MARLENE DAUDEN-HERNAEZ, petitioner,

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

R. M. Coronado and Associates for petitioner.

Francisco Lavides for respondent.

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

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

The essential facts are the following:

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

The answer sets up the defense that "the proposed amended complaint did not vary in any material
respect from the original complaint except in minor details, and suffers from the same vital defect of
the original complaint", which is the violation of Article 1356 of the Civil Code, in that the contract
sued upon was not alleged to be in writing; that by Article 1358 the writing was absolute and
indispensable, because the amount involved exceeds five hundred pesos; and that the second
motion for reconsideration did not interrupt the period for appeal, because it was not served on three
days' notice.

We shall take up first the procedural question. It is a well established rule in our jurisprudence that
when a court sustains a demurrer or motion to dismiss it is error for the court to dismiss the
complaint without giving the party plaintiff an opportunity to amend his complaint if he so
chooses. 1 Insofar as the first order of dismissal (Annex D, Petition) did not provide that the same was
without prejudice to amendment of the complaint, or reserve to the plaintiff the right to amend his
complaint, the said order was erroneous; and this error was compounded when the motion to accept
the amended complaint was denied in the subsequent order of 3 October 1966 (Annex F, Petition).
Hence, the petitioner-plaintiff was within her rights in filing her so-called second motion for
reconsideration, which was actually a first motion against the refusal to admit the amended
complaint.

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

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

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

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

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

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

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

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

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

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

These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3)
consideration or causa for the obligation assumed (Article 1318). 3 So that once the three elements
exist, the contract is generally valid and obligatory, regardless of the form, oral or written, in which
they are couched. lawphi1.nt

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

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

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

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

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

The contract sued upon by petitioner herein (compensation for services) does not come under either
exception. It is true that it appears included in Article 1358, last clause, providing that "all other
contracts where the amount involved exceeds five hundred pesos must appear in writing, even a
private one." But Article 1358 nowhere provides that the absence of written form in this case will
make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that
contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence
of writing.

ART. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to
observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action the contract. (Emphasis supplied) .

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

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

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

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

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

HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely, MODESTA CLAUDEL,

LORETA HERRERA, JOSE CLAUDEL, BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA
CLAUDEL, MARIO CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL, ARSENIA
VILLALON, PERPETUA CLAUDEL and FELISA CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and
CELESTINA, all surnamed CLAUDEL, respondents.

Ricardo L. Moldez for petitioners.

Juan T. Aquino for private respondents

SARMIENTO, J.:p
This petition for review on certiorari seeks the reversal of the decision rendered by the Court of
Appeals in CA-G.R. CV No. 04429 1 and the reinstatement of the decision of the then Court of First
Instance (CFI) of Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of Macario Claudel, et al.
v. Heirs of Cecilio Claudel, et al.," which dismissed the complaint of the private respondents against the
petitioners for cancellation of titles and reconveyance with damages. 2

As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the Bureau
of Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa,
Rizal, with an area of 10,107 square meters; he secured Transfer Certificate of Title (TCT) No. 7471
issued by the Registry of Deeds for the Province of Rizal in 1923; he also declared the lot in his
name, the latest Tax Declaration being No. 5795. He dutifully paid the real estate taxes thereon until
his death in 1937. 3 Thereafter, his widow "Basilia" and later, her son Jose, one of the herein petitioners,
paid the taxes.

The same piece of land purchased by Cecilio would, however, become the subject of protracted
litigation thirty-nine years after his death.

Two branches of Cecilio's family contested the ownership over the land-on one hand the children of
Cecilio, namely, Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo,
Nenita, Arsenia Villalon, and Felisa Claudel, and their children and descendants, now the herein
petitioners (hereinafter referred to as HEIRS OF CECILIO), and on the other, the brother and sisters
of Cecilio, namely, Macario, Esperidiona, Raymunda, and Celestina and their children and
descendants, now the herein private respondents (hereinafter referred to as SIBLINGS OF
CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Title on their shares, as follows:

TCT No. 395391 1,997 sq. m. Jose Claudel

TCT No. 395392 1,997 sq. m. Modesta Claudel and children

TCT No. 395393 1,997 sq. m. Armenia C. Villalon

TCT No. 395394 1,997 sq. m. Felisa Claudel 4

Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil Case
No. 5276-P as already adverted to at the outset, with the then Court of First Instance of Rizal, a
"Complaint for Cancellation of Titles and Reconveyance with Damages," alleging that 46 years
earlier, or sometime in 1930, their parents had purchased from the late Cecilio Claudel several
portions of Lot No. 1230 for the sum of P30.00. They admitted that the transaction was verbal.
However, as proof of the sale, the SIBLINGS OF CECILIO presented a subdivision plan of the said
land, dated March 25, 1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO.

As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed the
complaint, disregarding the above sole evidence (subdivision plan) presented by the SIBLINGS OF
CECILIO, thus:
 Examining the pleadings as well as the evidence presented in this case by the
parties, the Court can not but notice that the present complaint was filed in the name
of the Heirs of Macario, Espiridiona, Raymunda and Celestina, all surnamed Claudel,
without naming the different heirs particularly involved, and who wish to recover the
lots from the defendants. The Court tried to find this out from the evidence presented
by the plaintiffs but to no avail. On this point alone, the Court would not be able to
apportion the property to the real party in interest if ever they are entitled to it as the
persons indicated therein is in generic term (Section 2, Rule 3). The Court has
noticed also that with the exception of plaintiff Lampitoc and (sic) the heirs of
Raymunda Claudel are no longer residing in the property as they have (sic) left the
same in 1967. But most important of all the plaintiffs failed to present any document
evidencing the alleged sale of the property to their predecessors in interest by the
father of the defendants. Considering that the subject matter of the supposed sale is
a real property the absence of any document evidencing the sale would preclude the
admission of oral testimony (Statute of Frauds). Moreover, considering also that the
alleged sale took place in 1930, the action filed by the plaintiffs herein for the
recovery of the same more than thirty years after the cause of action has accrued
has already prescribed.

WHEREFORE, the Court renders judgment dismissing the complaint, without

pronouncement as to costs.

SO ORDERED. 5

On appeal, the following errors 6 were assigned by the SIBLINGS OF CECILIO:

1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT

DESPITE CONCLUSIVE EVIDENCE SHOWING THE PORTION SOLD TO EACH
OF PLAINTIFFS' PREDECESSORS.

2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED TO PROVE

ANY DOCUMENT EVIDENCING THE ALLEGED SALE.

3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN, EXHIBIT A,
SHOWING THE PORTIONS SOLD TO EACH OF THE PLAINTIFFS'
PREDECESSORS-IN-INTEREST.

4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS OWNERS OF

THE PORTION COVERED BY THE PLAN, EXHIBIT A.

5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER CERTIFICATES

OF TITLE NOS. 395391, 395392, 395393 AND 395394 OF THE REGISTER OF
DEEDS OF RIZAL AS NULL AND VOID.

The Court of Appeals reversed the decision of the trial court on the following grounds:
1. The failure to bring and prosecute the action in the name of the real party in interest, namely the
parties themselves, was not a fatal omission since the court a quo could have adjudicated the lots to
the SIBLINGS OF CECILIO, the parents of the herein respondents, leaving it to them to adjudicate
the property among themselves.

2. The fact of residence in the disputed properties by the herein respondents had been made
possible by the toleration of the deceased Cecilio.

3. The Statute of Frauds applies only to executory contracts and not to consummated sales as in the
case at bar where oral evidence may be admitted as cited in Iigo v. Estate of Magtoto 7 and Diana,
et al. v. Macalibo. 8

In addition,

. . . Given the nature of their relationship with one another it is not unusual that no
document to evidence the sale was executed, . . ., in their blind faith in friends and
relatives, in their lack of experience and foresight, and in their ignorance, men, in
spite of laws, will make and continue to make verbal contracts. . . . 9

4. The defense of prescription cannot be set up against the herein petitioners despite the lapse of
over forty years from the time of the alleged sale in 1930 up to the filing of the "Complaint for
Cancellation of Titles and Reconveyance . . ." in 1976.

According to the Court of Appeals, the action was not for the recovery of possession of real property
but for the cancellation of titles issued to the HEIRS OF CECILIO in 1973. Since the SIBLINGS OF
CECILIO commenced their complaint for cancellation of titles and reconveyance with damages on
December 7, 1976, only four years after the HEIRS OF CECILIO partitioned this lot among
themselves and obtained the corresponding Transfer Certificates of Titles, then there is no
prescription of action yet.

Thus the respondent court ordered the cancellation of the Transfer Certificates of Title Nos. 395391,
395392, 395393, and 395394 of the Register of Deeds of Rizal issued in the names of the HEIRS
OF CECILIO and corollarily ordered the execution of the following deeds of reconveyance:

To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.

To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.

To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.

To Macario Claudel, Lot 1230-D, with an area of 596 sq. m. 10

The respondent court also enjoined that this disposition is without prejudice to the private
respondents, as heirs of their deceased parents, the SIBLINGS OF CECILIO, partitioning among
themselves in accordance with law the respective portions sold to and herein adjudicated to their
parents.
The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927 square meters,
respectively would go to Cecilio or his heirs, the herein petitioners. Beyond these apportionments,
the HEIRS OF CECILIO would not receive anything else.

The crux of the entire litigation is whether or not the Court of Appeals committed a reversible error in
disposing the question of the true ownership of the lots.

And the real issues are:

1. Whether or not a contract of sale of land may be proven orally:

2. Whether or not the prescriptive period for filing an action for cancellation of titles
and reconveyance with damages (the action filed by the SIBLINGS OF CECILIO)
should be counted from the alleged sale upon which they claim their ownership
(1930) or from the date of the issuance of the titles sought to be cancelled in favor of
the HEIRS OF CECILIO (1976).

The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may
have been entered into. 11 For nowhere does law or jurisprudence prescribe that the contract of sale be
put in writing before such contract can validly cede or transmit rights over a certain real property between
the parties themselves.

However, in the event that a third party, as in this case, disputes the ownership of the property, the
person against whom that claim is brought can not present any proof of such sale and hence has no
means to enforce the contract. Thus the Statute of Frauds was precisely devised to protect the
parties in a contract of sale of real property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.

The provisions of the Statute of Frauds pertinent to the present controversy, state:

Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are
ratified:

xxx xxx xxx

2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases, an agreement hereafter made shall be unenforceable by action
unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:

xxx xxx xxx

e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;
 xxx xxx xxx

(Emphasis supplied.)

The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced in Writing. 12

The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence.
However when the Civil Code was re-written in 1949 (to take effect in 1950), the provisions of the
Statute of Frauds were taken out of the Rules of Evidence in order to be included under the title on
Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style but to show
that the Statute of Frauds is also a substantive law.

Therefore, except under the conditions provided by the Statute of Frauds, the existence of the
contract of sale made by Cecilio with his siblings 13 can not be proved.

On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in court
only in 1976 to enforce a light acquired allegedly as early as 1930, is difficult to comprehend.

The Civil Code states:

Art. 1145. The following actions must be commenced within six years:

(1) Upon an oral contract . . . (Emphasis supplied).

If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral
purchase made by their parents in 1930, then the action filed in 1976 would have clearly prescribed.
More than six years had lapsed.

We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in
favor of the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO
executed a contract of partition over the said properties.

But as we had pointed out, the law recognizes the superiority of the torrens title.

Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof
of ownership than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF
CECILIO.

The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person
of any portion of the land could defeat the title of the registered owners thereof. 14

A torrens title, once registered, cannot be defeated, even by adverse, open and
notorious possession. A registered title under the torrens system cannot be defeated
 by prescription. The title, once registered, is notice to the world. All persons must
take notice. No one can plead ignorance of the registration. 15

xxx xxx xxx

Furthermore, a private individual may not bring an action for reversion or any action
which would have the effect of cancelling a free patent and the corresponding
certificate of title issued on the basis thereof, with the result that the land covered
thereby will again form part of the public domain, as only the Solicitor General or the
officer acting in his stead may do so. 16

It is true that in some instances, the Court did away with the irrevocability of the torrens title, but the
circumstances in the case at bar varied significantly from these cases.

In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded when the
transferee who took it had notice of the flaws in the transferor's title. No right passed to a transferee from
a vendor who did not have any in the first place. The transferees bought the land registered under the
torrens system from vendors who procured title thereto by means of fraud. With this knowledge, they can
not invoke the indefeasibility of a certificate of title against the private respondent to the extent of her
interest. This is because the torrens system of land registration, though indefeasible, should not be used
as a means to perpetrate fraud against the rightful owner of real property.

Mere registration of the sale is not good enough, good faith must concur with registration. Otherwise
registration becomes an exercise in futility. 18

In Amerol v. Bagumbaran, 19 we reversed the decision of the trial court. In this case, the title was
wrongfully registered in another person's name. An implied trust was therefore created. This trustee was
compelled by law to reconvey property fraudulently acquired notwithstanding the irrevocability of the
torrens title. 20

In the present case, however, the facts belie the claim of ownership.

For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona Raymunda, and
Celestina were living on the contested premises, they regularly paid a sum of money, designated as
"taxes" at first, to the widow of Cecilio, and later, to his heirs. 21 Why their payments were never directly
made to the Municipal Government of Muntinlupa when they were intended as payments for "taxes" is
difficult to square with their claim of ownership. We are rather inclined to consider this fact as an
admission of non-ownership. And when we consider also that the petitioners HEIRS OF CECILIO had
individually paid to the municipal treasury the taxes corresponding to the particular portions they were
occupying, 22 we can readily see the superiority of the petitioners' position.

Renato Solema and Decimina Calvez, two of the respondents who derive their right from the
SIBLINGS OF CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the HEIRS OF
CLAUDEL. 23 The Calvezes should not be paying for a lot that they already owned and if they did not
acknowledge Felisa as its owner.
In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of the
property, they had to ask first the permission of Jose Claudel again, one of the HEIRS OF
CECILIO. 24 In fact the only reason why any of the heirs of SIBLINGS OF CECILIO could stay on the lot
was because they were allowed to do so by the HEIRS OF CECILIO. 25

In view of the foregoing, we find that the appellate court committed a reversible error in denigrating
the transfer certificates of title of the petitioners to the survey or subdivision plan proffered by the
private respondents. The Court generally recognizes the profundity of conclusions and findings of
facts reached by the trial court and hence sustains them on appeal except for strong and cogent
reasons inasmuch as the trial court is in a better position to examine real evidence and observe the
demeanor of witnesses in a case.

No clear specific contrary evidence was cited by the respondent appellate court to justify the reversal
of the lower court's findings. Thus, in this case, between the factual findings of the trial court and the
appellate court, those of the trial court must prevail over that of the latter. 26

WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE the decision rendered in
CA-G.R. CV No. 04429, and we hereby REINSTATE the decision of the then Court of First Instance
of Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for the dismissal of the
Complaint for Cancellation of Titles and Reconveyance with Damages filed by the Heirs of Macario,
Esperidiona Raymunda, and Celestina, all surnamed CLAUDEL. Costs against the private
respondents.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur.

BERMAN MEMORIAL PARK, INC. and LUISA CHONG, petitioners, vs.

[1]

FRANCISCO CHENG, respondent.

DECISION

CALLEJO, SR., J.:

Berman Memorial Park, Inc. (BMPI) is the owner and operator of the Iloilo
Memorial Park (IMP) located in Jaro, Iloilo City. One of the sales counselors of
the corporation was Luisa Chong.

Francisco Cheng had been a businessman for 50 years, engaged in the

purchase and sale of salt, monggo, soya and other commodities under the
business name Timberland Native Products and Supplies. Among his [2]

employees was an accountant.

 On January 18, 1994, Conchita Cheng, Francisco Chengs wife, died. On
January 20, 1994, Cheng purchased from BMPI a memorial lot, identified as
12-Lot Family Estate, Jr., in the IMP for the interment of his wife. He and BMPI
executed, on the said date, At-Need Purchase Agreement No. 2280 in which
he bound and obliged himself to pay its purchase price of P150,000.00,
thus: P50,000.00 as downpayment; P50,000.00 on or before March 7, 1994;
and P50,000.00 on or before April 22, 1994. The remains of Conchita were
[3]

interred in the said lot.

