalante, Neg. Occ. Date of instrument. June 22, 1967 at 8:30 a.m. (SGD) FEDENCIORRAZ, Actg. Register of Deeds. 11 In addition, private respondent claimed that after the acquisition of those shares, she and her husband had the whole Lot No. 2319 surveyed by a certain Oscar Mascada who came up with a technical description of said piece of land. 12 Significantly, private respondent alleged that Fortunato was present when the survey was conducted. 13 Also presented as evidence for private respondent were pictures taken of some parts of Lot No. 2319 purportedly showing the land belonging to Fortunato being bounded by a row of banana plants thereby separating it from the rest of Lot No. 2319. 14 As regards the circumstances surrounding the sale of Fortunato's portion of the land, private respondent testified that Fortunato went to her store at the time when their lease contract was about to expire. He allegedly demanded the rental payment for his land but as she was no longer interested in renewing their lease agreement, they agreed instead to enter into a contract of sale which Fortunato acceded to provided private respondent bought his portion of Lot No. 2319 for P5,000.00. Thereafter, she asked her son-in-law Flores to prepare the aforementioned receipt. Flores read the document to Fortunato and asked the latter whether he had any objection thereto. Fortunato then went on to affix his signature on the receipt. CaSHAc For her part, petitioner insisted that the entire Lot No. 2319 had not yet been formally subdivided; 15 that on 11 April 1971 she and her husband went to private respondent's house to collect past rentals for their land then leased by the former, however, they managed to collect only thirty pesos; 16 that private respondent made her (petitioner's) husband sign a receipt acknowledging the receipt of said amount of money; 17 and that the contents of said receipt were never explained to them. 18 She also stated in her testimony that her husband was an illiterate and only learned how to write his name in order to be employed in a sugar central. 19 As for private respondent's purchase of the shares owned by Fortunato's co-owners, petitioner maintained that neither she nor her husband received any notice regarding those sales transactions. 20 The testimony of petitioner was later on corroborated by her daughter-in-law, Marietta Ape Dino. 21 After due trial, the court a quo rendered a decision 22 dismissing both the complaint and the counterclaim. The trial court likewise ordered that deeds or documents representing the sales of the shares previously owned by Fortunato's coowners be registered and annotated on the existing certificate of title of Lot No. 2319. According to the trial court, private respondent failed to prove that she had actually paid the purchase price of P5,000.00 to Fortunato and petitioner. Applying,

therefore, the provision of Article 1350 of the Civil Code, 23 the trial court concluded that private respondent did not have the right to demand the delivery to her of the registrable deed of sale over Fortunato's portion of the Lot No. 2319. The trial court also rejected Fortunato and petitioner's claim that they had the right of redemption over the shares previously sold to private respondent and the latter's husband, reasoning as follows: Defendants in their counterclaim invoke their right of legal redemption under Article 1623 of the New Civil Code in view of the alleged sale of the undivided portions of the lot in question by their co-heirs and co-owners as claimed by the plaintiffs in their complaint. They have been informed by the plaintiff about said sales upon the filing of the complaint in the instant case as far back as March 14, 1973. Defendant themselves presented as their very own exhibits copies of the respective deeds of sale or conveyance by their said co-heirs and co-owners in favor of the plaintiffs or their predecessors-in-interest way back on January 2, 1992 when they formally offered their exhibits in the instant case; meaning, they themselves acquired possession of said documentary exhibits even before they formally offered them in evidence. Under Art. 1623 of the New Civil Code, defendants have only THIRTY (30) DAYS counted from their actual knowledge of the exact terms and conditions of the deeds of sale or conveyance of their co-heirs' and co-owners' share within which to exercise their right of legal redemption. 24 Within the reglementary period, both parties filed their respective notices of appeal before the trial court with petitioner and her children taking exception to the finding of the trial court that the period within which they could invoke their right of redemption had already lapsed. 25 For her part, private respondent raised as errors the trial court's ruling that there was no contract of sale between herself and Fortunato and the dismissal of their complaint for specific performance. 26 The Court of Appeals, in the decision now assailed before us, reversed and set aside the trial court's dismissal of the private respondent's complaint but upheld the portion of the court a quo's decision ordering the dismissal of petitioner and her children's counterclaim. The dispositive portion of the appellate court's decision reads: WHEREFORE, the decision dated March 11, 1994, is hereby REVERSED and SET ASIDE insofar as the dismissal of plaintiffs-appellants' complaint is concerned, and another one is entered ordering the defendant-appellant Fortunato Ape and/or his wife Perpetua de Ape and successors-in-interest to execute in favor of plaintiffappellant Generosa Cawit de Lumayno a Deed of Absolute Sale involving the oneeleventh (1/11) share or participation of Fortunato Ape in Lot No. 2319, Escalante Cadastre, containing an area of 12,527.19 square meters, more or less, within (30) days from finality of this decision, and in case of non-compliance with this Order, that the Clerk of Court of said court is ordered to execute the deed on behalf of the

vendor. The decision is AFFIRMED insofar as the dismissal of defendants-appellants' counterclaim is concerned. aATHIE Without pronouncement as to costs. 27 The Court of Appeals upheld private respondent's position that Exhibit "G" had all the earmarks of a valid contract of sale, thus: Exhibit G is the best proof that the P5,000.00 representing the purchase price of the 1/11th share of Fortunato Ape was not paid by the vendee on April 11, 1971, and/or up to the present, but that does not affect the binding force and effect of the document. The vendee having paid the vendor an advance payment of the agreed purchase price of the property, what the vendor can exact from the vendee is full payment upon his execution of the final deed of sale. As is shown, the vendee precisely instituted this action to compel the vendor Fortunato Ape to execute the final document, after she was informed that he would execute the same upon arrival of his daughter "Bala" from Mindanao, but afterwards failed to live up to his contractual obligation (TSN, pp. 11-13, June 10, 1992). It is not right for the trial court to expect plaintiff-appellant to pay the balance of the purchase price before the final deed is executed, or for her to deposit the equivalent amount in court in the form of consignation. Consignation comes into fore in the case of a creditor to whom tender of payment has been made and refuses without just cause to accept it (Arts. 1256 and 1252, N.C.C.; Querino vs. Pelarca, 29 SCRA 1). As vendee, plaintiff-appellant Generosa Cawit de Lumayno does not fall within the purview of a debtor. We, therefore, find and so hold that the trial court should have found that exhibit G bears all the earmarks of a private deed of sale which is valid, binding and enforceable between the parties, and that as a consequence of the failure and refusal on the part of the vendor Fortunato Ape to live up to his contractual obligation, he and/or his heirs and successors-in-interest can be compelled to execute in favor of, and to deliver to the vendee, plaintiff-appellant Generosa Cawit de Lumayno a registerable deed of absolute sale involving his one-eleventh (1/11th) share or participation in Lot No. 2319, Escalante Cadastre, containing an area of 12,527.19 square meters, more or less, within 30 days from finality of this decision, and, in case of non-compliance within said period, this Court appoints the Clerk of Court of the trial court to execute on behalf of the vendor the said document. 28 The Court of Appeals, however, affirmed the trial court's ruling on the issue of petitioner and her children's right of redemption. It ruled that Fortunato's receipt of the Second Owner's Duplicate of OCT (RP) 1379 (RP-154 ([300]), containing the adverse claim of private respondent and her husband, constituted a sufficient compliance with the written notice requirement of Article 1623 of the Civil Code and the period of redemption under this provision had long lapsed. DAcSIC