Cheng made a downpayment of P50,000.00 and executed a promissory

note, obliging himself to pay the balance of P100,000.00 on or before the said
due date. Cheng was able to pay the P100,000.00 via postdated check,
[4]

less P1,000.00 representing Chongs cash offer for the deceased which she
[5]

and BMPI had agreed would be deducted from her future commissions.
However, Cheng remitted to BMPI, on April 22, 1994, the amount
[6]

of P49,750.00 as additional payment of the said lot although he had already

paid the price in full.
[7]

Sometime in May 1994, Cheng purchased from the BMPI a bigger lot in
the IMP where the remains of his wife would be transferred. He was shown a
price list of the lots in the said park, including 24-Lot Family Estate, Sr., with
an at-need price of P350,000.00, inclusive of the cost of perpetual care. BMPI
offered to sell the said lot to Cheng at a pre-need price of P250,000.00,
less P110,000.00 of his payment of P150,000.00 for Lot 12, or in the net price
of P140,000.00. He was given a computation of the price for his consideration
and approval. Cheng agreed to purchase 24-Lot Family Estate, Sr. for the
price of P250,000.00, inclusive of P8,100.00 for perpetual care,
less P110,000.00 of the P150,000.00 paid by him for 12-Lot, or the net price
of P140,000.00, inclusive of the cost of perpetual care for the lot. Cheng and
BMPI executed, on May 11, 1994, Pre-Need Purchase Agreement No. 2318
covering the transaction. Cheng bound and obliged himself to pay on the
[8]

following terms: P50,000.00 as downpayment, the balance payable in 24

monthly installments of P4,625.00, commencing on May 31, 1994, with 21%
interest on the unpaid balance. Cheng remitted the downpayment
of P50,000.00, and was able to pay 17 of the 24 monthly installments due
from June 30, 1994 to November 17, 1995, or in the total amount
of P78,625.00. [9]

Subsequently, Cheng received a statement of account from BMPI showing

that he still had a balance of P32,375.00. In a Letter dated January 3, 1996,
[10]

Cheng, through counsel, informed BMPI that he had, in fact, made an

overpayment of P77,375.00 for the two lots, demanded that the excess
payment be refunded to him, and that the Certificate of Ownership for 24-Lot
be issued to him. In a statement of account Cheng prepared, he declared
[11]

that he had a net balance due from BMPI in the amount of P57,414.82,
inclusive of interest of P12,414.82. He stated therein that the cost of the two
[12]

lots was P250,000.00, and that he had made a total payment of P327,375.00.

BMPI came out with its statement of account dated March 22, 1996,
showing that the purchase price of 24-Lot was P140,000.00 and that Cheng
[13]

had an outstanding account of P33,875.62 for the said lot. In his Reply-Letter
dated April 2, 1996, Cheng insisted that even if the two lots cost P311,000.00,
he still had a balance, in his favor, amounting to P26,375.00. In an effort to
[14]

reconcile their differences, a conference among Cheng, Chong and the

accountant of BMPI was held, to no avail.

On July 24, 1996, Cheng filed a Complaint against the IMP, not against
BMPI, and Luisa Chong in the Regional Trial Court (RTC) of Iloilo City, for
specific performance with damages. He alleged that the IMP was a
corporation duly organized and existing in the Philippines and that he had
purchased 24-Lot from the IMP for P250,000.00, less the amount
of P150,000.00 he had paid for 12-Lot, or a net price of P100,000.00. He
asserted that he had made an overpayment of P77,375.00 for the said lot. He
prayed that, after due proceedings, judgment be rendered in his favor:

WHEREFORE, it is most respectfully prayed of this Honorable Court that, after due
notice and hearing, judgment be rendered, to wit:

1. Declaring that the 24-Lot Family Estate, Sr. (an interest space) as
having been fully paid and ordering defendant to convey to plaintiff the
Certificate of Ownership over it;
 2. Ordering defendant to return to plaintiff the total sum of P77,375.00
representing overpayment made by plaintiff on his purchase of the
aforedescribed interment space plus interest at the legal rate;

3. Ordering defendant to pay plaintiff the sum of P5,000.00 as actual

expenses, P30,000.00 as attorneys fees, and P20,000.00 as exemplary
damages;

4. Ordering defendant to pay plaintiff the sum of P100,000.00 as moral

damages;

5. To pay the costs of suit;

6. For such other reliefs and remedies that are just deemed and equitable
in the premises. [15]

In her answer with counterclaim, Chong admitted the allegation in the

complaint that the IMP was a corporation duly registered and organized in the
Philippines (although it was not). She further alleged that the price of 24-Lot
was actually P350,000.00, but that the IMP had agreed to sell the lot to Cheng
for P250,000.00, less P110,000.00 of the P150,000.00 price of 12-Lot; as was
the standard operating procedure, out of the amount of P150,000.00 which
was the total price of 12-Lot, only P110,000.00 was to be credited to Cheng
because the said amount was the pre-need price. Chong alleged that the
difference of P40,000.00 (P150,000.00 less P110,000.00) belonged to the
IMP. Appended to their answer was a copy of the Pre-Need Purchase
[16]

Agreement of the parties as Annex 1 thereof.

During the pre-trial, the parties agreed to reset the same to give time to
Atty. Florecita B. Gelvezon, a certified public accountant, to determine whether
or not Cheng had overpaid, or whether he still had a balance due for the
purchase of the two lots. On January 22, 1997, the trial court granted the
[17]

motion and gave Atty. Gelvezon two weeks to submit her report. She [18]

submitted her report on February 6, 1997, showing that Cheng still had a
balance of P32,375.00 due in favor of BMPI for 24-Lot, based on the purchase
price of P140,000.00 for the said lots. Cheng
[19]
filed his
comments/observations/objections to the report. He appended thereto the
handwritten computation of BMPI on the cost of the two lots and the
computations thereof. For their part, Chong and BMPI agreed to the report of
[20]

Atty. Gelvezon. [21]

During the trial, Cheng testified that he purchased 24-Lot for P250,000.00
and that he discovered his overpayment during the first week of November
1994. He signed a blank document in printed form which turned out to be the
[22]

Pre-Need Purchase Agreement because he was sick with hernia and had to
be operated on in five days. He was not given a copy of the Pre-Need
[23]

Purchase Agreement. He knew that the purchase price of a lot under a Pre-
[24]

Need Purchase Agreement was P250,000.00. [25]

Carmen S. Majarocon, the bookkeeper and accountant of BMPI, testified

that on January 19, 1994, Cheng and his brother Santiago Cheng arrived in
the office to buy a lot at the IMP. She showed them the price list of the lots.
[26]

She explained to them that the at-need price of 12-Lot was P150,000.00,
[27]

while the at-need price of 24-Lot, which was bigger than Lot 12,
was P350,000.00. Cheng opted to buy 12-Lot, and signed the At-Need
Purchase Agreement and Promissory Note. Cheng then returned to BMPI
[28] [29]

on May 11, 1994 and agreed to purchase 24-Lot at the pre-need price
of P250,000.00, less P110,000.00 of the P150,000.00 he had paid for 12-Lot,
or the net price of P140,000.00. She averred that the difference
[30]

of P40,000.00 between the price of P150,000.00 for 12-Lot and the price
of P110,000.00 credited to Cheng belonged to BMPI. She also testified that
Cheng signed the Pre-Need Purchase Agreement on May 11, 1994, and was [31]

given a copy of the contract, and her computations of the purchase price of
24-Lot. As of September 1996, Cheng had a balance on his account in the
[32]

amount of P38,634.75. Chong corroborated Majarocons testimony.

[33]

On January 8, 1998, the trial court rendered judgment in favor of Cheng.

The fallo of the decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the

plaintiff and against the defendants.

1. Ordering defendants to return or reimburse plaintiff the amount of P28,625.00

representing the overpayment that the latter made in purchasing the 24-Lot Family
Estate, Sr. to earn legal interest from the filing of the complaint until fully paid or
returned.

2. Ordering defendants to pay plaintiff, jointly and severally:

a) P20,000.00 as and for attorneys fees;

b) P30,000.00 as moral damages;

c) Dismissing the counterclaim.

Costs against the defendants.

SO ORDERED. [34]

The trial court ruled that since Cheng purchased 24-Lot to upgrade 12-Lot
where the remains of his wife were interred, the total amount of P150,000.00
which he paid for 12-Lot should be deducted from P250,000.00 (the purchase
price of 24-Lot), instead of only P110,000.00 as claimed by Chong and BMPI.

The decision was appealed by Chong and BMPI to the Court of Appeals
(CA), which rendered judgment on January 18, 2001 affirming the decision of
the RTC. Their motion for reconsideration was also denied by the appellate
[35]

court.[36]

Chong and BMPI, now the petitioners, filed their petition for review
on certiorari of the decision and resolution of the CA. The petitioners aver that:

I.

RESPONDENT KNEW AND UNDERSTOOD THE TWO (2) TRANSACTIONS HE

ENTERED INTO AND WAS BENEFITED BY THE PROCESS CALLED
UPGRADING.

II.

THERE IS BASIS FOR THE PETITIONERS TO CREDIT ONLY P110,000.00 OUT

OF THE P150,000.00 PAYMENTS MADE BY RESPONDENT AT THE TIME HE
DECIDED TO PURCHASE THE BIGGER LOT.
 III.

THERE IS NO BASIS FOR DECLARING THAT RESPONDENT HAS ALREADY

MADE AN OVERPAYMENT OF P28,625.00. ON THE CONTRARY, HE IS STILL
LIABLE TO PAY PETITIONERS THE SUM OF P38,634.75 REPRESENTING THE
BALANCE OF HIS PRINCIPAL ACCOUNT PLUS SURCHARGES AS OF
SEPTEMBER 11, 1996. [37]

The petitioners assert that the at-need price of 12-Lot was P150,000.00,
while that of 24-Lot was P350,000.00. BMPI sold 24-Lot for the pre-need price
of P250,000.00, less P110,000.00 of his payment for 12-Lot, or the net price
of P140,000.00 inclusive of costs for perpetual care, and to which the
respondent agreed. The petitioners explained why only P110,000.00 of the
price of P150,000.00 for 12-Lot was credited to the respondent for the
purchase price of 24-Lot, thus:

Under this practice of upgrading which the petitioner corporation allows, when a
client purchases an At-Need 12-Lot Family Estate, Jr. and after paying the price he
upgrades it to a 24-Lot Family Estate, Sr., the former labels it not as an At-Need 24-
Lot Family Estate, Sr. but a Pre-Need 24-Lot Family Estate, Sr. which has a lower
price of P250,000.00. However, since at the time of the purchase, he gets it at the at-
need price, his payment of P150,000.00 is not fully credited to his next purchase. He
is charged the at-need cost of P40,000.00 because the at-need price of a 12-Lot Family
Estate, Jr. is P150,000.00 while its pre-need price is P110,000.00. The P40,000.00
serves as a cost for the burden imposed on the corporation which is in charge for all
these arrangements and predicaments for the change of burial lot from a smaller At-
Need 12-Lot Family Estate, Jr. to Pre-Need 24-Lot Family Estate, Sr., a different
burial lot. It should be noted that when a client made his first purchase, it was at an at-
need price. When he made his second purchase in a process called upgrading, the
price is already a pre-need one.

It would have been different should a client made (sic) his first purchase of the lot at a
pre-need price and after payment of the pre-need price, he changes the lot to a bigger
one at a pre-need price because, by then, there would be no at-need cost. The whole
pre-need price paid by him in the contract is credited to his second upgraded contract.
However, he pays a bigger price with a total of P350,000.00.
Respondent was benefited by this upgrading of the contract from At-Need 12-Lot
Family Estate, Jr. to Pre-Need 24-Lot Family Estate, Sr.
[38]

The petitioners maintained that the CA failed to consider the evidence on

record, including the acts of the parties, simultaneously with and subsequent
to their execution of the Pre-Need Purchase Agreement on May 11, 1994, and
the incredibility of the respondents lone testimony.

In his comment on the petition, the respondent alleged that the issues
raised by the petitioners are factual; hence, improper under Rule 45 of the
Rules of Court. Moreover, the respondent pointed out, the issues presented
by the petitioners are unsubstantial matters.

The petition is meritorious.

Before resolving the merits of the petition, however, we have to address

and resolve the issue as to whether or not the IMP has the capacity to sue as
petitioner and be sued as defendant in the RTC; and whether or not BMPI is
an indispensable party in the RTC, and in this case.

The rule is that only natural or juridical persons or entities authorized by

law may be parties in a civil case. A sole proprietorship is not vested with
[39]

juridical personality and cannot sue or file or defend an action. There is no law
authorizing sole proprietorship to file a suit. A sole proprietorship does not
possess a judicial personality separate and distinct from the personality of the
owner of the enterprise. [40]

In this case, the IMP is not a corporation and does not have a juridical
personality that could enable it to be a party defendant in the RTC. It is only a
business name used by BMPI for the memorial park it owned and operated. In
fact, it is clearly indicated in the At-Need Purchase Agreement and Pre-Need
Purchase Agreement dated January 20 and May 11, 1994, respectively, that
the seller of the lots is BMPI, and that the IMP is owned and operated by it. It
is BMPI which has the juridical personality to be sued by the respondent as
the plaintiff in the RTC. Indeed, the real party-in-interest as party-defendant in
the RTC is BMPI, the signatory to the said agreements which the respondent
sought to enforce therein. Since a contract may be enforced only by the
parties thereto as against each other, the real parties-in-interest, either as
plaintiff or defendant in an action based on the said contract, must be the
parties to the said contract. If the real party-in-interest as defendant is not
impleaded as such, then the complaint must be dismissed on the ground that
it states no cause of action, unless the complaint is later amended to implead
the said party-defendant in substitution. In this case, petitioner Chong did not
pursue the issue in the RTC and in the CA. In fact, she erroneously declared
in her answer to the complaint that the IMP was a corporation. However, it is
not too late for the Court to order the impleading of the BMPI as party-
defendant in the RTC, and party-petitioner in this case, conformably with the
following ruling:

The complaint then should have been amended to implead Yao Ka Sin as plaintiff in
substitution of Yao Ka Sin Trading. However, it is now too late in the history of this
case to dismiss this petition and, in effect, nullify all proceedings had before the trial
court and the respondent Court on the sole ground of petitioners lack of capacity to
sue. Considering that private respondent did not pursue this issue before the
respondent Court and this Court; that, as We held in Juasing, the defect is merely
formal and not substantial, and an amendment to cure such defect is expressly
authorized by Section 4, Rule 10 of the Rules of Court which provides that [a] defect
in the designation of the parties may be summarily corrected at any stage of the action
provided no prejudice is caused thereby to the adverse party; and that [a] sole
proprietorship does not, of course, possess any juridical personality separate and apart
from the personality of the owner of the enterprise and the personality of the persons
acting in the name of such proprietorship, We hold and declare that Yao Ka Sin should
be deemed as the plaintiff in Civil Case No. 5064 and the petitioner in the instant case.
As this Court stated nearly eighty (80) years ago in Alonso v. Villamor:

No one has been misled by the error in the name of the party-plaintiff. If we should,
by reason of this error, send this case back for amendment and new trial, there would
be on the retrial the same complaint, the same answer, the same defense, the same
interests, the same witnesses, and the same evidence. The name of the plaintiff would
constitute the only difference between the old trial and the new. In our judgment, there
is not enough in a name to justify such action.[41]
 Resultably, then, the complaint in the RTC and the petition at bench are
amended to implead BMPI as party-defendant/respondent in substitution of
the IMP.

And now on the merits of the petition.

We agree with the respondent that the threshold issue in this case whether
the petitioners and the respondent had agreed that the net price of 24-Lot was
only P140,000.00 as it appears in the Pre-Need Purchase Agreement is [42]

factual. We, likewise, agree with his contention that under Rule 45 of the
Rules of Court, only issues of law may be raised in this Court. However, the
said rule is without exception. In Josefa v. Zhandong Trading Corporation,
the Court held that, under Rule 45 of the Rules of Court, it may delve into
[43]

and resolve factual issues on the following reasons: (1) the conclusion is
grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of
discretion; (4) the judgment is based on a misapprehension of facts; (5) the
findings of fact are conflicting; (6) there is no citation of specific evidence on
which the factual findings are based; (7) the finding of absence of facts is
contradicted by the presence of evidence on record; (8) the findings of the CA
are contrary to those of the trial court; (9) the CA manifestly overlooked certain
relevant and undisputed facts that, if properly considered, would justify a
different conclusion; (10) the findings of the CA are beyond the issues of the
case; and (11) such findings are contrary to the admissions of both parties.

In this case, the May 11, 1994 Pre-Need Purchase Agreement between [44]

the BMPI and the respondent plainly and unequivocally states that the
purchase price of 24-Lot is P140,000.00, payable as follows:

That the consideration of the above shall be as follows:

Price P131,900.00

Perpetual Care P 8,100.00

Total P140,000.00

Down Payment P 50,000.00

Balance Due P 90,000.00

PURCHASER agrees to pay to the SELLER therefore the sum of ONE HUNDRED
FORTY THOUSAND ONLY (P140,000.00) in Philippine Currency as
follows: P50,000.00 upon the signing of this agreement by PURCHASER receipt of
which is hereby acknowledged, and the remainder in installments of P4,625.00 on the
31st day of each and every month for 2 yrs/(24) months, commencing on May 31,
1994, until the entire balance has been paid. Interest shall be charged at the rate of
21% per annum on the unpaid balance. All payments for interment space shall be
applied first to interest, next to the purchase price and the balance to the Perpetual
Care Fund. [45]

The respondent signed the agreement and was furnished with a copy.
Indeed, the respondent confirmed in his complaint that he signed the
agreement.

The respondent cannot feign ignorance of the terms of the agreement by

alleging that he affixed his signature on a blank form, and on his barefaced
and self-serving pretext that he was suffering from hernia and had to be
operated on in five days.

First. At the bottom of the agreement is the advice given to the

respondent: Please Read This Contract. [46]

Second. The respondent had been a businessman for 50 years before he

signed the agreement. The Court cannot believe that he would sign a blank
agreement without first reading and reviewing the terms and conditions
contained therein. The respondent is presumed to take ordinary care of his
concerns; that the private transaction was fair and regular; that the ordinary
[47] [48]

course of business has been followed; and that the respondent intended the
[49]

ordinary consequences of his voluntary act. [50]

Third. The respondent admitted in his Comment dated February 13, 1997
that he had agreed to the conversion of 12-Lot to 24-Lot, and that the
petitioner furnished him a computation which he appended to his pleading.
The computation shows that the net price of 24-Lot is P140,000.00, thus:
Conversion of 12-Lot Jr. F.E. to 24-Lot Sr. F.E.