Aggrieved by the decision of the appellate court, petitioner is now before us raising, essentially, the following issues: whether Fortunato was furnished with a written notice of sale of the shares of his co-owners as required by Article 1623 of the Civil Code; and whether the receipt signed by Fortunato proves the existence of a contract of sale between him and private respondent. In her memorandum, petitioner claimed that the Court of Appeals erred in sustaining the court a quo's pronouncement that she could no longer redeem the portion of Lot No. 2319 already acquired by private respondent for no written notice of said sales was furnished them. According to her, the Court of Appeals unduly expanded the scope of the law by equating Fortunato's receipt of Second Owner's Duplicate of OCT (RP) 1379 (RP-154 ([300]) with the written notice requirement of Article 1623. In addition, she argued that Exhibit "G" could not possibly be a contract of sale of Fortunato's share in Lot No. 2319 as said document does not contain "(a) definite agreement on the manner of payment of the price." 29 Even assuming that Exhibit "G" is, indeed, a contract of sale between private respondent and Fortunato, the latter did not have the obligation to deliver to private respondent a registrable deed of sale in view of private respondent's own failure to pay the full purchase price of Fortunato's portion of Lot No. 2319. Petitioner is also of the view that, at most, Exhibit "G" merely contained a unilateral promise to sell which private respondent could not enforce in the absence of a consideration distinct from the purchase price of the land. Further, petitioner reiterated her claim that due to the illiteracy of her husband, it was incumbent upon private respondent to show that the contents of Exhibit "G" were fully explained to him. Finally, petitioner pointed out that the Court of Appeals erred when it took into consideration the same exhibit despite the fact that only its photocopy was presented before the court. On the other hand, private respondent argued that the annotation on the second owner's certificate over Lot No. 2319 constituted constructive notice to the whole world of private respondent's claim over the majority of said parcel of land. Relying on our decision in the case of Cabrera v. Villanueva, 30 private respondent insisted that when Fortunato received a copy of the second owner's certificate, he became fully aware of the contracts of sale entered into between his co-owners on one hand and private respondent and her deceased husband on the other. cEaSHC Private respondent also averred that "although (Lot No. 2319) was not actually partitioned in a survey after the death of Cleopas Ape, the land was partitioned in a 'hantal-hantal' manner by the heirs. Each took and possessed specific portion or premises as his/her share in land, farmed their respective portion or premises, and improved them, each heir limiting his/her improvement within the portion or premises which were his/her respective share." 31 Thus, when private respondent and her husband purchased the other parts of Lot No. 2319, it was no longer undivided as petitioner claims. The petition is partly meritorious.

Article 1623 of the Civil Code provides: 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. Despite the plain language of the law, this Court has, over the years, been tasked to interpret the "written notice requirement" of the above-quoted provision. In the case Butte v. Manuel Uy & Sons, Inc., 32 we declared that In considering whether or not the offer to redeem was timely, we think that the notice given by the vendee (buyer) should not be taken into account. The text of Article 1623 clearly and expressly prescribes that the thirty days for making the redemption are to be counted from notice in writing by the vendor. Under the old law (Civ. Code of 1889, Art. 1524), it was immaterial who gave the notice; so long as the redeeming co-owner learned of the alienation in favor of the stranger, the redemption period began to run. It is thus apparent that the Philippine legislature in Article 1623 deliberately selected a particular method of giving notice, and that method must be deemed exclusive. (39 Am. Jur., 237; Payne vs. State, 12 S.W. 2(d) 528). As ruled in Wampler vs. Lecompte, 150 Atl. 458 (affd. in 75 Law Ed. [U.S.] 275) why these provisions were inserted in the statute we are not informed, but we may assume until the contrary is shown, that a state of facts in respect thereto existed, which warranted the legislature in so legislating. aESICD The reasons for requiring that the notice should be given by the seller, and not by the buyer, are easily divined. The seller of an undivided interest is in the best position to know who are his co-owners that under the law must be notified of the sale. Also, the notice by the seller removes all doubts as to fact of the sale, its perfection; and its validity, the notice being a reaffirmation thereof, so that the party notified need not entertain doubt that the seller may still contest the alienation. This assurance would not exist if the notice should be given by the buyer. 33 The interpretation was somehow modified in the case of De Conejero, et al. v. Court of Appeals, et al. 34 wherein it was pointed out that Article 1623 "does not prescribe a particular form of notice, nor any distinctive method for notifying the redemptioner" thus, as long as the redemptioner was notified in writing of the sale and the particulars thereof, the redemption period starts to run. This view was reiterated in Etcuban v. The Honorable Court of Appeals, et al., 35 Cabrera v. Villanueva, 36 Garcia, et al. v. Calaliman, et al., 37 Distrito, et al. v. The Honorable Court of Appeals, et al., 38 and Mariano, et al. v. Hon. Court of Appeals, et al. 39

However, in the case of Salatandol v. Retes, 40 wherein the plaintiffs were not furnished any written notice of sale or a copy thereof by the vendor, this Court again referred to the principle enunciated in the case of Butte. As observed by Justice Vicente Mendoza, such reversion is only sound, thus: . . . Art. 1623 of the Civil Code is clear in requiring that the written notification should come from the vendor or prospective vendor, not from any other person. There is, therefore, no room for construction. Indeed, the principal difference between Art. 1524 of the former Civil Code and Art. 1623 of the present one is that the former did not specify who must give the notice, whereas the present one expressly says the notice must be given by the vendor. Effect must be given to this change in statutory language. 41 In this case, the records are bereft of any indication that Fortunato was given any written notice of prospective or consummated sale of the portions of Lot No. 2319 by the vendors or would-be vendors. The thirty (30)-day redemption period under the law, therefore, has not commenced to run. Despite this, however, we still rule that petitioner could no longer invoke her right to redeem from private respondent for the exercise of this right "presupposes the existence of a co-ownership at the time the conveyance is made by a co-owner and when it is demanded by the other co-owner or co-owners." 42 The regime of coownership exists when ownership of an undivided thing or right belongs to different persons. 43 By the nature of a co-ownership, a co-owner cannot point to specific portion of the property owned in common as his own because his share therein remains intangible. 44 As legal redemption is intended to minimize co-ownership, 45 once the property is subdivided and distributed among the co-owners, the community ceases to exist and there is no more reason to sustain any right of legal redemption. 46 In this case, records reveal that although Lot No. 2319 has not yet been formally subdivided, still, the particular portions belonging to the heirs of Cleopas Ape had already been ascertained and they in fact took possession of their respective parts. This can be deduced from the testimony of petitioner herself, thus: Q When the plaintiffs leased the share of your husband, were there any metes and bounds? A It was not formally subdivided. We have only a definite portion. (hantalhantal) Q This hantal-hantal of your husband, was it also separate and distinct from the hantal-hantal or the share of the brothers and sisters of your husband? cAaDHT A Well, this property in question is a common property.

Q To the north, whose share was that which is adjacent to your husband's assumed partition? A I do not know what [does] this "north" [mean].

COURT (To Witness) Q A Q A Q To the place from where the sun rises, whose share was that? The shares of Cornelia, Loreta, Encarnacion and Adela. How could you determine their own shares? They were residing in their respective assumed portions. How about determining their respective boundaries?

A It could be determined by stakes and partly a row of banana plantations planted by my son-in-law. Q A Who is this son-in-law you mentioned? Narciso Ape.

ATTY. CAWIT (Continuing) Q You said that there were stakes to determine the hantal-hantal of your husband and the hantal-hantal of the other heirs, did I get you right? EDISTc ATTY. TAN Admitted, Your Honor. xxx ATTY. CAWIT Q A Mrs. Ape, in 1960, Cleopas Ape was already dead, is that correct? Certainly, since he died in 1950. xxx xxx

Q By the manifestation of your counsel that the entire land (13 hectares) of your father-in-law, Cleopas Ape, was leased to Generosa Lumayno, is this correct? A No, it is only the assumed portion of my husband [which] was leased to Generosa Lumayno.

Q For clarification, it was only the share of your husband [which] was leased to Generosa Cawit Lumayno? A Yes. 47

ATTY. CAWIT Q My question: is that portion which you said was leased by your husband to the Lumayno[s] and which was included to the lease by your mother-in-law to the Lumayno[s], when the Lumayno[s] returned your husband['s] share, was that the same premises that your husband leased to the Lumayno[s]? A The same. TDCAHE

Q In re-possessing this portion of the land corresponding to the share of your husband, did your husband demand that they should re-possess the land from the Lumayno[s] or did the Lumayno[s] return them to your husband voluntarily? A They just returned to us without paying the rentals.

COURT Q Was the return the result of your husband's request or just voluntarily they returned it to your husband? A No, sir, it was just returned voluntarily, and they abandoned the area but my husband continued farming. 48 Similarly telling of the partition is the stipulation of the parties during the pre-trial wherein it was admitted that Lot No. 2319 had not been subdivided nevertheless, "Fortunato Ape had possessed a specific portion of the land ostensibly corresponding to his share." 49 From the foregoing, it is evident that the partition of Lot No. 2319 had already been effected by the heirs of Cleopas Ape. Although the partition might have been informal is of no moment for even an oral agreement of partition is valid and binding upon the parties. 50 Likewise, the fact that the respective shares of Cleopas Ape's heirs are still embraced in one and the same certificate of title and have not been technically apportioned does not make said portions less determinable and identifiable from one another nor does it, in any way, diminish the dominion of their respective owners. 51 Turning now to the second issue of the existence of a contract of sale, we rule that the records of this case betray the stance of private respondent that Fortunato Ape entered into such an agreement with her. AIDSTE A contract of sale is a consensual contract, thus, it is perfected by mere consent of the parties. It is born from the moment there is a meeting of minds upon the thing

which is the object of the sale and upon the price. 52 Upon its perfection, the parties may reciprocally demand performance, that is, the vendee may compel the transfer of the ownership and to deliver the object of the sale while the vendor may demand the vendee to pay the thing sold. 53 For there to be a perfected contract of sale, however, the following elements must be present: consent, object, and price in money or its equivalent. In the case of Leonardo v. Court of Appeals, et al., 54 we explained the element of consent, to wit: The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by one of the offer made by the other. It is the concurrence of the minds of the parties on the object and the cause which constitutes the contract. The area of agreement must extend to all points that the parties deem material or there is no consent at all. To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact notion of the matter to which it refers; (b) it should be free and (c) it should be spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; spontaneity by fraud. 55 In this jurisdiction, the general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation as the presumption is that a person takes ordinary care for his concerns and that private dealings have been entered into fairly and regularly. 56 The exception to this rule is provided for under Article 1332 of the Civil Code which provides that "[w]hen one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former." In this case, as private respondent is the one seeking to enforce the claimed contract of sale, she bears the burden of proving that the terms of the agreement were fully explained to Fortunato Ape who was an illiterate. This she failed to do. While she claimed in her testimony that the contents of the receipt were made clear to Fortunato, such allegation was debunked by Andres Flores himself when the latter took the witness stand. According to Flores: ATTY. TAN Q A Mr. Witness, that receipt is in English, is it not? HESCcA Yes, sir.

Q When you prepared that receipt, were you aware that Fortunato Ape doesn't know how to read and write English? A Yes, sir, I know.

Q Mr. Witness, you said you were present at the time of the signing of that alleged receipt of P30.00, correct? A Q A Yes, sir. Where, in what place was this receipt signed? At the store.

Q At the time of the signing of this receipt, were there other person[s] present aside from you, your mother-in-law and Fortunato Ape? A In the store, yes, sir.

Q When you signed that document of course you acted as witness upon request of your mother-in-law? A No, this portion, I was the one who prepared that document.

Q Without asking of (sic) your mother-in-law, you prepared that document or it was your mother-in-law who requested you to prepare that document and acted as witness? A She requested me to prepare but does not instructed (sic) me to act as witness. It was our opinion that whenever I prepared the document, I signed it as a witness. IAETSC Q Did it not occur to you to ask other witness to act on the side of Fortunato Ape who did not know how to read and write English? A It occurred to me.

Q But you did not bother to request a person who is not related to your motherin-law, considering that Fortunato Ape did not know how to read and write English? A The one who represented Fortunato Ape doesn't know also how to read and write English. One a maid. Q You mentioned that there [was another] person inside the store, under your previous statement, when the document was signed, there [was another] person in the store aside from you, your mother-in-law and Fortunato Ape, is not true? A That is true, there is one person, but that person doesn't know how to read also. xxx xxx xxx

Q Of course, Mr. Witness, since it occurred to you that there was need for other witness to sign that document for Fortunato Ape, is it not a fact that the Municipal Building is very near your house? A Quite (near).

Q But you could readily proceed to the Municipal Building and request one who is knowledgeable in English to act as witness? A I think there is no need for that small receipt. So I don't bother myself to go.

Q You did not consider that receipt very important because you said that small receipt? IcaHTA A Yes, I know. 57

As can be gleaned from Flores's testimony, while he was very much aware of Fortunato's inability to read and write in the English language, he did not bother to fully explain to the latter the substance of the receipt (Exhibit "G"). He even dismissed the idea of asking somebody else to assist Fortunato considering that a measly sum of thirty pesos was involved. Evidently, it did not occur to Flores that the document he himself prepared pertains to the transfer altogether of Fortunato's property to his mother-in-law. It is precisely in situations such as this when the wisdom of Article 1332 of the Civil Code readily becomes apparent which is "to protect a party to a contract disadvantaged by illiteracy, ignorance, mental weakness or some other handicap." 58

In sum, we hold that petitioner is no longer entitled to the right of redemption under Article 1632 of the Civil Code as Lot No. 2319 had long been partitioned among its co-owners. This Court likewise annuls the contract of sale between Fortunato and private respondent on the ground of vitiated consent. WHEREFORE, premises considered, the decision dated 25 March 1998 of the Court of Appeals is hereby REVERSED and SET ASIDE and the decision dated 11 March 1994 of the Regional Trial Court, Branch 58, San Carlos City, Negros Occidental, dismissing both the complaint and the counterclaim, is hereby REINSTATED. No costs. AaITCS SO ORDERED.