Cost of 24-Lot Sr. F.E. P250,000.00

Less : Cost of 12-Lot Jr. F.E. P110,000.00

Balance P140,000.00

Less : Downpayment 50,000.00

Balance P 90,000.00

Monthly Installment on Balance of P90,000.00

1 yr. P8,380.00/mo.

2 yrs. P4,625.00/mo. [51]

Fourth. The respondent complied with the terms and conditions of the Pre-
Need Purchase Agreement and made the requisite downpayment and the
monthly installments for 17 months without any plaint. He never demanded for
a copy of the said agreement, or complained to the petitioners that the
contents thereof did not reflect their arrangement, or demanded that the said
agreement be reformed to reflect their true agreement. It was only when the
respondent received the statement of his account from BMPI sometime in
March 1996 that he alleged for the first time that he had overpaid BMPI for 24-
Lot.

Fifth. The respondent failed to adduce evidence that he was suffering from
hernia and that he was to be operated on in five days after signing the May
11, 1994 Pre-Need Purchase Agreement.

Article 1370 of the New Civil Code provides that if the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulation shall control. No amount of extrinsic aids are
required and no further extraneous sources are necessary in order to
ascertain the parties intent, determinable as it is, from the contract itself. The
records are clear that the respondent understood the nature of the contract he
entered into.

If, indeed, the stipulations as embodied in the aforementioned Pre-Need

Purchase Agreement were not the true intention of the parties, the respondent
should have filed the corresponding action for reformation of the contract. But
he did not.

The hornbook rule on interpretation of contracts gives primacy to the

intention of the parties, which is the law among them. Ultimately, their intention
is to be deciphered not from the unilateral post facto assertions of one of the
parties, but from the language used in the contract. And when the terms of the
agreement, as expressed in such language, are clear, they are to be
understood literally, just as they appear on the face of the contract. [52]

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The

Decisions of the Regional Trial Court and the Court of Appeals are SET
ASIDE. Another judgment is rendered, ORDERING the respondent to pay to
Berman Memorial Park, Inc. the amount of P32,375.00, representing his
unpaid installments plus the corresponding surcharge, with interest at 12%
per annum to be computed from May 1996, when the total amount of the
principal obligation became due and demandable, until actual payment
thereof. No costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario,

JJ., concur.

GUZMAN, BOCALING & CO., petitioner,

vs.
RAOUL S. V. BONNEVIE, respondent.

E. Voltaire Garcia for petitioner.

Guinto Law Office for private respondent.

CRUZ, J.:

The subject of the controversy is a parcel of land measuring six hundred (600) square meters, more
or less, with two buildings constructed thereon, belonging to the Intestate Estate of Jose L. Reynoso.

This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix,
Africa Valdez de Reynoso, for a period of one year beginning August 8, 1976, at a monthly rental of
P4,000.00.

The Contract of lease contained the following stipulation:

20. In case the LESSOR desire or decides to sell the lease property, the
LESSEES shall be given a first priority to purchase the same, all things and
considerations being equal.

On November 3, 1976 according to Reynoso, she notified the private respondents by registered mail
that she was selling the leased premises for P600.000.00 less a mortgage loan of P100,000.00, and
was giving them 30 days from receipt of the letter within which to exercise their right of first priority to
purchase the subject property. She said that in the event that they did not exercise the said right, she
would expect them to vacate the property not later then March, 1977.

On January 20, 1977, Reynoso sent another letter to private respondents advising them that in view
of their failure to exercise their right of first priority, she had already sold the property.

Upon receipt of this letter, the private respondents wrote Reynoso informing her that neither of them
had received her letter dated November 3, 1976; that they had advised her agent to inform them
officially should she decide to sell the property so negotiations could be initiated; and that they were
"constrained to refuse (her) request for the termination of the lease.

On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co. The
Contract of Sale provided for immediate payment of P137,500.00 on the purchase price, the balance
of P262,500.00 to be paid only when the premises were vacated.

On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that they vacate the
premises within 15 days for their failure to pay the rentals for four months. When they refuse,
Reynoso filed a complaint for ejectment against them which was docketed as Civil Case No.
043851-CV in the then City Court of Manila.

On September 25, 1979, the parties submitted a Compromise Agreement, which provided inter
alia that "the defendant Raoul S.V. Bonnevie shall vacate the premises subject of the Lease
Contract, Voluntarily and Peacefully not later than October 31, 1979."

This agreement was approved by the City Court and became the basis of its decision. However, as
the private respondents failed to comply with the above-qouted stipulation, Reynoso filed a motion
for execution of the judgment by compromise, which was granted on November 8, 1979.
On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set aside the
decision of the City Court as well as the Compromise Agreement on the sole ground that Reynoso
had not delivered to him the "records of payments and receipts of all rentals by or for the account of
defendant ..." The motion was denied and the case was elevated to the then Court of First Instance.
That Court remanded the case to the City Court of Manila for trial on the merits after both parties had
agreed to set aside the Compromise Agreement.

On April 29, 1980, while the ejectment case was pending in the City Court, the private respondents
filed an action for annulment of the sale between Reynoso and herein petitioner Guzman, Bocaling &
Co. and cancellation of the transfer certificate of title in the name of the latter. They also asked that
Reynoso be required to sell the property to them under the same terms ands conditions agreed upon
in the Contract of Sale in favor of the petitioner This complaint was docketed as Civil Case No.
131461 in the then Court of First Instance of Manila.

On May 5, 1980, the City Court decided the ejectment case, disposing as follows:

WHEREFORE, judgment is hereby rendered ordering defendants and all persons

holding under them to vacate the premises at No. 658 Gen. Malvar Street, Malate,
Manila, subject of this action, and deliver possession thereof to the plaintiff, and to
pay to the latter; (1) The sum of P4,000.00 a month from April 1, 1977 to August 8,
1977; (2) The sum of P7,000.00 a month, as reasonable compensation for the
continued unlawful use and occupation of said premises, from August 9, 1977 and
every month thereafter until defendants actually vacate and deliver possession
thereof to the plaintiff; (3) The sum of P1,000.00 as and for attorney's fees; and (4)
The costs of suit.

The decision was appealed to the then Court of First Instance of Manila, docketed as Civil Case No.
132634 and consolidated with Civil Case No. 131461. In due time, Judge Tomas P. Maddela, Jr.,
decided the two cases as follows:

WHEREFORE, premises considered, this Court in Civil Case No. 132634 hereby
modifies the decision of the lower court as follows:

1 Ordering defendants Raoul S.V. Bonnevie and Christopher Bonnevie and all
persons holding under them to vacate the premises at No. 658 Gen. Malvar St.,
Malate, Manila subject of this action and deliver possessions thereof to the plaintiff;
and

2 To pay the latter the sum of P4,000.00 a month from April 1, 1977 up to September
21, 1980 (when possession of the premises was turned over to the Sheriff) after
deducting whatever payments were made and accepted by Mrs. Africa Valdez Vda.
de Reynoso during said period, without pronouncement as to costs.

As to Civil Case No. 131461, the Court hereby renders judgment in favor of the
plaintiff Raoul Bonnevie as against the defendants Africa Valdez Vda. de Reynoso
and Guzman and Bocaling & Co. declaring the deed of sale with mortgage executed
 by defendant Africa Valdez Vda. de Reynoso in favor of defendant Guzman and
Bocaling null and void; cancelling the Certificate of Title No. 125914 issued by the
Register of Deeds of Manila in the name of Guzman and Bocaling & Co.,; the name
of Guzman and Bocaling & Co.,; ordering the defendant Africa Valdez Vda. de
Reynoso to execute favor of the plaintiff Raoul Bonnevie a deed of sale with
mortgage over the property leased by him in the amount of P400,000.00 under the
same terms and conditions should there be any other occupants or tenants in the
premises; ordering the defendants jointly and severally to pay the plaintiff Raoul
Bonnevie the amount of P50,000.00 as temperate damages; to pay the plaintiff jointly
and severally the of P2,000.00 per month from the time the property was sold to
defendant Guzman and Bocaling by defendant Africa Valdez Vda de Reynoso on
March 7, 1977, up to the execution of a deed of sale of the property by defendant
Africa Valdez Vda. de Reynoso in favor of plaintiff Bonnevie; to pay jointly and
severally the plaintiff Bonnevie the amount of P20,000.00 as exemplary damages, for
attorney's fees in the amount of P10,000.00, and to pay the cost of suit.

Both Reynoso and the petitioner company filed with the Court of Appeals a petition for review of this
decision. The appeal was eventually resolved against them in a decision promulgated on March 16,
1988, where the respondent court substantially affirmed the conclusions of the lower court but
reduced the award of damages. 1

Its motion for reconsideration having been denied on December 14, 1986, the petitioner has come to
this Court asserting inter alia that the respondent court erred in ruling that the grant of first priority to
purchase the subject properties by the judicial administratrix needed no authority from the probate
court; holding that the Contract of Sale was not voidable but rescissible; considering the petitioner as
a buyer in bad faith ordering Reynoso to execute the deed of sale in favor of the Bonnevie; and not
passing upon the counterclaim. Reynoso has not appealed.

The Court has examined the petitioner's contentions and finds them to be untenable.

Reynoso claimed to have sent the November 3, 1976 letter by registered mail, but the registry return
card was not offered in evidence. What she presented instead was a copy of the said letter with a
photocopy of only the face of a registry return card claimed to refer to the said letter. A copy of the
other side of the card showing the signature of the person who received the letter and the data of the
receipt was not submitted. There is thus no satisfactory proof that the letter was received by the
Bonnevies.

Even if the letter had indeed been sent to and received by the private respondent and they did not
exercise their right of first priority, Reynoso would still be guilty of violating Paragraph 20 of the
Contract of Lease which specifically stated that the private respondents could exercise the right of
first priority, "all things and conditions being equal." The Court reads this mean that there should be
identity of the terms and conditions to be offered to the Bonnevies and all other prospective buyers,
with the Bonnevies to enjoy the right of first priority.

The selling price qouted to the Bonnevies was P600,000.00, to be fully paid in cash less only the
mortgage lien of P100,000.00. 2 On the other hand, the selling price offered to and accepted by the
petitioner was only P400,000.00 and only P137,500.00 was paid in cash while the balance of
P272,500.00 was to be paid "when the property (was) cleared of tenants or occupants. 3

The fact that the Bonnevies had financial problems at that time was no justification for denying them
the first option to buy the subject property. Even if the Bonnevies could not buy it at the price qouted,
Reynoso could not sell it to another for a lower price and under more favorable terms and conditions.
Only if the Bonnevies failed to exercise their right of first priority could Reynoso lawfully sell the
subject property to others, and at that only under the same terms and conditions offered to the
Bonnevies.

The Court agrees with the respondent court that it was not necessary to secure the approval by the
probate court of the Contract of Lease because it did not involve an alienation of real property of the
estate nor did the term of the lease exceed one year so as top make it fall under Article 1878(8) of
the Civil Code. Only if Paragraph 20 of the Contract of Lease was activated and the said property
was intended to be sold would it be required of the administratrix to secure the approval of the
probate court pursuant to Rule 89 of the Rules of Court.

As a strict legal proposition, no judgment of the probate court was reviewed and eventually annuled
collaterally by the respondent court as contended by the petitioner. The order authorizing the sale in
its favor was duly issued by the probate court, which thereafter approved the Contract of Sale
resulting in the eventual issuance if title in favor of the petitioner. That order was valid insofar as it
recognized the existence of all the essential elements of a valid contract of sale, but without regard
to the special provision in the Contract of Lease giving another party the right of first priority.

Even if the order of the probate court was valid, the private respondents still had a right to rescind
the Contract of Sale because of the failure of Reynoso to comply with her duty to give them the first
opportunity to purchase the subject property.

The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto
could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that private
respondents are strangers to the agreement and therefore have no personality to seek its
annulment.

The respondent court correctly held that the Contract of Sale was not voidable rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors
could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by
the sale of the subject property to the petitioner without recognizing their right of first priority under
the Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even
to third persons, to secure reparation for damages caused to them by a contract, even if this should
be valid, by means of the restoration of things to their condition at the moment prior to the
celebration of said contract. 4 It is a relief allowed for the protection of one of the contracting parties and
even third persons from all injury and damage the contract may cause, or to protect some incompatible
and preferent right created by the contract. 5 Recission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. 6

It is true that the acquisition by a third person of the property subject of the contract is an obstacle to
the action for its rescission where it is shown that such third person is in lawful possession of the
subject of the contract and that he did not act in bad faith. 7 However, this rule is not applicable in the
case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor
may its possession of the subject property be regarded as acquired lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the record shows that its categorically admitted it
was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property
at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot
deny actual knowledge of such lease which was equivalent to and indeed more binding than
presumed notice by registration.

A purchaser in good faith and for value is one who buys the property of another without notice that
some other person has a right to or interest in such property and pays a full and fair price for the
same at the time of such purchase or before he has notice of the claim or interest of some other
person in the property. 8 Good faith connotes an honest intention to abstain from taking unconscientious
advantage of another. 9 Tested by these principles, the petitioner cannot tenably claim to be a buyer in
good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should have
cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice
its own interests.

The petitioner insists that it was not aware of the right of first priority granted by the Contract of
Lease, Assuming this to be true, we nevertherless agree with the observation of the respondent
court that:

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which
includes Par. 20 on priority right given to the Bonnevies, it had only itself to blame.
Having known that the property it was buying was under lease, it behooved it as a
prudent person to have required Reynoso or the broker to show to it the Contract of
Lease in which Par. 20 is contained.

Finally, the petitioner also cannot invoke the Compromise Agreement which it says canceled the
right of first priority granted to the Bonnevies by the Contract of Lease. This agreement was set side
by the parties thereto, resulting in the restoration of the original rights of the private respondents
under the Contract of Lease. The Joint Motion to Remand filed by Reynoso and the private
respondents clearly declared inter alia:

That without going into the merits of instant petition, the parties have agreed to SET
ASIDE the compromise agreement, dated September 24, 1979 and remand Civil
Case No. 043851 of the City Court of Manila to Branch IX thereof for trial on the
merits. 10
We find, in sum, that the respondent court did not commit the errors imputed to it by the petitioner.
On the contrary, its decision is conformable to the established facts and the applicable law and
jurisprudence and so must be sustained.

WHEREFORE, the petition in DENIED, with costs against the petitioner. The challeged decision is
AFFIRMED in toto. It is so ordered.

Narvasa, C.J., Grio-Aquino and Medialdea, JJ., concur.

EQUATORIAL V. MAYFAIR- Sale

of Land
While execution of a public instrument of sale is recognized by law as equivalent to the delivery of
the thing sold, such constructive or symbolic delivery is merely presumptive. It is nullified by the
failure of the vendee to take actual possession of the land sold.

FACTS:
Carmelo & Bauermann, Inc. owned a land, together with two 2-storey buildings at Claro M. Recto
Avenue, Manila, and covered by TCT No. 18529.

On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. fpr 20 years.
The lease covered a portion of the second floor and mezzanine of a two-storey building with about
1,610 square meters of floor area, which respondent used as Maxim Theater.

Two years later, on March 31, 1969, Mayfair entered into a second Lease with Carmelo for another
portion of the latters property this time, a part of the second floor of the two-storey building, and two
store spaces on the ground floor. In that space, Mayfair put up another movie house known as
Miramar Theater. The Contract of Lease was likewise for a period of 20 years.

Both leases contained a clause giving Mayfair a right of first refusal to purchase the subject
properties. Sadly, on July 30, 1978 - within the 20-year-lease term -- the subject properties were sold
by Carmelo to Equatorial Realty Development, Inc. for eleven million smackers, without their first
being offered to Mayfair.

As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the
Regional Trial Court of Manila for the recission of the Deed of Absolute Sale between Carmelo and
Equatorial, specific performance, and damages. RTC decided for Carmelo and Equatorial. Tsk tsk.
CA reversed and ruled for Mayfair. The SC denied a petition questioning the CA decision. What
happened is that the contract did get rescinded, Equatorial got its money back and asserted that
Mayfair have the right to purchase the lots for 11 million bucks.

Decision became final and executory, so Mayfair deposited with the clerk the 11M (less 847grand
withholding) payment for the properties (Carmelo somehow disappeared).
Meanwhile, on Sept 18, 1997, barely five months after Mayfair submitted its Motion for Execution,
Equatorial demanded from Mayfair backrentals and reasonable compensation for the Mayfairs
continued use of the subject premises after its lease contracts expired. Remember that Mayfair was
still occupying the premises during all this hullabaloo.

ISSUE:
Whether or not Equatorial was the owner of the subject property and could thus enjoy the fruits and
rentals.

HELD:NO.
Nor right of ownership was transferred from Carmelo to Equatorial since there was failure to deliver
the property to the buyer. Compound this with the fact that the sale was even rescinded.

The court went on to assert that rent is a civil fruit that belonged to the owner of the property
producing it by right of accession. Hence, the rentals that fell due from the time of the perfection of
the sale to petitioner until its rescission by final judgment should belong to the owner of the property
during that period.