G.R. No. L-34654

October 23, 1984

SPOUSES BENJAMIN TUPAS AND LEONOR BALDONADO, plaintiffs-appellees, vs. SPOUSES DANIEL DAMASCO AND JUANITA BULAONG, SPOUSES EUSEBIO BULAONG AND CONSUELO SABILE BULAONG, ZACARIAS ANTONIO, in his capacity as Register of Deeds of Cotabato, PHILIPPINE NATIONAL BANK, Cotabato Branch and JUANITO MAPALO, defendants-appellants. Arturo P. Peralta for plaintiffs-appellees. Juan J. Diaz, Benjamin C. del Rosa Juanita B. Ilao and Pedro Lazo for defendantappellant PNB.

CUEVAS, J.:+.wph!1 This appeal interposed by defendant-spouses Eusebio Bulaong and Consuelo Sabile Bulaong and the Philippine National Bank, from the decision of the defunct Court of First, Instance of Southern Cotabato in its Civil Case No. 597, entitled "Spouses Benjamin and Leonor Baldonado versus Spouses Daniel Damasco and Juanita Bulaong, Spouses Eusebio Bulaong and Consuelo Sabile Bulaong, Zacarias Antonio, in his capacity as Register of Deeds of Cotabato, the Philippine National Bank, Cotabato Branch and Juanita Mapalo was originally filed with the defunct Court of Appeals (now the Intermediate Appellate Court) and docketed therein as CA G.R. No. 45713-R; It was however, elevated to this Court on motion of the patties since purely questions of law are involved. The subject matter of this case is a parcel of land, known as Lot No. 895, Pls-209-D, with an area of 128,409 square meters, situated in the City of General Santos in South Cotabato. The aforesaid parcel was acquired by spouses Benjamin Tupas and Leonor Baldonado (now plaintiffs-appellees) under the homestead provisions of the Public Land Act pursuant to their Homestead Application No. 520 (NLSA) G-V-228. On March 8,1951, Homestead Patent No. V-240 was issued to the said spouses and on July 8, 1952, Original Certificate of Title No. V-1042 of the Office of the Register of Deeds of Cotabato was issued in their names. 1 On November 30, 1951, plaintiffs-spouses sold the said land for P3,000.00 to Juanita Bulaong, then still a minor being only eleven (11) years old, but was represented by her father Eusebio Bulaong, now one of the defendants-appellants. 2

Since the said Deed of Sale was executed within the prohibited five-year period from the issuance of the Homestead Patent, 3 another Deed of Sale for the same consideration of P3,000.00 was executed on May 1, 1957 by plaintiffs-appellees in favor of Juanita Bulaong 4 and on the basis thereof, Transfer Certificate of Title No. T-5281 was issued in Juanita Bulaong's name on December 16, 1957. Since 1951 to the present, Juanita Bulaong and her father, defendant-appellant Eusebio Bulaong, have been actually occupying the said parcel and later caused the construction of a residential building thereon valued at P35,000.00, more or less. Meanwhile, Benjamin Tupas had obtained a special crop loan from the Philippine National Bank. For failure to pay the said loan, the Philippine National Bank, Cotabato Branch, instituted Civil Case No. 770 for "Sum of Money" before the then Court of First Instance of Cotabato, against Benjamin Tupas. A writ of preliminary attachment was issued in the said case which was duly annotated on August 23, 1954 at the back of the original copy of TCT No. V-1642, of the spouses Benjamin Tupas and Leonor Baldonado. The attachment was further re-entered by the Register of Deeds on the Transfer Certificate of Title No. T-5281 later issued to Juanita Bulaong pursuant to that Deed of Sale executed on May 1, 1957 in her favor by plaintiff-appellees 5 On April 4, 1959, pursuant to a writ of execution issued by the Court of First Instance of Cotabato in said Civil Case No. 770, (PNB vs. Tupas, et al) the Provincial Sheriff of Cotabato sold the land in question at public auction to the Philippine National Bank for P6,400.00 being the sole bidder. By reason of said execution sale, the Provincial Sheriff executed in favor of the Philippine National Bank a certificate of sale dated April 6, 1959 specifying therein that the one-year period of redemption shall expire on April 4, 1960. The certificate of sale was registered in the Office of the Register of Deeds of Cotabato on August 26, 1959. 6 On March 26, 1960, Juanita Bulaong, then already married to Daniel Damasco, instituted before the same court an action against the Philippine National Bank for "Recovery of Ownership of the same parcel of land. The complaint which was docketed as Civil Case No. 264 was later amended on April 9, 1962 and made as an action for "Quieting of Title", and joining as additional defendants, the Register of Deeds of Cotabato and the Provincial Sheriff. 7 Judgment was rendered in the said case in favor of the Philippine National Bank, nullifying the sale executed on May 1, 1957 by spouses Tupas in favor of Juanita Bulaong. Appeal was taken to the then Court of Appeals as CA-G.R. No. 3287-R but was finally withdrawn on April 3, 1964 after spouses Juanita Bulaong and Daniel Damasco had entered into a compromise agreement agreeing to purchase the land in question from the Philippine National Bank. In the meantime, however, and more specifically on June 4, 1964, spouses Juanita Bulaong Damasco and Daniel Damasco executed a Deed of Absolute Sale,

transferring, selling and conveying in favor of Eusebio Bulaong, married to Consuelo Sabile Bulaong, the land in question for One (P1.00) Peso. The deed further stated that "the consideration is the nominal amount of One (P1.00) Peso because all expenses incurred in the acquisition of the same were advanced and defrayed by Eusebio Bulaong." 8 On September 23, 1964, pursuant to the agreement arrived at in CA-G.R. No. 3387R for the purchase of the land in question, the Philippine National Bank executed a Deed of Sale in favor of the spouses Daniel Damasco and Juanita Bulaong for and in consideration of P10,089,35. 9 On March 2, 1965, title over the land in question was consolidated in the name of Philippine National Bank pursuant to an affidavit of consolidation. And on March 17, 1965, following registration of said affidavit of consolidation with the Office of the Register of Deeds, Transfer Certificate of Title No. T-13103 was issued in the name of the Philippine National Bank. Thereafter, the Deed of Sale dated September 23, 1964, which was executed by the Philippine National Bank in favor of the spouses Juanita Bulaong and Daniel Damasco, was presented for registration and Transfer Certificate of Title No.13104 was issued, this time, in the name of the said spouses. 10 On April 26, 1965, appellant Eusebio Bulaong filed Civil Case No. 585 before the Court of First Instance of Cotabato Branch II, against spouses Daniel Damasco and Juanita Bulaong for "Recovery of Real Property." 11 Judgment was subsequently rendered in the said case holding that the land in question (which is the same land subject of this case on appeal) was actually purchased from the Philippine National Bank by Eusebio Bulaong for a consideration of P10,089.35 on September 23, 1964 and not by the spouses Daniel Damasco and Juanita Bulaong. The spouses Daniel Damasco and Juanita Bulaong were then ordered to convey the land to Eusebio Bulaong. No appeal having been interposed therefrom, the said decision became final. On June 10, 1965, spouses Benjamin Tupas and Leonor Baldonado, filed against spouses Daniel Damasco and Juanita Bulaong Damasco, Zacarias Antonio as Register of Deeds of Cotabato and the Philippine National Bank, an action for the "Repurchase of Land Under Section 119 of Commonwealth Act 141" which was docketed as Civil Case No. 597 now subject of the present appeal. On July 28, 1965, plaintiffs-spouses filed an Amended Complaint and denominated the game as "An Action to Declare a Document and Title a Nullity and Repurchase of Land Under Section 119 of Commonwealth Act 141, as amended and/or Recovery of Real Property and joining as additional defendants, spouses Eusebio Bulaong and Consuelo Sabile Bulaong.