We remember from SALES that in a contract of sale, one of the contracting parties obligates himself
to transfer ownership of and to deliver a determinate thing and the other to pay therefor a price
certain in money or its equivalent.

Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the thing to
him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor to the vendee. This right is
transferred, not by contract alone, but by tradition or delivery. There is delivery if and when the thing
sold is placed in the control and possession of the vendee.
While execution of a public instrument of sale is recognized by law as equivalent to the delivery of
the thing sold, such constructive or symbolic delivery is merely presumptive. It is nullified by the
failure of the vendee to take actual possession of the land sold.

For property to be delivered, we need two things. Delivery of property or title, and transfer of control
or custody to the buyer.

Possession was never acquired by the petitioner. It therefore had no rights to rent.

ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S.

RIVERA, petitioners, vs. FIDELA DEL ROSARIO (deceased and
substituted by her co-respondents), and her children, OSCAR,
ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and
ELOISA, all surnamed DEL ROSARIO, respondents.

DECISION

QUISUMBING, J.:

Before us is a petition for review on certiorari of the Court of Appeals

decision , dated November 29, 1999, in CA-G.R. CV No. 60552, which
[1]

affirmed the judgment of the Regional Trial Court (RTC) of Malolos, Bulacan,
[2]

Branch 17, in Civil Case No. 151-M-93. The RTC granted respondents
complaint for nullity of contract of sale and annulment of the transfer
certificates of title issued in favor of petitioners.

The facts, as found by the Court of Appeals, are as follows:

Respondents Fidela (now deceased), Oscar, Rosita, Violeta, Enrique Jr.,

Carlos, Juanito and Eloisa, all surnamed Del Rosario, were the registered
owners of Lot No. 1083-C, a parcel of land situated at Lolomboy, Bulacan.This
lot spanned an area of 15,029 square meters and was covered by TCT No. T-
50.668 (M) registered in the Registry of Deeds of Bulacan.

On May 16, 1983, Oscar, Rosita, Violeta, Enrique Jr., Juanito, and Eloisa,
executed a Special Power of Attorney in favor of their mother and co-
[3]

respondent, Fidela, authorizing her to sell, lease, mortgage, transfer and

convey their rights over Lot No. 1083-C. Subsequently, Fidela
[4]

borrowed P250,000 from Mariano Rivera in the early part of 1987. To secure
the loan, she and Mariano Rivera agreed to execute a deed of real estate
mortgageand an agreement to sell the land. Consequently, on March 9, 1987,
Mariano went to his lawyer, Atty. Efren Barangan, to have three documents
drafted: the Deed of Real Estate Mortgage , a Kasunduan (Agreement to Sell)
[5]

, and a Deed of Absolute Sale.

[6] [7]

The Kasunduan provided that the children of Mariano Rivera, herein

petitioners Adelfa, Cynthia and Jose, would purchase Lot No. 1083-C for a
consideration of P2,141,622.50. This purchase price was to be paid in three
installments: P250,000 upon the signing of the Kasunduan, P750,000 on
August 31, 1987, and P1,141,622.50 on December 31, 1987. It also provided
[8]

that the Deed of Absolute Sale would be executed only after the second
installment is paid and a postdated check for the last installment is deposited
with Fidela. As previously stated, however, Mariano had already caused the
[9]

drafting of the Deed of Absolute Sale. But unlike the Kasunduan, the said
deed stipulated a purchase price of only P601,160, and covered a certain Lot
No. 1083-A in addition to Lot No. 1083-C. This deed, as well as
[10]

the Kasunduan and the Deed of Real Estate Mortgage , was signed by
[11]

Marianos children, petitioners Adelfa, Cynthia and Jose, as buyers and

mortgagees, on March 9, 1987. [12]

The following day, Mariano Rivera returned to the office of Atty. Barangan,
bringing with him the signed documents. He also brought with him Fidela and
her son Oscar del Rosario, so that the latter two may sign the mortgage and
the Kasunduan there.

Although Fidela intended to sign only the Kasunduan and the Real Estate
Mortgage, she inadvertently affixed her signature on all the three documents
in the office of Atty. Barangan on the said day, March 10, 1987. Mariano then
gave Fidela the amount of P250,000. On October 30, 1987, he also gave
Fidela a check for P200,000. In the ensuing months, also, Mariano gave
Oscar del Rosario several amounts totaling P67,800 upon the latters demand
for the payment of the balance despite Oscars lack of authority to receive
payments under the Kasunduan. While Mariano was making payments to
[13]
Oscar, Fidela entrusted the owners copy of TCT No. T-50.668 (M) to Mariano
to guarantee compliance with the Kasunduan.

When Mariano unreasonably refused to return the TCT, one of the [14]

respondents, Carlos del Rosario, caused the annotation on TCT No. T-50.668
(M) of an Affidavit of Loss of the owners duplicate copy of the title on
September 7, 1992. This annotation was offset, however, when Mariano
registered the Deed of Absolute Sale on October 13, 1992, and afterwards
caused the annotation of an Affidavit of Recovery of Title on October 14,
1992.Thus, TCT No. T-50.668 (M) was cancelled, and in its place was issued
TCT No. 158443 (M) in the name of petitioners Adelfa, Cynthia and Jose
Rivera.[15]

Meanwhile, the Riveras, representing themselves to be the new owners of

Lot No. 1083-C, were also negotiating with the tenant, Feliciano Nieto, to rid
the land of the latters tenurial right. When Nieto refused to relinquish his
tenurial right over 9,000 sq. m. of the land, the Riveras offered to give 4,500
sq. m. in exchange for the surrender. Nieto could not resist and he
accepted. Subdivision Plan No. Psd-031404-052505 was then made on
August 12, 1992. Later, it was inscribed on TCT No. 158443 (M), and Lot No.
1083-C was divided into Lots 1083 C-1 and 1083 C-2. [16]

To document their agreement with Feliciano Nieto, the Riveras executed

a Kasulatan sa Pagtatakwil ng Karapatan sa Pagmamay-ari ng Bahagi ng
Isang Lagay na Lupa (Written Abdication of Rights over a Portion of a Parcel
of Land) on November 16, 1992. Four days later, they registered the
[17]

document with the Registry of Deeds. Two titles were then issued: TCT No. T-
161784 (M) in the name of Nieto, for 4,500 sq. m. of land, and TCT No. T-
161785 (M) in the name of petitioners Adelfa, Cynthia and Jose Rivera, over
the remaining 10,529 sq. m. of land.[18]

On February 18, 1993, respondents filed a complaint in the Regional Trial

[19]

Court of Malolos, asking that the Kasunduan be rescinded for failure of the
Riveras to comply with its conditions, with damages. They also sought the
annulment of the Deed of Absolute Sale on the ground of fraud, the
cancellation of TCT No. T-161784 (M) and TCT No. T-161785 (M), and the
reconveyance to them of the entire property with TCT No. T-50.668 (M)
restored.[20]

Respondents claimed that Fidela never intended to enter into a deed of

sale at the time of its execution and that she signed the said deed on the
mistaken belief that she was merely signing copies of
the Kasunduan.According to respondents, the position where Fidelas name
was typed and where she was supposed to sign her name in
the Kasunduan was roughly in the same location where it was typed in the
Deed of Absolute Sale. They argued that given Fidelas advanced age (she
was then around 72 at the time) and the fact that the documents were
[21]

stacked one on top of the other at the time of signing, Fidela could have easily
and mistakenly presumed that she was merely signing additional copies of
the Kasunduan. They also alleged that petitioners acquired possession of
[22]

the TCT through fraud and machination.

In their defense, petitioners denied the allegations and averred that the
Deed of Absolute Sale was validly entered into by both parties. According to
petitioners, Fidela del Rosario mortgaged Lot No. 1083-C to their predecessor
in interest, Mariano Rivera, on March 9, 1987. But on the following day Fidela
decided to sell the lot to petitioners for P2,161,622.50. When Mariano agreed
(on the condition that Lot No. 1083-C will be delivered free from all liens and
encumbrances), the Kasunduan was consequently drawn up and signed. After
that, however, Fidela informed Mariano of the existence of Feliciano Nietos
tenancy right over the lot to the extent of 9,000 sq. m.When Mariano
continued to want the land, albeit on a much lower price of only P601,160, as
he had still to deal with Feliciano Nieto, the parties drafted the Deed of
Absolute Sale on March 10, 1987, to supersede the Kasunduan.

Petitioners likewise argued that respondents cause of action had been

barred by laches or estoppel since more than four years has lapsed from the
time the parties executed the Deed of Absolute Sale on March 10, 1987, to
the time respondents instituted their complaint on February 18, 1993.

Petitioners also filed a counterclaim asking for moral and exemplary

damages and the payment of attorneys fees and costs of suit.
 After trial, the RTC ruled in favor of respondents:

WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:

1. Declaring the Deed of Absolute Sale dated March 10, 1987 as null and
void;

2. Annulling TCT No. T-158443 (M) and TCT No. T-161785 (M) both in the
names of Adelfa, Cynthia and Jose, all surnamed Rivera;

3. Declaring the plaintiffs to be the legitimate owners of the land covered by

TCT No. T-161785 (M) and ordering defendant Adelfa, Cynthia, and
Jose, all surnamed Rivera, to reconvey the same to the plaintiffs;

4. Ordering the Register of Deeds of Bulacan to cancel TCT No. T-161785

(M) and to issue in its place a new certificate of title in the name of the
plaintiffs as their names appear in TCT No. T-50.668;

5. Declaring TCT No. T-161784 (M) in the name of Feliciano Nieto as valid;

6. Ordering the defendant Riveras to pay the plaintiffs solidarily the following
amounts:

a) P191,246.98 as balance for the 4,500 square-meter portion given to

defendant Feliciano Nieto

b) P200,000.00 as moral damages

c) P50,000.00 as exemplary damages

d) P50,000.00 as attorneys fees

e) costs of the suit.

7. Dismissing the counterclaim of the defendant Riveras;

8. Dismissing the counterclaim and the crossclaim of defendant Feliciano

Nieto.
SO ORDERED. [23]

The trial court ruled that Fidelas signature in the Deed of Absolute Sale
was genuine, but found that Fidela never intended to sign the said
deed. Noting the peculiar differences between the Kasunduan and the Deed
of Absolute Sale, the trial court concluded that the Riveras were guilty of fraud
in securing the execution of the deed and its registration in the Registry of
Deeds. This notwithstanding, the trial court sustained the validity of TCT No.
[24]

T-161784 (M) in the name of Feliciano Nieto since there was no fraud proven
on Nietos part. The trial court found him to have relied in good faith on the
representations of ownership of Mariano Rivera. Thus, Nietos rights,
according to the trial court, were akin to those of an innocent purchaser for
value.[25]

On the foregoing, the trial court rescinded the Kasunduan but ruled that
the P450,000 paid by petitioners be retained by respondents as payment for
the 4,500 sq. m. portion of Lot No. 1083-C that petitioners gave to Nieto. The [26]

trial court likewise ordered petitioners to pay P191,246.98 as balance for the
price of the land given to Nieto, P200,000 as moral damages, P50,000 as
exemplary damages, P50,000 as attorneys fees, and the costs of suit. [27]

On appeal to the Court of Appeals, the trial courts judgment was modified
as follows:

WHEREFORE, the judgment appealed from is hereby AFFIRMED with the

MODIFICATION that the Deed of Absolute Sale dated March 10, 1987 is declared
null and void only insofar as Lot No. 1083-C is concerned, but valid insofar as it
conveyed Lot No. 1083-A, that TCT No. 158443 (M) is valid insofar as Lot No. 1083-
A is concerned and should not be annulled, and increasing the amount to be paid by
the defendants-appellants to the plaintiffs-appellees for the 4,500 square meters of
land given to Feliciano Nieto to P323,617.50.

Costs against the defendants-appellants.

SO ORDERED. [28]

Petitioners motion for reconsideration was denied. Hence, this petition.

 While this petition was pending, respondent Fidela del Rosario died. She
was substituted by her children, herein respondents.

In this petition, petitioners rely on the following grounds:

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS, GRAVE

AND REVERSIBLE ERROR IN AWARDING LOT 1083-A IN FAVOR OF THE
PETITIONERS AND FELICIANO NIETO WHICH IS ADMITTEDLY A PART
AND PORTION OF THE EXISTING NORTH LUZON EXPRESSWAY AND AS
SUCH ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION, OR WITH
GRAVE ABUSE OF JUDICIAL DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION.

II

RESPONDENTS FAILED TO PAY THE CORRECT DOCKET, FILING AND

OTHER LAWFUL FEES WITH THE OFFICE OF THE CLERK OF COURT OF
THE COURT A QUO (RTC, MALOLOS, BULACAN) AT THE TIME OF THE
FILING OF THE ORIGINAL COMPLAINT IN 1993 PURSUANT TO THE
SIOL DOCTRINE.
[29]

III

[THE] TRIAL COURT AWARDED RELIEFS NOT SPECIFICALLY PRAYED FOR

IN THE AMENDED COMPLAINT WITHOUT REQUIRING THE PAYMENT OF
THE CORRECT DOCKET, FILING AND OTHER LAWFUL FEES.

IV

THE COURT A QUO HAS NO JURISDICTION OVER THE RESPONDENTS

CAUSE OF ACTION AND OVER THE RES CONSIDERING THAT FELICIANO
NIETO IS AN AGRICULTURAL TENANT OF THE RICELAND IN QUESTION.

RESPONDENTS[] MAIN CAUSE OF ACTION [IS] FOR RESCISSION OF

CONTRACT WHICH IS SUBSIDIARY IN NATURE[,] AND ANNULMENT OF
SALE[,] BOTH OF WHICH HAVE ALREADY PRESCRIBED UNDER ARTICLES
1389 AND 1391 OF THE CIVIL CODE. [30]

Petitioners assignment of errors may be reduced into three issues: (1) Did
the trial court acquire jurisdiction over the case, despite an alleged deficiency
in the amount of filing fees paid by respondents and despite the fact that an
agricultural tenant is involved in the case? (2) Did the Court of Appeals
correctly rule that the Deed of Absolute Sale is valid insofar as Lot 1083-A is
concerned? (3) Is the respondents cause of action barred by prescription?

On the first issue, petitioners contend that jurisdiction was not validly
acquired because the filing fees respondents paid was only P1,554.45 when
the relief sought was reconveyance of land that was worth P2,141,622.50
under the Kasunduan. They contend that respondents should have paid filing
fees amounting to P12,183.70. In support of their argument, petitioners invoke
the doctrine in Sun Insurance Office, Ltd., (SIOL) v. Asuncion and attach a
[31]

certification from the Clerk of Court of the RTC of Quezon City.

[32]

Respondents counter that it is beyond dispute that they paid the correct
amount of docket fees when they filed the complaint. If the assessment was
inadequate, they could not be faulted because the clerk of court made no
notice of demand or reassessment, respondents argue. Respondents also
add that since petitioners failed to contest the alleged underpayment of docket
fees in the lower court, they cannot raise the same on appeal. [33]

We rule in favor of respondents. Jurisdiction was validly acquired over the

complaint. In Sun Insurance Office, Ltd., (SIOL) v. Asuncion, this Court ruled
[34]

that the filing of the complaint or appropriate initiatory pleading and the
payment of the prescribed docket fee vest a trial court with jurisdiction over
the subject matter or nature of the action. If the amount of docket fees paid is
insufficient considering the amount of the claim, the clerk of court of the lower
court involved or his duly authorized deputy has the responsibility of making a
deficiency assessment. The party filing the case will be required to pay the
deficiency, but jurisdiction is not automatically lost.

Here it is beyond dispute that respondents paid the full amount of docket
fees as assessed by the Clerk of Court of the Regional Trial Court of Malolos,
Bulacan, Branch 17, where they filed the complaint. If petitioners believed that
the assessment was incorrect, they should have questioned it before the trial
court. Instead, petitioners belatedly question the alleged underpayment of
docket fees through this petition, attempting to support their position with the
opinion and certification of the Clerk of Court of another judicial
region. Needless to state, such certification has no bearing on the instant
case.

Petitioners also contend that the trial court does not have jurisdiction over
the case because it involves an agricultural tenant. They insist that by virtue of
Presidential Decree Nos. 316 and 1038, it is the Department of Agrarian
[35]

Reform Adjudication Board (DARAB) that has jurisdiction. [36]

Petitioners contention lacks merit. The DARAB has exclusive original

jurisdiction over cases involving the rights and obligations of persons engaged
in the management, cultivation and use of all agricultural lands covered by the
Comprehensive Agrarian Reform Law. However, the cause of action in this
[37]

case is primarily against the petitioners, as indispensable parties, for

rescission of the Kasunduan and nullification of the Deed of Sale and the
TCTs issued because of them. Feliciano Nieto was impleaded merely as a
necessary party, stemming from whatever rights he may have acquired by
virtue of the agreement between him and the Riveras and the corresponding
TCT issued. Hence, it is the regular judicial courts that have jurisdiction over
the case.