Again on August 27, 1966, plaintiffs-spouses filed a Second Amended Complaint which was styled as "An Action to Declare a Levy and Execution and Public Auction Sale and a Document as Patent Nullity and Recovery of a Parcel of Land". This was admitted by the trial court in its Order dated October 17, 1966. On March 28, 1968, plaintiffs-spouses filed a Motion to Admit and to Treat First Amended Complaint as Second Amended Complaint and Vice Versa. This was, however, denied by the lower court in its Order dated April 3, 1968 for being "improper and illogical. 12 On May 24, 1968, plaintiffs-spouses again filed a Motion for Leave to Admit Second Amended Complaint and attached thereto their Second Amended Complaint as further Amended. No order was however issued by the lower court either granting or denying the said motion. Pursuant to the Order of the lower court dated July 26, 1968, the parties submitted their proposals and counter-proposals for stipulations of facts. Thereafter, the parties submitted their case for decision based on the pleadings on record. On October 12, 1968, the lower court thru Judge Abelardo Aportadero rendered judgment dismissing the complaint, the pertinent portion of which reads as follows t.hqw As it will be recalled, plaintiff Benjamin Tupas sold the land in question to Juanita Bulaong on May 1, 1957. And on April 4, 1959, the Philippine National Bank purchased the land at public auction and on April 4, 1960, the property vested in the bank, after one-year period of redemption. The original complaint having been filed on June 10, 1965, in either case, whether counted from May 1, 1957 or from April 4, 1960, the 5-year period to exercise the right to repurchase under Section 119 of the Public Land Act has already expired. Plaintiffs-spouses moved to reconsider the aforesaid judgment and on January 8, 1969, the lower court, this time thru Judge Samson C. Animas, reversed the decision previously rendered with the following disposition: t.hqw ACCORDINGLY, the judgment of this Court dated November 11, 1968, is hereby reconsidered and set aside and judgment is hereby rendered: t.hqw (a) Annulling the sale made by the defendant Philippine National Bank of the property subject matter of the present litigation to and in favor of spouses Daniel Damasco and Juanita Bulaong-Damasco which was actually bought by defendantsspouses Eusebio Bulaong and Consuelo Sabile as decided in Civil Case No. 585 of this Court, as well as the entry of said sale in the records of the Register of Deeds of Cotabato, now South Cotabato;

(b) Ordering the defendant Philippine National Bank to allow plaintiff to repurchase the property aforesaid for the amount of P6,400.00 and the accumulated interest up to and including the time of the actual repurchase; and (c) Ordering the defendant Philippine National Bank to return to said spouses Eusebio Bulaong and Consuelo Sabile the purchase price of the land in question including all expenses incidental thereto. Without pronouncement as to costs Rationalizing its aforesaid ruling allowing repurchase of the land in question, the lower court stated t.hqw Applying said authority to the case at bar, the period to repurchase at least expired on August 20, 1965, five years after August 25, 1960 when the period of redemption expired, and at most, five years after March 17, 1965 when the affidavit of consolidation of ownership executed by the bank on March 2, 1965, was registered with the Office of the Register of Deeds and title in its favor issued over the property in question. In either case, the complaint filed on June 10, 1965 was well within the five-year period. contemplated in Section 119 of Commonwealth Act 141. Though not relevant, this Court however is of the opinion that the five-year period should be counted from the date of the consolidation of the ownership and the issuance of the transfer certificate of title in the name of the purchaser at public auction not only because under Act 496 the act of registration of the deed is the operative act which binds the land and vests title in the transferee and from such time is the land deemed conveyed, within the meaning of Section 119, but also because of the far more important reason for public policy conceived in this right to repurchase to enable the family of the applicant or grantee to keep that homestead (Lastade vs. Pino et al., G.R. No. L-10825, September 27, 1957) . . . thus, the law must be liberally construed in order to carry out the purpose. (Rivera vs. Curamen G. R. No. L-25245, July 31, 1968) After the lower court denied their motion to reconsider and/or for new trial, defendants Philippine National Bank and spouses Eusebio Bulaong and Consuelo S. Bulaong perfected their respective appeal to the defunct Court of Appeals 13 which subsequently certified the appeal to this Court on motion of the parties on the ground that the issues raised present pure question of law and that is from what time should the five-year period mentioned in Section 119 of the Public Land Law within which to exercise the right to repurchase, be counted. Section 119 of the Public Land Law (Commonwealth Act 141, as amended) provides t.hqw Every conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow or legal

heirs, within a period of five years from the date of the conveyance. (Italics supplied.) It is not disputed that the land subject matter of this case was acquired by appellees, spouses Benjamin Tupas and Leonor Baldonado, under the homestead provisions of the Public Land Law and the patent was issued to the said appellees on March 8, 1951. On April 4, 1959 the homestead was sold by the sheriff in an execution sale to satisfy the judgment in favor of the Philippine National Bank in Civil Case No. 770 and in which execution sale the Philippine National Bank was the highest bidder. The certificate of sale in favor of the Philippine National Bank was executed on April 6, 1959 specifying therein that the one-year period of redemption shall expire on April 4, 1960. The said certificate of sale was registered in the Office of the Register of Deeds of Cotabato on August 26, 1959. The instant complaint for repurchase was filed on June 10, 1965. The lower court in its now assailed decision held that the five-year period should be counted from August 26, 1960. Apparently, the lower court was of the view that the one-year period of redemption granted to appellees as judgment debtors, expired on August 26, 1960 because the sheriff's certificate of sale was registered on August 26, 1959, and that it is only from the expiration of this one-year period of redemption that the five-year period to repurchase under Section 119 of Commonwealth Act 141 as amended begins to run. The case in point is Olivia vs. Lamadrid. 14 This case involves a parcel of land also covered by a homestead patent. The said homestead was mortgaged with the bank as security for a loan obtained by the owner. Having defaulted in the payment of the obligation, the mortgage was extrajudicially foreclosed and the property was sold at public auction on February 4, 1961. The certificate of sale issued by the sheriff on February 6, 1961. Stated that the property could be redeemed within a period of two (2) 15 years from and after the date of the sale or t.hqw It is therefore our considered view that plaintiff herein has the right to repurchase the property in question within five (5) years from the date of the conveyance or foreclosure sale or up to February 4, 1966, and that having exercised such right and tendered payment long before the date last mentioned, defendants herein are bound to reconvey the property to him. (Emphasis supplied) Applying the aforesaid doctrine to the case at bar, appellees could only exercise the right to repurchase his former homestead within five years from April 4, 1959, the date of the execution sale or up to April 4, 1964. Since this action to repurchase was filed on June 10, 1965, the same was filed out of time. At any rate, even if we have to compute the five-year period from the expiration of the right to redeem granted to a judgment debtor, still this case was filed beyond five years, because the one-

year period of redemption in this case expired on April 4, 1960, and the five-year period from April 4, 1960 is April 4, 1965. The other reason given by the lower court in allowing repurchase that homestead law should be interpreted in favor of the homesteader and that the underlying purpose of said Section 119 is to give the homesteader every chance to preserve for himself and his family the land that the State had gratuitously given him no longer applies in the case at bar. As held in the case of Vargas vs. Court of Appeals, 16 the sale by appellees of their homestead even before the expiration of the fiveyear prohibited period indicates lack of intent on the part of the homesteader to preserve the homestead for himself and his family. WHEREFORE, the decision appealed from is hereby REVERSED and another one entered dismissing the complaint. No pronouncement as to costs. SO ORDERED.1wph1.

[G.R. No. 73503. August 30, 1988.] BENJAMIN BELISARIO, PACITA B. PINAR, VICTORIA BELISARIO, SILVERIO BELISARIO, FRANCISCO BELISARIO, ANATOLIA B. JACULAN, FELIPE BELISARIO and TERESITA B. ALKUINO, petitioners, vs. THE INTERMEDIATE APPELLATE COURT, LOURDES CABRERA, VICENTE CABRERA, JR., ROBERTO CABRERA, MANUEL CABRERA and PNB, Cagayan de Oro Branch, respondents. Abundio L. Okit for petitioners. Maximo G. Rodriguez and Rufus B. Rodriguez for private respondents. SYLLABUS 1. CIVIL LAW; PUBLIC LAND ACT; RIGHT TO REPURCHASE PROPERTY SOLD AT PUBLIC AUCTION RECKONED FROM REGISTRATION OF CERTIFICATE OF SALE NOT FROM DATE OF FORECLOSURE SALE. The subject piece of land was sold at public auction to respondent PNB on January 31, 1963. However, the Sheriff's Certificate of Sale was registered only on July 22, 1971. The redemption period, for purposes of determining the time when a final Deed of Sale may be executed or issued and the ownership of the registered land consolidated in the purchaser at an extrajudicial foreclosure sale under Act 3135, should be reckoned from the date of the registration of the Certificate of Sale in the Office of the Register of Deeds concerned and not from the date of public auction (PNB vs. CA et al., G.R. L-30831 and L-31176, Nov. 21, 1979, 94 SCRA 357, 371). In this case, under Act 3135, petitioners may redeem the property until July 22, 1972. In addition, Section 119 of Commonwealth Act 141 provides that every conveyance of land acquired under the free patent or homestead patent provisions of the Public Land Act, when proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within the period of five years from the date of conveyance. The five-year period of redemption fixed in Section 119 of the Public Land Law of homestead sold at extrajudicial foreclosure begins to run from the day after the expiration of the oneyear period of repurchase allowed in an extrajudicial foreclosure. (Manuel vs. PNB, et al., 101 Phil. 968) Hence, petitioners still had five (5) years from July 22, 1972 (the expiration of the redemption period under Act 3135) within which to exercise their right to repurchase under the Public Land Act. 2. ID.; RIGHT OF REDEMPTION; BONA FIDE EXERCISE THEREOF IMPORTS VALID TENDER OF REPURCHASE PRICE. The general rule in redemption is that in making a repurchase, it is not sufficient that a person offering to redeem makes manifestation of his desire to repurchase; this statement of intention must be accompanied by an actual and simultaneous tender of payment, which constitutes the legal use or exercise of the right to repurchase (Angao vs. Clavano, 17 Phil. 152). Likewise, in several cases decided by this Court (Fructo vs. Fuentes, 15 Phil. 362; Retes vs. Suelto, 20 Phil. 394; Rosales vs. Reyes, et al., 25 Phil. 495, Canuto vs. Mariano, 37 Phil. 840; Dela Cruz, et al. vs. Resurreccion, et al., 98 Phil. 975) where

the right to repurchase was held to have been properly exercised, there was a definite finding of tender of payment having been made by the vendor. The tender of payment must be for the full amount of the repurchase price, otherwise the offer to redeem will be held ineffectual. (Rumbaoa vs. Arzaga, 84 Phil. 812) Bona fide redemption necessarily imports a reasonable and valid tender of the entire repurchase price. There is no cogent reason for requiring the vendee to accept payment by installments from the redemptioner, as it would ultimately result in an indefinite extension of the redemption period (Conejero, et al. vs. Court of Appeals, et al., L-21812, April 29, 1966, 16 SCRA 775, 780). The rule that tender of payment of the repurchase price is necessary to exercise the right of redemption finds support is civil law. Articles 1616 of the Civil Code of the Philippines, in the absence of an applicable provision in Commonwealth Act No. 141, furnishes the guide, to wit: "The vendor cannot avail himself of the right to repurchase without returning to the vendee the price of the sale . . ." (Uy Lee vs. Court of Appeals, L-28126, November 28, 1975, 68 SCRA 196, 204). 3. ID.; ID.; ENFORCEMENT OF REPURCHASE BY FILING OF REDEMPTION EQUIVALENT TO FORMAL OFFER TO REDEEM. The filing of a complaint to enforce repurchase within the period for redemption is equivalent to an offer to redeem and has the effect of preserving the right to redemption (Reoveros vs. Abel and Sandoval, 48 O.G. 5318). In the case of Tolentino vs. Court of Appeals, L-50405-06, August 5, 1981, 106 SCRA 513, 526), this Court expounded: "And in this connection, a formal offer to redeem, accompanied by a bona fide tender of the redemption price, although proper, is not essential where, as in the instant case, the right to redeem is exercised thru the filing of judicial action, which as noted earlier was made simultaneously with the deposit of the redemption price within the period of redemption. The formal offer to redeem, accompanied by a bona fide tender of the redemption price within the period of redemption prescribed by law, is only essential to preserve the right of redemption for future enforcement even beyond such period of redemption. The filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. Should the court allow redemption, the redemptioners should then pay the amount already adverted to." In a later case, Tioseco vs. Court of Appeals, (G.R.-66597, August 29, 1986, 143 SCRA 705), this Court reiterated the rule that the filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. 4. ID.; ID.; ID.; EFFECTIVE EXERCISE THEREOF PRESERVED RIGHT OF PETITIONERS IN CASE AT BAR TO RECOVER PROPERTY. For purposes of determining whether petitioners exercised their right to repurchase effectively, We have only to consider their filing of the action for Repurchase of Homestead on January 9, 1975, against respondent PNB and Cabrera, which was filed well within the five-year period to repurchase. The question of timeliness of the tender of payment by petitioners on August 1 and 4, 1977 of the amount of P5,000.00 had become insignificant in view of the filing of the action for Repurchase of Homestead