On the second issue, contrary to the ruling of the Court of Appeals that the
Deed of Absolute Sale is void only insofar as it covers Lot No. 1083-C, we find
that the said deed is void in its entirety. Noteworthy is that during the oral
arguments before the Court of Appeals, both petitioners and respondents
admitted that Lot No. 1083-A had been expropriated by the government long
before the Deed of Absolute Sale was entered into. Whats more, this case
[38]

involves only Lot No. 1083-C. It never involved Lot 1083-A. Thus, the Court of
Appeals had no jurisdiction to adjudicate on Lot 1083-A, as it was never
touched upon in the pleadings or made the subject of evidence at trial. [39]

As to the third issue, petitioners cite Articles 1383, 1389 and 1391 of
[40] [41] [42]

the New Civil Code. They submit that the complaint for rescission of
the Kasunduan should have been dismissed, for respondents failure to prove
that there was no other legal means available to obtain reparation other than
to file a case for rescission, as required by Article 1383. Moreover, petitioners
contend that even assuming respondents had satisfied this requirement,
prescription had already set in, the complaint having been filed in 1992 or five
years after the execution of the Deed of Absolute Sale in March 10, 1987.

Respondents counter that Article 1383 of the New Civil Code applies only
to rescissible contracts enumerated under Article 1381 of the same Code,
while the cause of action in this case is for rescission of a reciprocal
obligation, to which Article 1191 of the Code applies. They assert that their
[43]

cause of action had not prescribed because the four-year prescriptive period
is counted from the date of discovery of the fraud, which, in this case, was
only in 1992.

Rescission of reciprocal obligations under Article 1191 of the New Civil

Code should be distinguished from rescission of contracts under Article 1383
of the same Code. Both presuppose contracts validly entered into as well as
subsisting, and both require mutual restitution when proper, nevertheless they
are not entirely identical. [44]

In countless times there has been confusion between rescission under

Articles 1381 and 1191 of the Civil Code. Through this case we again
emphasize that rescission of reciprocal obligations under Article 1191 is
different from rescissible contracts under Chapter 6 of the law on contracts
under the Civil Code. While Article 1191 uses the term rescission, the original
[45]

term used in Article 1124 of the old Civil Code, from which Article 1191 was
based, was resolution. Resolution is a principal action that is based on
[46]

breach of a party, while rescission under Article 1383 is a subsidiary action

limited to cases of rescission for lesion under Article 1381 of the New Civil
Code, which expressly enumerates the following rescissible contracts:
[47]

ART. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things
which are the object thereof;
 (2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or
of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.

Obviously, the Kasunduan does not fall under any of those situations
mentioned in Article 1381. Consequently, Article 1383 is inapplicable. Hence,
we rule in favor of the respondents.

May the contract entered into between the parties, however, be rescinded
based on Article 1191?

A careful reading of the Kasunduan reveals that it is in the nature of a

contract to sell, as distinguished from a contract of sale. In a contract of sale,
the title to the property passes to the vendee upon the delivery of the thing
sold; while in a contract to sell, ownership is, by agreement, reserved in the
vendor and is not to pass to the vendee until full payment of the purchase
price. In a contract to sell, the payment of the purchase price is a positive
[48]

suspensive condition, the failure of which is not a breach, casual or serious,

[49]

but a situation that prevents the obligation of the vendor to convey title from
acquiring an obligatory force. [50]

Respondents in this case bound themselves to deliver a deed of absolute

sale and clean title covering Lot No. 1083-C after petitioners have made the
second installment. This promise to sell was subject to the fulfillment of the
suspensive condition that petitioners pay P750,000 on August 31, 1987, and
deposit a postdated check for the third installment of P1,141,622.50.
Petitioners, however, failed to complete payment of the second
[51]

installment. The non-fulfillment of the condition rendered the contract to sell

ineffective and without force and effect. It must be stressed that the breach
contemplated in Article 1191 of the New Civil Code is the obligors failure to
comply with an obligation already extant, not a failure of a condition to render
binding that obligation. Failure to pay, in this instance, is not even a breach
[52]

but an event that prevents the vendors obligation to convey title from acquiring
binding force. Hence, the agreement of the parties in the instant case may
[53]

be set aside, but not because of a breach on the part of petitioners for failure
to complete payment of the second installment. Rather, their failure to do so
prevented the obligation of respondents to convey title from acquiring an
obligatory force. [54]

Coming now to the matter of prescription. Contrary to petitioners assertion,

we find that prescription has not yet set in. Article 1391 states that the action
for annulment of void contracts shall be brought within four years. This period
shall begin from the time the fraud or mistake is discovered. Here, the fraud
was discovered in 1992 and the complaint filed in 1993. Thus, the case is well
within the prescriptive period.

On the matter of damages, the Court of Appeals awarded

respondents P323,617.50 as actual damages for the loss of the land that was
given to Nieto, P200,000 as moral damages, P50,000 as exemplary
damages, P50,000 as attorneys fees and the costs of suit. Modifications are in
order, however.

Moral damages may be recovered in cases where one willfully causes

injury to property, or in cases of breach of contract where the other party acts
fraudulently or in bad faith. Exemplary damages are imposed by way of
[55]

example or correction for the public good, when the party to a contract acts
[56]

in a wanton, fraudulent, oppressive or malevolent manner. Attorneys fees are

[57]

allowed when exemplary damages are awarded and when the party to a suit
is compelled to incur expenses to protect his interest. [58]

While it has been sufficiently proven that the respondents are entitled to
damages, the actual amounts awarded by the lower court must be reduced
because damages are not intended for a litigants enrichment, at the expense
of the petitioners. The purpose for the award of damages other than actual
[59]

damages would be served, in this case, by reducing the amounts awarded.

 Respondents were amply compensated through the award of actual
damages, which should be sustained. The other damages awarded
total P300,000, or almost equivalent to the amount of actual
damages. Practically this will double the amount of actual damages awarded
to respondents. To avoid breaching the doctrine on enrichment, award for
damages other than actual should be reduced. Thus, the amount of moral
damages should be set at only P30,000, and the award of exemplary
damages at only P20,000. The award of attorneys fees should also be
reduced to P20,000, which under the circumstances of this case appears
justified and reasonable.

WHEREFORE, the assailed decision of the Court of Appeals is

MODIFIED. The Deed of Absolute Sale in question is declared NULL and
VOID in its entirety. Petitioners are ORDERED to pay
respondents P323,617.50 as actual damages, P30,000.00 as moral
damages, P20,000.00 as exemplary damages and P20,000.00 as attorneys
fees. No pronouncement as to costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

REPUBLIC OF THE PHILIPPINES, Represented by the SOCIAL

SECURITY SYSTEM, petitioner, vs. JERRY V. DAVID, respondent.

DECISION

PANGANIBAN, J.:

Under the terms of the subject Contract, actual possession cannot be

equated with actual occupancy. Inasmuch as the housing unit was physically
occupied by parties other than those intended to be benefited by the housing
program of the Social Security System, there was a clear violation of the
Contract. Since respondent did not comply with his obligations, rescission is
proper.

The Case
 Before us is a Petition for Review under Rule 45 of the Rules of Court,
[1]

assailing the October 9, 2002 Decision of the Court of Appeals (CA) in CA-
[2]

GR CV No. 61374. The appellate court disposed as follows:

WHEREFORE, the instant appeal is DENIED for lack of merit. The decision of the
Regional Trial Court, Quezon City, Branch 105, in Civil Case No. Q-96-27031 is
hereby AFFIRMED. [3]

The Facts

The CA narrated the facts thus:

x x x [Respondent] Jerry V. David is an employee of the SSS, formerly assigned at its

Membership (Backroom) Department. Pursuant to its Employees Housing Loan
Program, SSS awarded David a house and lot located at North Fairview, Quezon City.
A Deed of Conditional Sale over the subject property was thereafter executed between
the parties.

On reports that numerous violations have been committed by some of the housing
awardees in connection with the conditions governing their sales, SSS conducted an
investigation on the matter. The investigation revealed that in the case of [Respondent]
David, he committed two (2) violations of his deed of conditional sale, to wit: (1)
neither the [respondent] nor his immediate family resided and/or occupied the said
housing unit, and (2) he allowed a certain Buenaventura Penus to possess and occupy
the property.

As a consequence of these violations, SSS sent a letter to David formally revoking,

terminating and/or rescinding the deed of conditional sale. However, the latter refused
to vacate and surrender possession of the subject property, prompting SSS to institute
a complaint with the Quezon City RTC on March 28, 1996 revoking the deed of
conditional sale and likewise praying for the issuance of a writ of possession in its
favor.

During the pre-trial of the case, the court observed that while the complaint was
captioned Petition for Recovery of Possession with [P]rayer for Issuance of a Writ of
Possession, an examination of its body shows that the prayer was actually for the
rescission of the deed of conditional sale. For this reason, the court ordered the
amendment of the complaint and in compliance thereto, [petitioner] submitted its
amended complaint on March 19, 1997.

[Respondent] David denied the alleged violations of the deed of conditional sale,
stating that Buenaventura Penus, alluded to by the [petitioner] as possessor-occupant
of the subject property, was in fact a caretaker until and after the necessary
renovations and modifications on the house were made.

In a [D]ecision dated July 1, 1998, the court a quo dismissed the complaint and
adjudged the [petitioner] liable for costs. The dispositive portion of the trial courts
decision reads:

WHEREFORE, in the light of the foregoing, the Amended Complaint is dismissed,

with costs against the plaintiff.

SO ORDERED.

In dismissing the complaint, the court ruled that the [petitioner] failed to prove that
the [respondent] purchased the subject property for the use and benefit of another
undisclosed party and not for his exclusive use, or that the defendant sold, assigned,
encumbered, mortgaged, leased, subleased or in any manner altered or disposed of the
subject property or his rights thereto at any other time. In arriving at its [D]ecision, the
lower court considered the testimony of the [respondent] that when the subject
property was delivered to him on October 23, 1992, the unit was not habitable so he
had to make a few constructions thereon. He secured the services of his cousin,
Buenaventura Penus, to be the caretaker while construction on the house was going
on. With this, the court concluded that possession, as a condition of the deed of sale
between the parties, was sufficiently satisfied.

Aggrieved, [Petitioner] SSS brought [an] appeal [to the CA], arguing that the court a
quo erred in holding that [respondent] did not violate the terms and conditions of the
Deed of Conditional Sale and in consequently dismissing the case. [4]

Ruling of the Court of Appeals

Affirming the trial court, the CA ruled that while other persons had been
found occupying the subject property, no proof was adduced by petitioner to
prove that they had taken possession of it on their own behalf and not merely
as respondents caretakers. The appellate court added that because of the
squalid condition of the property when it was delivered, respondent had to
make improvements thereon as well as ask Penus, and later on Oden
Domingo, to stay there as caretakers.

Through his caretakers, respondent was deemed to have occupied and

possessed the property as required by the Deed of Sale between him and
petitioner. The CA concluded that the property had clearly been subject to
respondents will, a fact equivalent to possession under Article 531 of the Civil
[5]

Code.

Hence, this Petition. [6]

Issues

In its Memorandum, petitioner raises this sole issue: whether the Court of
Appeals committed reversible error in affirming the Decision of the trial court
holding that respondent did not violate the terms and conditions of the Deed of
Conditional Sale.[7]

The Courts Ruling

The Petition is meritorious.

Sole Issue:

Violation of the Terms and Conditions

of the Deed of Conditional Sale

Petitioner avers that respondent violated the terms and conditions of the
Deed of Conditional Sale, when he failed to actually occupy and possess the
property at all times and allowed other persons to do so.
[8] [9]

It argues that contrary to the rulings of the trial and the appellate courts,
the Deed of Conditional Sale required actual physical possession at all times,
not just simple possession. It contends that the material occupation of the
property by other persons ran counter to the objective of the Social Security
System (SSS) housing program to restrict the use and enjoyment of the
housing units to SSS employees and their immediate families only.

Petitioner likewise submits that the appellate court erred in believing the
claim of respondent that the house was uninhabitable when it was delivered to
him in 1992. His claim was belied by his acceptance of the property without
protest, as well as by the fact that his alleged caretakers had lived there from
1992 to 1996. Petitioner adds that he should have used his available money
to improve the property, if the unit was indeed unlivable, instead of fully
settling in advance in December 1992 the unpaid balance of its purchase
price.

Propriety of Review

At the outset, the Court stresses that a question of law has arisen from
petitioners contention that simple possession under Article 531 of the Civil
Code is not the same as actual occupancy and possession at all times, as
required of respondent under the Deed. Such question -- of what law, rule or
principle is to govern a given state of facts -- is decidedly one of law. It may
[10]

be raised in this appeal by certiorari under Rule 45 of the Rules of Court.

Rules of Contract Interpretation

Certain rules of contract interpretation come to mind at this point. First, in

construing a contract, it is a fundamental task to ascertain the intention of the
contracting parties. As a rule, such intention is determined by looking at the
[11]

words used -- at all the words rather than at a particular word or two; and at
words in context rather than just words standing alone. [12]

Indeed, under Article 1374 of the Civil Code, the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. Second, the ascertained
intention of the parties is deemed an integral part of the contract, as though it
has been originally expressed in unequivocal terms. And third, the
[13]

reasonableness of the result obtained, after analysis and construction of a

contract, must also be carefully considered.[14]
 The conditions that were allegedly violated by respondent are contained in
paragraph 10 of the Deed of Conditional Sale, as follows:

10. The Contract shall further [provide] the following terms and conditions:

(a) The VENDEE is making this purchase for his/her own exclusive use and
benefit and not for the use and benefit of another undisclosed
party/parties;

(b) The purpose of the sale shall be to aid the VENDEE in acquiring a house
and lot for himself/herself and/or his/her immediate family, and not to
provide him/her with a means for speculation or profit by a future
assignment of his/her right herein acquired or the resale of the
PROPERTY subject of this Contract. Therefore, the VENDEE, within
the first FIVE (5) years of the existence of this contract agrees not to
sell, assign, encumber, mortgage, lease, sub-let or in any manner alter or
dispose of the property subject hereof, or his rights thereto, at any time,
in whole or in part. After the FIVE (5) year period, VENDEE shall have
the right to the full disposal of the property, provided that, VENDEE has
been able to fully pay all of his/her obligations herein. However, the
foregoing notwithstanding, the VENDEE may x x x at any time with
prior consent of the VENDOR transfer his right to the PROPERTY to
any eligible employee of the VENDOR, subject, however, to the right of
first refusal by the VENDOR who may refund to the VENDEE all of
his/her installment payments and the value of substantial improvements
introduced by him/her if any, as appraised by the VENDOR;

(c) The VENDEE, and his heirs and/or successors, shall actually occupy and
be in possession of the PROPERTY at all times;

(d) The VENDEE shall not obstruct or interfere in any manner whatsoever
with the right of the VENDOR or any of its duly authorized
representatives to inspect, survey, repair, lay water pipes, gas, electric
and telephone lines or other works of similar purposes;

(e) The VENDEE shall abide by and comply with the Vendors Occupancy
Rules and Regulations the terms and conditions of which are made an
 integral part hereof by reference, as well as that issued by any other
governmental authority which may, from time to time, be promulgated in
regard to the use and preservation of the house and lot;

(f) The VENDEE warrants in full the truth of the representation made in
his/her Application For EMPLOYEE HOUSING LOAN, the terms of
which are likewise made an integral part hereof by reference.

The violation of any of the conditions herein stipulated shall be considered as a breach
of this Contract, and shall subject the VENDEE to the penalties provided for in
paragraphs (11) and (12) hereof, including administrative sanctions, when warranted,
in the event x x x the VENDEE has been found to have committed a
misrepresentation/falsification in his/her application for an Employee Housing Loan. [15]

Actual Occupancy and

Possession at All Times

Plainly, the primary intention behind the above-quoted stipulations is to

restrict the sale, the use and the benefit of the housing units to SSS
employees and their immediate families only. This objective is in line with that
of the SSS housing loan program -- to aid its employees in acquiring their own
dwelling units at a low cost. Such intent, draws life also from the social
[16]

justice policy of RA 1161, as amended, otherwise known as the Social

Security System Law granting direct housing loans to covered employees and
giving priority to low-income groups. [17]

Indeed, the above goal is confirmed by the requirement that respondent-

vendee and his heirs or assigns must actually occupy and possess the
property at all times; by the proscription that he must not sell, assign,
encumber, mortgage, lease, sublet or in any manner alter or dispose of the
property for the first five (5) years; and by the further proviso that he may
alienate or transfer his rights thereto at any time prior to full payment, but only
to petitioner under its right of first refusal or to any other eligible SSS
employee. These restrictive covenants are undeniably valid under Article
1306 of the Civil Code.
[18]
 The use of the conjunctive and in subparagraph (c) is not by any chance a
surplusage. Neither is it meant to be without any legal signification. Its use is
confirmatory of the restrictive intent that the houses provided by petitioner
should be for the exclusive use and benefit of the SSS employee-beneficiary.

It is easily discernible, therefore, that both actual

occupancy and possession at all times -- not just one or the other -- were
imposed as conditions upon respondent. The word and -- whether it is used to
connect words, phrases or full sentences -- must be accepted in its common
and usual meaning as binding together and as relating to one another.
And implies a conjunction, joinder or union.
[19] [20]

Thus, respondent had to comply with not one, but two, concurring
conditions -- actual occupancy and possession at all times. The question is,
did he?

We rule that he did not.

No Actual Occupancy

First, actual possession is not the same as actual occupancy. Hence, it

was an error on the part of the lower courts to hold that the requirement of
possession alone was a sufficient compliance with the conditions under
subparagraphs (a) and (c).

Under the law, [p]ossession is acquired by the material occupation of a

[21]

thing or the exercise of a right, or by the fact that it is subject to the action of
our will, or by the proper acts and legal formalities established for acquiring
such right. As such, actual possession consists in the manifestation of acts of
dominion over property of such a nature as a party would naturally exercise
over his own -- as when respondent himself is physically in occupation of the
[22]

property, or even when another person who recognizes the formers rights as
owner is in occupancy. In short, possession can be either actual or merely
[23]

constructive.

On the other hand, actual occupancy connotes something real, or actually

existing, as opposed to something merely possible, or to something which is
presumptive or constructive. Unlike possession, it can only be actual or real,
[24]

not constructive.

Second, the uncontroverted fact remains that it was not respondent and/or
his immediate family, but Penus and his wife, who had lived in the property
since 1992; and that it was from Penus that Domingo took over possession in
1996. Thus, while it may be conceded that respondent possessed the
property through his caretakers, there is no escaping the fact that he and/or
his immediate family did not actually occupy it; and that he allowed other
persons to benefit from its use. In his letter to SSS Assistant Administrator
Amador Monteiro on January 24, 1996, respondent admitted as much, but
[25]

tried to justify his noncompliance by saying that the property was not in a
habitable condition at the time of delivery. This line of defense was sustained
by the trial court on the ground of respondents allegedly uncontroverted or
unrebutted evidence. [26]

The RTCs finding, however, is neither borne out by the records nor by
substantial evidence. Hence, it constitutes an exception to the rule that this
Court cannot review factual findings. [27]

Indeed, a thorough review of the records reveals that the averments of

respondent were ably controverted by denials made by petitioner. Negating
his claim that the house was located adjacent to a creek, it lengthily argued
[28]

against it in the Memorandum it submitted to the trial court. Likewise, it must

be stressed that under the Rules of Court, the defense alleged in his Answer
[29]

is deemed controverted, whether or not petitioner filed a reply.

Moreover, it is a basic rule of evidence that the party asserting an

affirmative allegation must prove it. However, all that there is to back up the
[30]

defense of respondent in this case is his self-serving testimony and that of his
witness, Domingo. As to the latters testimony, it suffices to say that he could
not have affirmed the alleged condition of the unit in 1992, as he took
possession of it only in 1996, four years after it had lain exposed to the
elements with no improvements whatsoever.

For four years, respondent likewise kept his silence about the purported
condition of the unit. He accepted it without any whimper of protest on
October 23, 1992, and even paid the housing loan in full in December of the
same year. If it was indeed uninhabitable, he should have refused to accept it
or immediately protested its condition.

On the other hand, there is enough documentary evidence to debunk his

claim. The report of petitioners Internal Audit Service significantly established
[31]

that 509 of the 728 awardees -- presumably situated similarly as he was --

had occupied their units in compliance with the assailed requirement. The
Interview Slip submitted in evidence by petitioner also showed that Penus
[32]

and his wife, and later Domingo, had lived in the unit since 1992. In the face of
these facts, it is difficult to believe the defense of respondent. For how could
the units be habitable to many others, but not to him?

Likewise, this Court takes judicial notice of the fact that low-cost houses
such as those offered by petitioner are usually core or shell units without
[33]

adequate divisions, ceilings, cabinets, paint and, in some cases, electrical

connections -- features that have to be installed, completed or refurbished by
the awardees. The idea, of course, is to provide immediate but affordable
living spaces that they can work at improving, according to their needs and
finances and while living therein. Certainly, at P172,978.85 (the cost of the
house and lot in this case), it is but fair to accept the lack of amenities.

Neither can respondent assail the validity of the Contract as a one-sided

take it or leave it agreement. To begin with, a contract of adhesion -- wherein
one party imposes a ready-made form of contract on the other -- is not strictly
against the law. The terms of the agreement cannot be modified, but can be
[34]

freely rejected in its entirety, by the other party. On the other hand, the latters
adherence thereto would mean consent. We need only to remind respondent
[35]

that contractual obligations between the parties have the force of law and
must be complied with in good faith. [36]

We therefore do not see any reason to discuss respondents added

arguments, other than to say that the objectives of low-cost housing --
mandated under the social justice provisions of the Constitution -- are too
[37]

important to be sidetracked by lame, untimely and unfounded excuses. Such

excuses do nothing but harm to the salutary efforts of providing the
underprivileged and the homeless with cheap but decent houses. It is for this
reason that we regard this case as no ordinary skirmish over contractual relations.

Rescission

In view of the foregoing discussion, we rule that rescission of the Contract

is the proper recourse. Article 1191 of the Civil Code provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

The injured party may choose between fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission even after he
has chosen fulfillment, if the latter should become impossible.

As noted in previous cases, the rescission contemplated under Article

1191 is a principal action for resolution, which is based on a breach by a party
of its reciprocal obligations. The present Contract is one of conditional sale --
[38]

oftentimes referred to as a contract to sell, wherein ownership or title is

retained by the vendor until full payment by the VENDEE of the full purchase
[39]

price of the PROPERTY, with all the interest due thereon, as well as taxes and
other charges AND upon their faithful compliance with all the conditions of this
Contract x x x. [40]

Although a transfer of ownership or title from the seller to the buyer

is normally predicated upon the payment of the purchase price, the parties are
nevertheless free to stipulate other lawful conditions by which they bind
themselves and upon which transfer of ownership depends. In this case, that
[41]

other obligation was faithful compliance with the conditions of the Contract.
Respondent did not faithfully comply with the conditions under subparagraphs
(10)(a) and (c). His noncompliance also constituted a breach of his reciprocal
obligations under the Deed.

The Deed itself provides for its annulment and cancellation by reason of a
breach of the terms and conditions stipulated therein. Paragraphs 11 and 12
provide thus:
11. Should the VENDEE violate, refuse or fail to comply with any of the terms and
conditions stipulated herein, for whatever reason, or is found to have committed any
misrepresentation in his/her application for EMPLOYEE HOUSING LOAN, this
Contract shall be deemed annulled and cancelled without prejudice of the rights of
the parties under Republic Act No. 6652, otherwise known as the Maceda Law, and
shall entitle the VENDOR to immediately repossess the property as if this Contract
was never made; for this purpose, the VENDEE shall be considered and treated as a
tenant holding the property without the permission of the VENDOR, and must
peacefully vacate the premises immediately upon repossession thereof by the
VENDOR. The annulment and cancellation of this Contract and the right of the
VENDOR to repossess the property shall become effective upon mere written notice
thereof to the VENDEE.

12. In addition to the consequences stated in the immediately preceding paragraph, the
VENDEE shall forfeit in favor of the VENDOR all the installments made, to stand as
rent for his/her occupation of the property, likewise subject to the provisions of
Republic Act No. 6552. (Italics supplied)
[42]

However, this Court holds that the forfeiture provision under paragraph 12
does not apply to the payment made by respondent. The plain and simple
reason is that he did not pay the purchase price by installment, but instead
paid it in full in December 1992 -- two months after the delivery of the unit.
Hence, that payment was beyond the ambit of Republic Act 6552, otherwise
known as the Realty Installment Buyer Act or the Maceda Law.

Doctrinally, mutual restitution must follow rescission. Under Article 1385 of

the Civil Code, rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its
interests x x x. Moreover, [t]o rescind is to declare a contract void at its
[43]

inception and to put an end to it as though it never was. Hence, rescission

[44]

restores the parties to their relative positions, as if no contract has been

made. Paragraph 11, cited above, supports the mutual restitution required in
rescission.

Respondent is thus obliged to return the house and lot sold, as well as
rental payments he may have earned, if any. On the other hand, petitioner is
mandated to refund to him his full payment of P172,978.85 plus legal interest
of 6 percent per annum, as well as the value of substantial improvements
introduced by him, as appraised by petitioner. Indeed, stipulated in the Deed
is such appraisal by the vendor, upon transfer of the property to petitioner or
[45]

to any of its eligible employees. This condition is reasonably and justly

applicable and proper in the present case.

WHEREFORE, this Petition is hereby GRANTED and the assailed

Decision SET ASIDE. The Deed of Conditional Sale
is CANCELLED. Petitioner is ORDERED to pay respondent P172,978.85,
plus the legal interest and the value of any substantial improvements thereon.
Respondent is ORDERED to vacate immediately Block 18, Lot 8, SSS
Housing, North Fairview, Quezon City; and to surrender possession thereof to
petitioner. No costs.

SO ORDERED.

AIR FRANCE, petitioner,

vs.
HONORABLE COURT OF APPEALS, IOLANI DIONISIO, MULTINATIONAL TRAVEL
CORPORATION OF THE PHIL., FIORELLO and VICKY PANOPIO, respondents.

ROMERO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals 1 which annulled and
set aside the orders of the Regional Trial Court of Manila, Branch 27.

The facts, as found by respondent Court of Appeals, are as follows:

Petitioner Air France filed a complaint for sum of money and damages against private respondents
Multinational Travel Corporation of the Philippines, Fiorello Panopio and Vicky Panopio before the
Regional Trial Court of Manila, Branch 27, then presided over by the Hon. Ricardo Diaz.

After trial, the court rendered judgment on August 31, 1987 in favor of petitioner, ordering private
respondents to pay petitioner, jointly and severally, the amount of P2,518,698.66, with legal rate of
interest per annum from September 22, 1986, until fully paid and P50,000.00 as and for attorney's
fees.

On December 29, 1989, petitioner moved for the issuance of an alias writ of execution on the ground
of unsatisfied judgment. It likewise moved to declare the sale to Iolani Dionisio of a parcel of land
with a house erected thereon in the name of the Multinational Food Corporation and covered by
Transfer Certificate of Title No. 353935 as one in fraud of creditors.
Petitioner, in said motion, stated that private respondent spouses jointly owned 91% of Multinational
Food and Catering Corporation (Multinational Food), other stockholders being: Aldo Glen Panopio
(brother of Fiorello) 3%; Jaime Dionisio (husband of private respondent Iolani Dionisio) 3%;
and Marie Rose Ricasa 3%. Petitioner stated that although Multinational Food was registered with
the Securities and Exchange Corporation, it neither engaged in operations nor held meetings
because of adverse business conditions. The Corporation, through its President Iolani Dionisio, filed
a sworn statement to this effect with the SEC dated July 28, 1986. However, petitioner alleged that
despite its being non-operational, Multinational Food acquired from Ayala Investment and
Development Corporation (Ayala Corporation) the subject property on February 1, 1985.

Petitioner further alleged that private respondent spouses subsequently sold the property to Iolani
Dionisio on April 11, 1985. However, the sale was not registered until one year and nine months later
or at the time petitioner was pursuing the issuance of a writ of attachment.

Petitioner's motion was set for hearing on January 4, 1990, on which date the respondent court
ordered the issuance of an alias writ of execution and on January 8, 1990, the same was issued.

Private respondent spouses filed their opposition thereto on the following grounds:

. . . (a) the respondent court has no jurisdiction because the alleged buyer in the
person of Iolani Dionisio is not a party in the case; (b) that Iolani Dionisio was not
served with summons and therefore to declare the sale to her in fraud of creditors
without even jurisdiction would amount to deprivation of property without due process
of law; and (c) that the proper remedy is an independent civil action where
indispensable parties are to be impleaded to afford them to answer and/or refute
charges.

On January 19, 1990, the trial court issued an order requiring Iolani Dionisio and Multinational Food
to answer the allegations contained in petitioner's motion. However, both parties failed to file their
respective answers thereto.

On November 19, 1990, the court issued an order finding the sale in favor of Iolani Dionisio of the
subject property covered by TCT No. 353935 registered with the Registry of Deeds of Quezon City in
the name of Multinational Food as having been made in fraud of creditors.

Private respondents filed a motion for reconsideration which was denied in the order of February 15,
1991; whereupon, they then filed a petition for certiorari with the Court of Appeals, alleging that the
lower court acted with grave abuse of discretion amounting to lack of jurisdiction.

On February 24, 1992, the appellate court rendered a decision annulling and setting aside the
questioned orders. It further enjoined petitioner from proceeding against the property in question.

Hence, this petition.

The sole issue to be resolved in the instant case is whether or not the Court of Appeals erred in
annulling and setting aside the orders of the trial court.
Petitioner claims that a separate civil action, as proposed by private respondents, will only perpetrate
fraud.

We find petitioner's contention to be devoid of merit.

First, the subject property is registered with the Register of Deeds of Quezon City in the name of the
Multinational Food and Catering Corporation and not in the name of either the Multinational Travel
Corporation of the Philippines or of the spouses Fiorello and Vicky Panopio who are the judgment
debtors.

It is well-settled that the power of the court in the execution of judgments extends only over
properties unquestionably belonging to the judgment debtor. 2 Here, the property in question was sold
to private respondent Iolani Dionisio, who was not a party to the case subject of execution.

In Bayer Philippines, Inc. v. Agana, 3 the Court said:

. . . Once a court renders a final judgment, all the issues between or among the
parties before it are deemed resolved and its judicial function as regards any matter
related to the controversy litigated comes to an end. The execution of its judgment is
purely a ministerial phase of adjudication. Indeed, the nature of its duty to see to it
that the claim of the prevailing party is fully satisfied from the properties of the loser is
generally ministerial. . . .

xxx xxx xxx

In other words, construing Section 17 of Rule 39 of the Revised Rules of Court, the
rights of third-party claimants over certain properties levied upon by the sheriff to
satisfy the judgment should not be decided in the action where the third-party claims
have been presented, but in the separate action instituted by the claimants.

This is evident from the very nature of the proceedings. In Herald Publishing, supra,
We intimated that the levy by the sheriff of a property by virtue of a writ of
attachment may be considered as made under authority of the court only when the
property levied upon unquestionably belongs to the defendant. If he attach properties
(sic) other than those of defendant, he acts beyond the limits of his
authority. Otherwise stated, the court issuing a writ of execution is supposed to
enforce its authority only over properties of the judgment debtor, and should a third
party appear to claim the property levied upon by the sheriff, the procedure laid down
by the Rules is that such claim should be the subject of a separate and independent
action. (Emphasis supplied)

Multinational Food and Iolani Dionisio, not being parties to the case, the property covered by TCT
No. 353935 may not be levied upon to satisfy the obligations of private respondent spouses and the
Multinational Travel Corporation.
Petitioner's contrary claim that the property belongs to private respondent spouses, if true, requires a
rescissory action which cannot be done in the same case, but through the filing of a separate action.

Rescission is a relief which the law grants on the premise that the contract is valid for the protection
of one of the contracting parties and third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferential right created by the contract. 4

Under Art. 1381 of the Civil Code, the following contracts are rescissible:

xxx xxx xxx

(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one fourth of the value of the things which are
the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceeding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;

(5) All other contracts specially declared by law to be subject to rescission.

Rescissible contracts, not being void, they remain legally effective until set aside in a rescissory
action and may convey title. Nor can they be attacked collaterally upon the grounds for rescission in
a land registration proceeding. 5

An action for rescission may not be raised or set up in a summary proceeding through a motion, but
in an independent civil action and only after a full-blown trial. As Article 1383 of the Civil Code
provides:

Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when
the party suffering damage has no other legal means to obtain reparation for the
same.

Regarding contracts undertaken in fraud of creditors, the existence of the intention to prejudice the
same should be determined either by the presumption established by Article 1387 6 or by the proofs
presented in the trial of the case. 7 In any case, the presumption of fraud established by this article is not
conclusive, and may be rebutted by satisfactory and convincing evidence. 8 To repeat, an independent
action is necessary to prove that the contract is rescissible.
Under Article 1389 of the Civil Code, an "accion pauliana," 9 the action to rescind contracts made in
favor of creditors, must be commenced within four years.

Clearly, the rights and defenses which the parties in a rescissible contract may raise or set up cannot
be properly ventilated in a motion but only in a full trial.

The appellate court did not err in holding that the trial court acted with grave abuse of discretion in
resolving these matters through mere motion of petitioner.

WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED in toto.

SO ORDERED.

Feliciano, Melo, Vitug and Francisco, JJ., concur.

CHINA BANKING CORPORATION, petitioner, vs. HON. COURT OF

APPEALS, PAULINO ROXAS CHUA and KIANG MING CHU
CHUA, respondents.

DECISION

YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari assailing the decision rendered

by the Court of Appeals on June 26, 1997 which affirmed the decision of the
Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No.
63199 entitled "Paulino Roxas Chua and Kiang Ming Chu Chua, Plaintiffs
versus China Banking Corporation, the Sheriff of Manila and the Register of
Deeds of Pasig, Defendants."

The facts of the case are not in dispute:

Alfonso Roxas Chua and his wife Kiang Ming Chu Chua were the owners of a
residential land in San Juan, Metro Manila, covered by Transfer Certificate of
Title No. 410603. On February 2, 1984, a notice of levy affecting the property
was issued in connection with Civil Case No. 82-14134 entitled, "Metropolitan
Bank and Trust Company, Plaintiff versus Pacific Multi Commercial
Corporation and Alfonso Roxas Chua, Defendants," before the Regional Trial
Court, Branch XLVI of Manila. The notice of levy was inscribed and annotated
at the back of TCT 410603. Subsequently, Kiang Ming Chu Chua filed a
complaint against the City Sheriff of Manila and Metropolitan Bank and Trust
Company, questioning the levy of the abovementioned property. She alleged
that the judgment of the court in Civil Case No. 82-14134 against Alfonso
Roxas Chua could not be enforced against TCT 410603 inasmuch as the land
subject thereof was the conjugal property of the spouses.