which has been held equivalent to an offer to redeem and has the effect by itself of preserving their right of recovering the property. 5. ID.; ID.; CIRCUMSTANCES IN UY LEE AND CONEJERO CASES DIFFERENT FROM CASE AT BAR. This case is different from Uy Lee vs. Court of Appeals, supra where the action to compel redemption was filed after the lapse of the period of redemption. Thus, the Court held in said case, to wit: "It is clear that the mere sending of letters by vendor Simeon expressing his desire to repurchase the property without an accompanying tender of redemption price fell short of the requirements of law. Having failed to properly exercise his right of redemption within the statutory five-year period, the right is lost and the same can no longer be revived by the filing of an action to compel redemption after the lapse of the period." The same factual antecedent obtained in Conejero, et al. vs. Court of Appeals, supra where the complaint seeking to be declared entitled to redeem was filed after the expiration of the statutory period of redemption. What was proper for determination then in said cases was whether or not the right of redemption sans judicial action was validly exercised. In said cases, the Court applied the general rule that bona fide redemption necessarily imports a reasonable and valid tender of the entire purchase price. The respondent Court of Appeals thus erred in citing Tolentino vs. Court of Appeals out of context and in applying the doctrine in Uy Lee vs. Court of Appeals, and Conejero vs. Court of Appeals, supra where the circumstances of said cases are different from the case at bar. DECISION MEDIALDEA, J p: This is a petition for review on certiorari of a decision of the Intermediate Appellate Court (now the Court of Appeals) in AC-G.R., No. 63407-R affirming the decision of the Court of First Instance of Bukidnon in Civil Case No. 715 entitled, "Benjamin Belisario, et al., vs. Philippine National Bank, et al.", dismissing herein petitioners' complaint for Repurchase of Homestead. LibLex The undisputed facts of the case are as follows: The subject matter of this case is a piece of land originally covered by Original Certificate of Title No. 366, pursuant to Homestead Patent No. 45183 issued in the names of Rufino Belisario and Felipa Lauga, located in Valencia, Bukidnon, and consisting of an area of 23, 2210 hectares. On August 3, 1948, upon the death of Rufino Belisario, the ownership of the land was extrajudicially settled among his children (petitioners herein), namely: Benjamin, Pacita, Victoria, Silverio, Francisco, Anatolia, Felipe and Teresita, all surnamed Belisario and his widow, Felipa Lauga, and in whose names Transfer Certificate of Title No. T-124 was issued.

Sometime in 1950, on the strength of a special power of attorney executed by some of the petitioners in favor of petitioner, Benjamin Belisario, said land was mortgaged to the Philippine National Bank (PNB) to secure a promissory note in the sum of P1,200.00. Petitioners-mortgagors defaulted in the payment of the loan. Consequently, the mortgage was extrajudicially foreclosed and on January 31, 1963 the land was sold at public auction for P3,134.76 with respondent PNB as the highest bidder. On April 21, 1971, petitioners wrote to respondent PNB making known their "desire to redeem and/or repurchase the said property for and in the same price as the auction sale, P3,134.76," and enclosed therein a postal money order in the amount of P630.00 as partial payment, with the balance to be paid in twelve equal monthly installments. At the time petitioners offered to redeem the subject property, the Sheriff's Certificate of Sale covering the sale at public auction to the respondent PNB was not yet registered. Having been apprised of the non-registration, the respondent PNB caused the registration of the Sheriff's Certificate of Sale with the Register of Deeds of Bukidnon on July 22, 1971 and Transfer Certificate of Title No. T-6834 was later issued in the name of respondent bank. On August 24, 1971, respondent PNB sent a reply letter to petitioners, refusing the tender of P630.00 as partial payment of the total obligations of P7,041.41 due from petitioners (which included the amount of P2,027.02 allegedly paid by respondent Vicente Cabrera to respondent PNB) and stating further that under existing regulations of the bank, payment by way of redemption must be paid in full and not by installments. It cannot, however, be determined from the records of the case why the amount of P2,027.02 was received from respondent Cabrera by respondent PNB on December 12, 1967 and why the same was included in the statement of accounts sent by respondent PNB to petitioners. On February 8, 1973, respondent PNB sold the land in question to respondent Cabrera for P5,000.00 and the corresponding TCT No. 7264 was issued in his name. Cdpr On November 20, 1974, respondent Cabrera filed an action for Recovery of Possession and Damages against herein petitioners, together with their tenants, who were actual possessors of the land, with the Court of First Instance (now Regional Trial Court) of Bukidnon and docketed as Civil Case No. 708. In turn, petitioners filed on January 9, 1975, an action for Repurchase of Homestead against the respondents PNB and Cabrera with the Court of First Instance of Bukidnon and docketed as Civil Case 715. Being interrelated, the two cases were heard jointly.

After pre-trial but before trial on the merits, respondent Cabrera (as defendant in Civil Case No. 715), filed a Motion to Dismiss the petitioners' action for Repurchase of Homestead, Civil Case No. 715, on two (2) grounds: 1. No tender of payment of the redemption price and/or no consignation of the redemption was made by plaintiff. 2. Complaint states no cause of action.

The petitioners herein (as plaintiffs in Civil Case No. 715) opposed the motion contending that they offered to repurchase the property from respondent PNB (one of the defendants in the same Civil Case) within the five-year redemption period and tendered payment which was, however, refused by the respondent PNB. Petitioners also manifested that on August 1 and 4, 1977, they consigned with the Clerk of Court of Bukidnon the amount of P5,000.00 as repurchase price. On September 15, 1977, the trial court granted the Motion to Dismiss. After their motion for reconsideration and/or new trial was denied by the trial court, petitioners appealed to the Intermediate Appellate Court (now Court of Appeals), assigning the following errors: I. The lower court erred in giving due course to the Motion to Dismiss, without receiving evidence and/or in ignoring the tender of payment made by plaintiffs to defendant bank. II. The lower court erred in declaring that because plaintiffs never bothered to attend to that letter (letter of bank addressed to the plaintiffs) for a long time it was obliged to sell the land to its co-defendant Vicente Cabrera on February 8, 1973. III. The lower court erred in holding that the plaintiffs made no pretense whatever in their opposition to the motion that Vicente Cabrera disallowed the repurchase of the land and in holding that tender of payment to defendant Cabrera was necessary to preserve their right to repurchase. IV. The lower court erred in holding that the consignation of the amount of P5,000.00 was conceivably made to cure the deficiency of plaintiffs' position and was made beyond the redemption period of five years. V. The lower court erred in not considering the motion filed out of time and the conduct of the defendants especially Atty. Cabrera a waiver of their light to a preliminary hearing on the defense of lack of tender or that defendants are guilty of estoppel or bad faith. (Rollo, p. 25.) Respondent appellate court affirmed the lower court's decision in toto. Hence, the instant petition with the petitioner assigning the following errors:.