The parties thereafter entered into a compromise agreement to the effect that
the levy on TCT 410603 was valid and enforceable only to the extent of the
undivided portion of the property pertaining to the conjugal share of Alfonso
Roxas Chua.

Meanwhile, on June 19, 1985, petitioner China Bank filed with the Regional
Trial Court of Manila, Branch 29, an action for collection of sum of money
against Pacific Multi Agro-Industrial Corporation and Alfonso Roxas Chua
which was docketed as Civil Case No. 85-31257. The complaint was
anchored on three (3) promissory notes with an aggregate amount of
P2,500,000.00 plus stipulated interest.

On November 7, 1985, the trial court promulgated its decision in Civil Case
No. 85-31257 in favor of China Banking Corporation, the dispositive portion of
which reads as follows:

PREMISES CONSIDERED, judgment is hereby rendered in favor

of the plaintiff and against the defendants; ordering the latter to
pay, jointly and severally, the former, under the first cause of
action, the sum of P1,800,000.00, representing the unpaid of the
promissory note, plus 21% interest per annum and an additional
amount equivalent to 1/10 of 1% per day of the total amount due,
as penalty both from and after October 4, 1983, until fully paid;
under the second cause of action, to pay the plaintiff the amount
of P350,000.00 representing the unpaid principal of the
promissory note, plus 12% interest per annum and an additional
amount equivalent to 1/10 of 1% per day of the total amount due,
as penalty both from and after September 14, 1983, until fully
paid; under the third cause of action, to pay the plaintiff the further
sum of P350,000.00, representing the unpaid principal of the
 promissory note, plus 12% interest per annum and an additional
amount equivalent to 1/10 % of 1% per day of the total amount
due as penalty both from and after September 14, 1983, until fully
paid; and to pay the same plaintiff the amount equivalent to 10%
of the foregoing sums, as and for attorneys fees, such amount to
bear the same rate of interest as the principal obligation under
each promissory note, compounded monthly, until fully paid; and
to pay the costs of suit.

SO ORDERED. [1]

On September 8, 1986, an alias notice of levy on execution on the one-half ()

undivided portion of TCT 410603 belonging to Alfonso Chua was issued in
connection with Civil Case 82-14134. The notice was inscribed and annotated
at the back of TCT 410603 on September 15, 1986 and a certificate of sale
covering the one-half undivided portion of the property was executed in favor
of Metropolitan Bank and Trust Company. The certificate of sale was inscribed
at the back of said TCT on December 22, 1987.

Meanwhile, Pacific Multi Agro-Industrial Corporation and Alfonso Roxas

Chuas appeal was dismissed by the Court of Appeals on September 29, 1988
for failure to file brief.
[2]

On November 21, 1988, Alfonso Roxas Chua executed a public instrument

denominated as "Assignment of Rights to Redeem," whereby he assigned his
rights to redeem the one-half undivided portion of the property to his son,
private respondent Paulino Roxas Chua. Paulino redeemed said one-half
[3]

share on the very same day. The instrument was inscribed at the back of TCT
410603 as Entry No. 7629, and the redemption of the property by Paulino was
inscribed as Entry No. 7630, both dated March 14, 1989. [4]

On the other hand, in connection with Civil Case No. 85-31257, another notice
of levy on execution was issued on February 4, 1991 by the Deputy Sheriff of
Manila against the right and interest of Alfonso Roxas Chua in TCT 410603.
Thereafter, a certificate of sale on execution dated April 13, 1992 was issued
by the Sheriff of Branch 39, RTC Manila in Civil Case No. 85-31257, in favor
of China Bank and inscribed at the back of TCT 410603 as Entry No. 01896
on May 4, 1992. [5]

On May 20, 1993, Paulino Roxas Chua and Kiang Ming Chu Chua instituted
Civil Case No. 63199 before the RTC of Pasig, Metro Manila against China
Bank, averring that Paulino has a prior and better right over the rights, title,
interest and participation of China Banking Corporation in TCT 410603; that
Alfonso Roxas Chua sold his right to redeem one-half (1/2) of the aforesaid
conjugal property in his favor on November 21, 1988 while China Banking
Corporation acquired its right from the notice of levy of execution dated
January 30, 1991; that the assignment of rights in his favor was annotated at
the back of TCT 410603 on March 14, 1989 and inscribed as Entry No. 7629,
and his redemption of the property was effected in an instrument dated
January 11, 1989 and inscribed and annotated at the back of TCT 410603 on
March 14, 1989, two years before the annotation of the rights of China
Banking Corporation on TCT 410603 on February 4, 1991.

The trial court rendered a decision on July 15, 1994 in favor of private
respondent Paulino Roxas Chua and against China Banking Corporation, the
decretal portion of which reads:

WHEREFORE, foregoing premises considered, this Court finds

sufficient preponderance of evidence against defendants in favor
of plaintiffs and therefore render (sic) judgment ordering
defendant to pay plaintiffs:

a) P100,000.00 as moral damages and P50,000.00 as exemplary

damages plus 12% interest per annum to start from the date of
this decision until fully paid;

b) P100,000.00 attorneys fee; and

c) the cost of the suit.

The writ of preliminary injunction issued by this Court on 30 June

1993 enjoining China Banking Corporation, the Sheriff of Manila
and the Register of Deeds of San Juan, their officers,
 representatives, agents or persons acting on their behalf from
causing the transfer of possession, ownership and certificate of
title or otherwise disposing of the property covered by TCT No.
410603 in favor of defendant bank or to any other person is
hereby made permanent. The Register of Deeds of San Juan,
Metro Manila is also hereby ordered to cancel all annotations in
TCT No. 410603 in favor of defendant China Banking Corporation
adverse to the rights and interest of plaintiffs.

SO ORDERED. [6]

The trial court ruled that the assignment was made for a valuable
consideration and was executed two years before petitioner China Bank
levied the conjugal share of Alfonso Roxas Chua on TCT 410603. The trial
court found that Paulino redeemed the one-half portion of the property, using
therefor the amount of P100,000.00 which he withdrew from his savings
account as evidenced by his bankbook and the receipts of Metrobank for his
payment of the redemption price. The court noted that Paulino at that time
was already of age and had his own source of income.

On appeal, the Court of Appeals affirmed the ruling of the trial court. It held
that petitioner China Bank had been remiss in the exercise of its rights as
creditor; and that it should have exercised its right of redemption under
Sections 29 and 30, Rule 39 of the Rules of Court.

The issues raised by petitioner before us essentially boil down to whether or

not the assignment of the right of redemption made by Alfonso Roxas Chua in
favor of private respondent Paulino was done to defraud his creditors and may
be rescinded under Article 1387 of the Civil Code.

Under Article 1381(3) of the Civil Code, contracts which are undertaken in
fraud of creditors when the latter cannot in any manner collect the claims due
them, are rescissible.

The existence of fraud or intent to defraud creditors may either be presumed

in accordance with Article 1387 of the Civil Code or duly proved in accordance
with the ordinary rules of evidence. Article 1387 reads:
 Art. 1387. All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been entered
into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.

Alienation by onerous title are also presumed fraudulent when

made by persons against whom some judgment has been
rendered in any instance or some writ of attachment has been
issued. The decision or attachment need not refer to the property
alienated, and need not have been obtained by the party seeking
rescission.

In addition to these presumptions, the design to defraud creditors

may be proved in any other manner recognized by the law of
evidence.

Hence, the law presumes that there is fraud of creditors when:

a) There is alienation of property by gratuitous title by the debtor

who has not reserved sufficient property to pay his debts
contracted before such alienation; or

b) There is alienation of property by onerous title made by a

debtor against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The
decision or attachment need not refer to the property alienated
and need not have been obtained by the party seeking rescission.

After his conjugal share in TCT 410603 was foreclosed by Metrobank, the only
property that Alfonso Roxas Chua had was his right to redeem the same, it
forming part of his patrimony. "Property" under civil law comprehends every
species of title, inchoate or complete, legal or equitable.

Alfonso Roxas Chua sold his right of redemption to his son, Paulino Roxas
Chua, in 1988. Thereafter, Paulino redeemed the property and caused the
annotation thereof at the back of TCT 410603. This preceded the annotation
of the levy of execution in favor of China Bank by two (2) years and the
certificate of sale in favor of China Bank by more than three (3) years. On this
basis, the Court of Appeals concluded that the allegation of fraud made by
petitioner China Bank is vague and unsubstantiated.

Such conclusion, however, runs counter to the law applicable in the case at
bar. Inasmuch as the judgment of the trial court in favor of China Bank against
Alfonso Roxas Chua was rendered as early as 1985, there is a presumption
that the 1988 sale of his property, in this case the right of redemption, is
fraudulent under Article 1387 of the Civil Code. The fact that private
respondent Paulino Roxas Chua redeemed the property and caused its
annotation on the TCT more than two years ahead of petitioner China Bank is
of no moment. As stated in the case of Cabaliw vs. Sadorra, "the parties here
[7]

do not stand in equipoise, for the petitioners have in their favor, by a specific
provision of law, the presumption of fraudulent transaction which is not
overcome by the mere fact that the deeds of sale were in the nature of public
instruments."

This presumption is strengthened by the fact that the conveyance has virtually
left Alfonsos other creditors with no other property to attach. It should be noted
that the presumption of fraud or intention to defraud creditors is not just limited
to the two instances set forth in the first and second paragraphs of Article
1387 of the Civil Code. Under the third paragraph of the same article, the
design to defraud creditors may be proved in any other manner recognized by
the law of evidence. In the early case of Oria vs. Mcmicking, the Supreme
[8]

Court considered the following instances as badges of fraud:

1. The fact that the consideration of the conveyance is fictitious or

is inadequate.

2. A transfer made by a debtor after suit has begun and while it is

pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

 5. The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed financially.

6. The fact that the transfer is made between father and son,
when there are present other of the above circumstances

7. The failure of the vendee to take exclusive possession of all the

property. (Underscoring provided)

Before China Bank obtained judgment against Pacific Multi Agro-Industrial

Corporation and Alfonso Roxas Chua on November 7, 1985, Alfonso Roxas
Chua had only his one-half share of the conjugal property in question to pay
his previous creditor, Metrobank. Even his son, private respondent Paulino
Roxas Chua himself, knew this as shown by the following excerpts of his
testimony during the trial:

Q: You said that month before or October 1988 your father

approached you regarding his problem with respect to his
property, subject of this case, can you tell us what in particular did
he tell you about Metrobank?

A: He told me about his problem with Metrobank,about the loan

with Metrobank and Metrobank gonna foreclose his property.

xxxxxxxxx

Q: What did your father tell you regarding his problem?

A: He told me about Metrobank, our house will gonna foreclose

(sic). He cannot pay Metrobank anymore. His business is down. [9]

Despite Alfonso Roxas Chuas knowledge that it is the only property he had
which his other creditors could levy, he still assigned his right to redeem his
one-half share of the conjugal property in question from Metrobank in favor of
his son, Paulino. Alfonsos intent to defraud his other creditors, specifically,
China Bank, becomes even more apparent when we take into consideration
the fact that immediately after the Court of Appeals rendered its Resolution
dated September 29, 1988, dismissing the appeal of Pacific Multi-Agro and
Alfonso Roxas Chua in CA-G.R. No. CV-14681 entitled, "China Banking
Corporation, Plaintiff-Appellee versus Pacific Multi Agro-Industrial
Corporation, et al., Defendants-Appellants," he assigned his right to redeem
[10]

one-half of the conjugal property to his son on November 21, 1988.

The Court of Appeals, however, maintained that although the transfer was
made between father and son, the conveyance was not fraudulent since
Paulino had indeed paid the redemption price of P1,463,375.39 to Metrobank
and the sum of P100,000.00 to his father. The Court of Appeals reiterated the
findings of the trial court that Paulino at that time had his own source of
income, having been given HK$1Million by his maternal grandmother which
he used to invest in a buy-and-sell business of stuffed toys.

It bears emphasis that it is not sufficient that the conveyance is founded on a

valuable consideration. In the case of Oria vs. Mcmicking, we had occasion
[11]

to state that "In determining whether or not a certain conveyance is fraudulent

the question in every case is whether the conveyance was a bona
fide transaction or a trick and contrivance to defeat creditors, or whether it
conserves to the debtor a special right. It is not sufficient that it is founded on
good considerations or is made with bona fide intent: it must have both
elements. If defective in either of these, although good between the parties, it
is voidable as to creditors. x x x The test as to whether or not a conveyance is
fraudulent is, does it prejudice the rights of creditors?"

The mere fact that the conveyance was founded on valuable consideration
does not necessarily negate the presumption of fraud under Article 1387 of
the Civil Code. There has to be a valuable consideration and the transaction
must have been made bona fide.

In the case at bar, the presumption that the conveyance is fraudulent has not
been overcome. At the time a judgment was rendered in favor of China Bank
against Alfonso and the corporation, Paulino was still living with his parents in
the subject property. Paulino himself admitted that he knew his father was
heavily indebted and could not afford to pay his debts. The transfer was
undoubtedly made between father and son at a time when the father was
insolvent and had no other property to pay off his creditors. Hence, it is of no
consequence whether or not Paulino had given valuable consideration for the
conveyance.

With regard to the finding of the Court of Appeals that petitioner was remiss in
its duties for not having availed of redemption under Rule 39 of the Rules of
Court, it should be borne in mind that petitioner is not limited to the procedure
outlined in Rule 39 of the Rules of Court to enforce its claim against its debtor
Alfonso Roxas Chua. Verily, Article 1387 of the Civil Code clearly states that
conveyances made by the debtor to defraud his creditor may be rescinded.

WHEREFORE, the petition is GRANTED. The decision of the Court of

Appeals in CA-G.R. CV No. 46735 is REVERSED and SET ASIDE. The
permanent injunction enjoining petitioner, the Sheriff of Manila, the Register of
Deeds of San Juan, their officers, representatives, agents and persons acting
on their behalf from causing the transfer of possession, ownership and title of
the property covered by TCT No. 410603 in favor of petitioner is LIFTED. The
Assignment of Rights to Redeem dated November 21, 1988 executed by
Alfonso Roxas Chua in favor of Paulino Roxas Chua is ordered RESCINDED.
The levy on execution dated February 4, 1991 and the Certificate of Sale
dated April 30, 1992 in favor of petitioner are DECLARED VALID against the
one-half portion of the subject property.

SO ORDERED.

CADWALLADER & COMPANY, plaintiff-appellant,

vs.
SMITH, BELL & COMPANY and HENRY W. PEABODY & COMPANY, defendants-appellees.

Thomas E. Kepner for appellant.

Kinney, Odlin & Lawrence for appellees.

TRACEY, J.:

In this action the plaintiff, as assignee of the Pacific Export Lumber Company, sues for $3,486,
United States currency, the differences between the amount turned over to the company on account
of a cargo of cedar piles consigned to the defendants as its agents and afterwards bought by them,
and the amount actually received by them on the subsequent sale thereof. The defendant were
allowed by the court below a counterclaim of $6,993.80, United States currency, from which was
deducted $2,063.16 for the plaintiffs claim, leaving a balance in favor of the defendants of $4,930.64,
for the equipment of which, to wit, 9,861.28 pesos, judgment was entered. The defendants have not
appealed. The plaintiff took several exceptions, but on the argument its counsel stated that its
contention was confined to the allowance by the trial court of the commissions of the defendant on
selling the piling.

In May 1902, the Pacific Export Lumber Company of Portland shipped upon the steamer Quito five
hundred and eighty-one (581) piles to the defendant, Henry W. Peabody & Company, at Manila, on
the sale of which before storage the consignees were to receive a commission of one half of
whatever sum was obtained over $15 for each pile and 5 per cent of the price of the piles sold after
storage. After the arrival of the steamer on August 2, Peabody and Company wrote the agent of the
Pacific Company at Shanghai that for lack of a demand the piles would have to be sold at
considerably less than $15 apiece; whereupon the company's agent directed them to make the best
possible offer for the piles, in response to which on August 5 they telegraphed him an offer of $12
apiece. It was accepted by him on August 6, in consequence of which the defendant paid the Pacific
Company $6,972.

It afterwards appeared that on July 9 Peabody & Company had entered into negotiations with the
Insular Purchasing Agent for the sale for the piles at $20 a piece, resulting of August 4 in the sale to
the Government of two hundred and thirteen (213) piles at $19 each. More of them were afterwards
sold to the Government at the same figure and the remainder to other parties at carrying prices, the
whole realizing to the defendants $10,41.66, amounting to $3,445.66 above the amount paid by the
defendant to the plaintiff therefor. Thus it is clear that at the time when the agents were buying from
their principal these piles at $12 apiece on the strength of their representation that no better price
was obtainable, they had already sold a substantial part of them at $19. In these transactions the
defendant, Smith, Bell & Company, were associated with the defendants, Henry W. Peabody &
Company, who conducted the negotiations, and are consequently accountable with them.

It is plaint that in concealing from their principal the negotiations with the Government, resulting in a
sale of the piles at 19 a piece and in misrepresenting the condition of the market, the agents
committed a breach of duty from which they should benefit. The contract of sale to themselves
thereby induced was founded on their fraud and was subject to annulment by the aggrieved party.
(Civil Code, articles 1265 and 1269.) Upon annulment the parties should be restored to their original
position by mutual restitution. (Article 1303 and 1306.) Therefore the defendants are not entitled to
retain their commission realized upon the piles included under the contract so annulled. In respect of
the 213 piles, which at the time of the making of this contract on August 5 they had already sold
under the original agency, their commission should be allowed.