I. That the Honorable Intermediate Appellate Court erred in holding that appellants never bothered to tender the payment of redemption and that the filing of judicial action to redeem did not preserve appellants' right to redeem. It cited out of context the doctrine enunciated in Tolentino vs. Court of Appeals, 106 SCRA 513. II. The Honorable Intermediate Appellate Court erred in holding that appellants' posture that they have offered to repurchase the property from the appellee bank and tendered payment of redemption price within the redemption period is unmeritorious. III. The Honorable Intermediate Appellate Court erred in considering long inaction or laches in deciding the case, the said defense not having been raised in the answers of defendants-appellees not even in the motion to dismiss or appellees' memoranda. (Rollo, p. 9). The subject piece of land was sold at public auction to respondent PNB on January 31, 1963. However, the Sheriff's Certificate of Sale was registered only on July 22, 1971. The redemption period, for purposes of determining the time when a final Deed of Sale may be executed or issued and the ownership of the registered land consolidated in the purchaser at an extrajudicial foreclosure sale under Act 3135, should be reckoned from the date of the registration of the Certificate of Sale in the Office of the Register of Deeds concerned and not from the date of public auction (PNB vs. CA et al., G.R. L-30831 and L-31176, Nov. 21, 1979, 94 SCRA 357, 371). In this case, under Act 3135, petitioners may redeem the property until July 22, 1972. In addition, Section 119 of Commonwealth Act 141 provides that every conveyance of land acquired under the free patent or homestead patent provisions of the Public Land Act, when proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within the period of five years from the date of conveyance. The fiveyear period of redemption fixed in Section 119 of the Public Land Law of homestead sold at extrajudicial foreclosure begins to run from the day after the expiration of the one-year period of repurchase allowed in an extrajudicial foreclosure. (Manuel vs. PNB, et al., 101 Phil. 968) Hence, petitioners still had five (5) years from July 22, 1972 (the expiration of the redemption period under Act 3135) within which to exercise their right to repurchase under the Public Land Act. The general rule in redemption is that in making a repurchase, it is not sufficient that a person offering to redeem makes manifestation of his desire to repurchase; this statement of intention must be accompanied by an actual and simultaneous tender of payment, which constitutes the legal use or exercise of the right to repurchase (Angao vs. Clavano, 17 Phil. 152). Likewise, in several cases decided by this Court (Fructo vs. Fuentes, 15 Phil. 362; Retes vs. Suelto, 20 Phil. 394; Rosales vs. Reyes, et al., 25 Phil. 495, Canuto vs. Mariano, 37 Phil. 840; Dela Cruz, et al. vs. Resurreccion, et al., 98 Phil. 975) where the right to repurchase was held to have been properly exercised, there was a definite finding of tender of payment having been made by the vendor. The tender of payment must be for the full amount of the

repurchase price, otherwise the offer to redeem will be held ineffectual. (Rumbaoa vs. Arzaga, 84 Phil. 812) Bona fide redemption necessarily imports a reasonable and valid tender of the entire repurchase price. There is no cogent reason for requiring the vendee to accept payment by installments from the redemptioner, as it would ultimately result in an indefinite extension of the redemption period (Conejero, et al. vs. Court of Appeals, et al., L-21812, April 29, 1966, 16 SCRA 775, 780). The rule that tender of payment of the repurchase price is necessary to exercise the right of redemption finds support is civil law. Article 1616 of the Civil Code of the Philippines, in the absence of an applicable provision in Commonwealth Act No. 141, furnishes the guide, to wit: "The vendor cannot avail himself of the right to repurchase without returning to the vendee the price of the sale . . ." (Uy Lee vs. Court of Appeals, L-28126, November 28, 1975, 68 SCRA 196, 204). However, the filing of a complaint to enforce repurchase within the period for redemption is equivalent to an offer to redeem and has the effect of preserving the right to redemption (Reoveros vs. Abel and Sandoval, 48 O.G. 5318). In the case of Tolentino vs. Court of Appeals, L-50405-06, August 5, 1981, 106 SCRA 513, 526), this Court expounded: "And in this connection, a formal offer to redeem, accompanied by a bona fide tender of the redemption price, although proper, is not essential where, as in the instant case, the right to redeem is exercised thru the filing of judicial action, which as noted earlier was made simultaneously with the deposit of the redemption price within the period of redemption. The formal offer to redeem, accompanied by a bona fide tender of the redemption price within the period of redemption prescribed by law, is only essential to preserve the right of redemption for future enforcement even beyond such period of redemption. The filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. Should the court allow redemption, the redemptioners should then pay the amount already adverted to." In a later case, Tioseco vs. Court of Appeals, (G.R.-66597, August 29, 1986, 143 SCRA 705), this Court reiterated the rule that the filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. For purposes of determining whether petitioners exercised their right to repurchase effectively, We have only to consider their filing of the action for Repurchase of Homestead on January 9, 1975, against respondent PNB and Cabrera, which was filed well within the five-year period to repurchase. The question of timeliness of the tender of payment by petitioners on August 1 and 4, 1977 of the amount of P5,000.00 had become insignificant in view of the filing of the action for Repurchase of Homestead which has been held equivalent to an offer to redeem and has the effect by itself of preserving their right of recovering the property.

This case is different from Uy Lee vs. Court of Appeals, supra where the action to compel redemption was filed after the lapse of the period of redemption. Thus, the Court held in said case, to wit: "It is clear that the mere sending of letters by vendor Simeon expressing his desire to repurchase the property without an accompanying tender of redemption price fell short of the requirements of law. Having failed to properly exercise his right of redemption within the statutory five-year period, the right is lost and the same can no longer be revived by the filing of an action to compel redemption after the lapse of the period." The same factual antecedent obtained in Conejero, et al. vs. Court of Appeals, supra where the complaint seeking to be declared entitled to redeem was filed after the expiration of the statutory period of redemption. What was proper for determination then in said cases was whether or not the right of redemption sans judicial action was validly exercised. In said cases, the Court applied the general rule that bona fide redemption necessarily imports a reasonable and valid tender of the entire purchase price. The respondent Court of Appeals thus erred in citing Tolentino vs. Court of Appeals out of context and in applying the doctrine in Uy Lee vs. Court of Appeals, and Conejero vs. Court of Appeals, supra where the circumstances of said cases are different from the case at bar. The respondent Court of Appeals likewise erred in holding that the action is barred by long inaction. The right of redemption under Commonwealth Act 141 legally began to accrue only on June 22, 1972. Certainly, an action for Repurchase of Homestead filed on January 9, 1975 cannot be held to be barred. ACCORDINGLY, the decision of the Court of Appeals in the instant case is hereby REVERSED and SET ASIDE. Judgment is hereby rendered authorizing petitioners to redeem the property subject matter hereof, within thirty (30) days from entry of judgment, and ordering private respondent Cabrera to execute a deed of absolute conveyance thereof in favor of the petitioners upon payment by the latter of the purchase price thereof at the auction sale, with 1% per month interest thereon in addition, up to the time of redemption, together with the amount of any taxes or assessments which respondent Cabrera may have paid thereon after purchase, if any, minus the P5,000.00 consigned in the court a quo. No pronouncement as to costs at this instance. llcd SO ORDERED.