The court below found the net amount due from the defendants to the plaintiff for the Quito piles,
after deducting the expense of landing the same and $543.10 commission, was $1,760.88, on which
it allowed interest at the rate of 6 per cent from March 1, 1903. This amount should be increased by
the addition thereto of the amount of the commission disallowed, to wit, $331.17 giving $2,092.05.
Interest computed on this sum to the date of the entry of judgment below amounts to $359.77, which
added to the principal sum makes $2,241.82, the amount of plaintiff's claim, which is to be deducted
from defendants' counterclaim of $6,993.80, leaving a balance of $4,541.98, equivalent to 9,083.96
pesos, the amount for which judgment below should have been entered in favor of the defendants.

Let the judgment of the Court of First Instance be modified accordingly, without costs to either party.
After expiration of twenty days let judgment be entered in accordance herewith and ten days
thereafter the record remanded to the court below for proper action. So ordered.

FILOMENA ARROYO VDA. DE BUNCIO et al., plaintiffs-appellants,

vs.
ESTATE OF THE LATE SPOUSES ANITA DE LEON and SERAFIN VILLANUEVA, SR., et
al., defendants-appellees.

NARVASA, J.:

Involved in this case is an attempt by a daughter to claim her share in her father's estate some sixty-
three years after the latter's demise. The father, Andres Arroyo, died sometime in 1901. He left an
estate apparently of no mean size, comprised of properties located mainly in Iloilo and Negros
Occidental. He was survived by three compulsory heirs: Felix Arroyo, a legitimate son by his first
wife, and Filomena Arroyo and Simplicio Arroyo, legitimate children by his second wife.
Administration of his estate was assumed and undertaken by Felix Arroyo, as the oldest son,
evidently without objection from his brother or sister.

On February 19, 1964, his daughter, the aforenamed Filomena Arroyo, then already 84 years of age
and a widow, together with her six (6) children,1 filed suit in the then Court of First Instance of Negros
Occidental, 2 seeking to recover from the estate of the late Spouses Anita de Leon and Serafin Villanueva,
Sr. and their children, what she claimed to be one third (1/3) of the properties left by her deceased father.
Her complaint alleged that her share in the inheritance had at all times been held in trust by Felix Arroyo
and after his death, by his heirs and successors-in-interest, who are the defendants named in her
complaint, and she had been deprived of that share through fraud and misrepresentation. She also
prayed for an accounting of the fruits of the inheritance and the payment to her of her proportionate share
in those fruits as might be warranted by the results of the accounting.

The defendant Anita de Leon was the granddaughter of Felix Arroyo by his daughter, Fortunata.
Serafin Villanueva was her husband. They moved to dismiss the complaint on several grounds:
failure of the complaint to state a cause of action, res judicata, laches, estoppel, release, and bar by
the statute of limitations. The Trial Court sustained the motion and dismissed the action, by Order
dated March 14, 1966. It also directed the Register of Deeds of Iloilo, Negros Occidental, etc., to
cancel the annotation of lis pendens caused to be made by the plaintiffs on all the certificates of title
of the land involved in the litigation.

Appeal was timely perfected by the plaintiffs to the Court of Appeals in forma pauperis. 3 But the
appeal was, by resolution dated July 30, 1968, forwarded to this Court pursuant to Section 3, Rule 50 of
the Rules of Court, avowedly because the appeal raised only questions of law, and the amount in
controversy exceeded the amount of P200,000.00 and hence fell within the exclusive jurisdiction of the
Supreme Court. 4

Assigned by the appellants as errors of the Court a quo are: (1) its having sustained the motion to
dismiss on the ground of res judicata release and estoppel in complete disregard of the appellants'
refutation thereof; and (2) depriving them in the process of their day in court.
The defense of res judicata was anchored on a prior judgment rendered in Civil Case No. 7862 of
the Court of First Instance of Negros Occidental. 'That case related to the division of the estate of
Andres Arroyo, and the judgment was rendered on the basis of a compromise agreement entered
into by the parties entitled Convenio de Transaccion dated February 19, 1940, subscribed by the late
Spouses Anita de Leon and Serafin Villanueva, as well as by Filomena Arroyo herself. the appellants
argue that the doctrine of res judicata is inapplicable because between the two (2) cases-Civil Case
No. 7200 and the earlier one, Civil Case No. 7862-there was, in the first place, no identity in subject
matter-the first being concerned exclusively with the share of Simplicio Arroyo, Filomena's brother,
consisting of one-third (1/3) of the estate in controversy, which was distinct from the third claimed by
Filomena in the later action-and, in the second place, no identity in cause of action-since Case No.
7862 involved the naked claim of ownership while the later, Civil Case No. 7200, involved among
others trusteeship, and fraud, in addition to the claim of ownership. The appellants further argue that
the Convenio de Transaccion could not operate as a release of their claims to the estate, or as
estoppel to assert the same, because Filomena's consent to the convenio or agreement had been
procured through fraud, misrepresentation, deceit and undue influence. The appellants further
contend that in view of the summary dismissal of their complaint, they had been deprived of the
opportunity to prove their case on the merits.

The appeal must be resolved adversely to the plaintiffs-appellants. The grounds relied upon by the
Trial Court are justified by the facts on record, chiefly appearing in indubitable documents. These
facts are hereunder briefly narrated.

Civil Case No. 7200, whence the present appeal was taken, was not, as already intimated, the first
action brought by Filomena Arroyo against the aforementioned Anita de Leon and her husband,
Serafin Villanueva. An earlier suit had been instituted by Filomena Arroyo in the Court of First
Instance of Negros Occidental. The complaint was filed on December 14, 1983 by Filomena and her
late husband, Ildefonso Buncio. Joined with them as co-plaintiffs in that action were the children and
heirs of her half-brother Simplicio Arroyo, namely: Teofila, Consolacion and Emilio Arroyo (the latter
being later substituted by his mother Olimpia Agnes Arroyo, upon his death after the filing of the
action). Also joined as co-plaintiffs were Pura and Rude Arroyo, the children and heirs of Simplicio
Arroyo, Jr., a son of Simplicio Arroyo. Named defendants were the aforesaid spouses, Anita de Leon
and Serafin Villanueva. The suit was docketed as Civil Case No. 7862.5

On February 19, 1940, the parties executed a compromise agreement entitled Convenio de
Transaccion which they acknowledged before a notary public. 6 By it, the Buncio Spouses and their co-
plaintiffs sold, transferred and conveyed all their rights, title and interests over all the properties involved
in the litigation in favor of the defendant spouses, Anita and Serafin Villanueva. On the same day the
parties filed a Peticion 7 with the Court praying that judgment be rendered in accordance with
their convenio This the Court did the following day, February 20, 1940. 8

However, on March 14, 1946 (after Liberation), the plaintiffs filed a motion to vacate the decision of
February 20, 1940. 9 They alleged as grounds therefor fraud, misrepresentation, deceit and undue
influence vitiating their consent to the Convenio de Transaccion. The motion was denied, by Order dated
June 5, 1946.10The plaintiffs took steps to elevate the matter to a higher court by filing an "Exception and Notice of Appeal" dated June
21, 1946.11But on September 20, 1946 the Court a quo dismissed the appeal sought to be taken by them for the reason that the requisite
record on appeal and appeal bond had not been presented on time.12 The Buncios apparently took no further steps to impugn the judgment.
In the meanwhile the Court rendered another decision dated August 17, 1949,13 this time approving a "Compromise Agreement" executed
on August 18, 1949 between Olimpia Agnes, and Consolacion Arroyo (the co-plaintiffs of the Buncio Spouses),14 on the one hand, and the
spouses Anita de Leon and Serafin Villanueva, on the other, and on the basis thereof, declaring the latter once again 15 the exclusive and
absolute owners of all the property subject of the litigation.

Upon these facts the applications of the familiar doctrine of res adjudicata is authorized as against
Filomena Arroyo Vda. de Buncio. The judgment in Civil Case No. 7862 operates as an absolute bar
to Civil Case No. 7200, instituted twenty-four (24) years after its rendition. All the requisites for the
application of the doctrine are present: 16 (1) the judgment in the first case was a final one, and had become executory; (2) it
was rendered by a court having jurisdiction of the subject-matter and the parties; and (3) between the two (2) cases-i.e., that in which said
judgment was rendered (Civil Case No. 7862) and that in the case at bar (Civil Case No. 7200)- there exists Identity of parties, of subject-
matter, and of causes of action. 17

Some words anent the third requisite would not be inappropriate. The Identity as to parties between
the two cases, CC No. 7862 and CC No. 7200, is quite palpable. Plaintiffs in the earlier case, CC No.
7862 were Filomena Arroyo and her husband, and the heirs of Filomena's brother, Simplicio Arroyo
(three [31 children and two [2] grandchildren). Plaintiffs in CC No. 7200 were the self-same Filomena
Arroyo, then already widowed, and her six (6) children. Of course, the joinder of Filomena's children
was improper, a superfluity. They had no rights whatever in the estate of their grandfather, Felix
Arroyo, except such as they might derive from their mother, Filomena, upon her death. The Identity
as to parties defendant is even plainer. In both suits, the defendants were the Spouses Anita de
Leon and Serafin Villanueva, except that in the second action, joined with them as defendants were
their children. Again, the joinder of the Villanueva children was unnecessary and improper. They
were neither indispensable nor proper.18 No right of action was asserted against them personally and directly; and any
liability they might conceivably have to the plaintiffs could result only from their being heirs of their parents. It would seem that the inclusion of
superfluous parties plaintiffs and defendants in the action was designed to avoid the application of res adjudicata as a bar to the second suit.

So, too, the Identity as to the subject-matter in both actions is fairly evident. The property involved
in CC No. 7862 consisted of registered lands located in Iloilo (Province and City) and Negros
Occidental. The same registered parcels of land were subject of the later action, CC No.
7200, except that a few other parcels of land were included in the complaint.

Finally, Filomena's asserted causes of action in both cases were exactly the same: the recovery of
her hereditary share in the estate of her father, the late Andres Arroyo, which she claimed to have
been withheld from her by her brother, Felix, and the latter's heirs.

The applicability of the doctrine of res adjudicata cannot therefore be seriously contested. Its
application cannot be avoided by the addition in the second suit of unnecessary parties, 19 or the
assertion of new issues which could have been set up in the prior action.

In this connection account should be taken of the cognate principle that res adjudicata operates to
bar not only the relitigation in a subsequent action of the issues squarely raised, passed upon and
adjudicated in the first suit, but also the ventilation in said subsequent suit of any other issue which
could have been raised in the first but was not. The law provides that "the judgment or order is, with
respect to the matter directly adjudged or as to any other matter that could have been raised in
relation thereto, conclusive between the parties and their successors in interest by title subsequent
to the commencement of the action x x litigating for the same thing and in the same capacity." 20 So,
even if new causes of action are asserted in the second action (e.g., fraud, deceit, undue machinations in
connection with their execution of the convenio de transaccion), this would not preclude the operation of
the doctrine of res judicata Those issues are also barred, even if not passed upon in the first. They could
have been, but were not, there raised.
Even if it were legally possible to shunt aside and ignore the principle of res judicata, this would not
help the appellants' cause one whit. Their cause of action for the annulment of their convenio de
transaccion on the ground of fraud, undue influence, or mistake, as also their cause of action for
recovery of property on the theory of constructive trust, assuming their tenability, would nonetheless
be barred by another insuperable legal obstacle: prescription.

The action to annul a contract on the ground that consent is vitiated by mistake, violence,
intimidation, undue influence or fraud prescribes in four (4) years; 21 and the period is reckoned, in
case of mistake or fraud, from the time of the discovery of the same. 22 It is noteworthy that as early as
March 14, 1946 the appellants already had pleaded fraud in the motion filed by them on that day to set
aside the judgment rendered in Civil Case No. 7268: their contention was that their consent to
the convenio de transaccion which the judgment had approved, had been obtained by fraud, or undue
machinations. It is thus not unreasonable, surely, to consider March 14, 1946 as the day of the discovery
of the fraud. So considered, it should at once be apparent that the prescriptive period of four (4) years had
long elapsed when Civil Case No. 7200 was instituted by the appellants on February 19, 1964, eighteen
(18) years afterwards.

Alternatively categorizing the appellants' cause of action as one for recovery of property held by
defendants under a constructive trust, would not improve their situation. The statute of limitations
would still preclude their success. Assuming the creation of an implied trust over the real property in
question from the time that Felix Arroyo (appellees' predecessor) took over possession and
administration thereof sometime in 1901, the period of prescription to recover the property-set by law
at ten (10) years-began to run from the time that Torrens titles were obtained over the property in the
name of the trustee or his successors-in-interest. The governing principle was just recently restated
in definitive terms by this Court in its decision in Amerol, et al. v. Bagumbaran., promulgated on
September 30, 1987. 23

An action for reconveyance based on an implied or constructive trust must perforce

prescribe in ten years and not otherwise. A long line of decisions of this Court, and of
very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that
an action for reconveyance based on an implied or constructive trust prescribes in
ten years from the issuance of the Torrens title over the property. . . .

It being clear from the record that the appellants had brought their suit, Civil Case No. 7268, more
than ten (10) years after titles had been obtained over the property claimed by the appellees or their
predecessor-in-interest, their cause of action predicated on constructive trust is barred by
prescription.

WHEREFORE, the Order of the Trial Court dismissing the plaintiffs-appellants' action, subject of the
instant appeal, is AFFIRMED, without pronouncement as to costs. This decision is immediately
executory, and no motion for extension of time to file a motion for reconsideration will be entertained.

Teehankee, C.J., Cruz, Paras, * and Gancayco, JJ., concur.

G.R. No. L-51058 January 27, 1992

ASIA PRODUCTION CO., INC., WANG TA PENG and WINSTON WANG, petitioners,
vs.
HON. ERNANI CRUZ PAO, as Judge of the Court of First Instance of Rizal (Quezon City,
Branch XVIII), LOLITA LEE LE HUA and ALBERTO DY, respondents.

Ismael J. Andres for petitioner Asia Production Co., Inc.

Burgos, Sarte, Rebueno & Sarte for petitioners.

Roman Careaga for Alberto Dy.

DAVIDE, JR. J.:

The simple issue in this case is whether or not an action for the refund of partial payments of the
purchase price of a building covered by an oral agreement to sell it with an oral promise to assign
the contract of lease on the lot where the building is constructed is barred by the Statute of Frauds.

Sometime in March 1976, private respondents, who claimed to be the owners of a building
constructed on a lot leased from Lucio San Andres and located in Valenzuela, Bulacan, offered to
sell the building to the petitioners for P170,000.00. Petitioners agreed because of private
respondents' assurance that they will also assign to the petitioners the contract of lease over the
land. The above agreement and promise were not reduced to writing. Private respondents undertook
to deliver to the petitioners the deed of conveyance over the building and the deed of assignment of
the contract of lease within sixty (60) days from the date of payment of the downpayment of
P20,000.00. The balance was to be paid in monthly installments. On 20 March 1976, petitioners paid
the downpayment and issued eight (8) postdated checks drawn against the Equitable Banking
Corporation for the payment of the eight (8) monthly installments, as follows:

Check No. Amount Due Date

10112253 P10,000.00 June 30, 1976

10112254 20,000.00 July 30, 1976
10112255 20,000.00 August 30, 1976
10112256 20,000.00 September 30, 1976
10112257 20,000.00 October 30, 1976
10112258 20,000.00 November 30, 1976
10112259 20,000.00 December 30, 1976
10112260 20,000.00 January 31, 1977

Relying on the good faith of private respondents, petitioners constructed in May 1976 a weaving
factory on the leased lot. Unfortunately, private respondents, despite extensions granted, failed to
comply with their undertaking to execute the deed to sale and to assign the contract despite the fact
that they were able to encash the checks dated 30 June and 30 July 1976 in the total amount of
P30,000.00. Worse, the lot owner made it plain to petitioners that he was unwilling to give consent to
the assignment of the lease unless petitioners agreed to certain onerous terms, such as an increase
in rental, or the purchase of the land at a very unconscionable price.

Petitioners were thus compelled to request for a stop payment order of the six (6) remaining checks.
Succeeding negotiations to save the transaction proved futile by reason of the continued failure of
private respondents to execute the deed of sale of the building and the deed of assignment of the
contract of lease.

So, on or about 29 December 1976, upon prior agreement with private respondents, petitioners
removed all their property, machinery and equipment from the building, vacated the same and
returned its possession to private respondents. Petitioners demanded from the latter the return of
their partial payment for the purchase price of the building in the total sum of P50,000.00. Private
respondents refused to return it. Hence, petitioners, filed against private respondents a
complaint 1 for its recovery and for actual, moral and exemplary damages and attorney's fees with the
then Court of First Instance (now Regional Trial Court) of Quezon City, which was docketed as Civil Case
No. Q-23593. The case was raffled to Branch XVIII of the court which was then presided over by herein
respondent Judge.

Private respondent Lolita Lee Le Hua did not file an Answer; hence, she was declared in default.

Upon the other hand, private respondent Alberto Dy filed a motion

to dismiss the complaint on the ground that the claim on which the action is based an alleged
purchase of a building which is not evidenced by any writing cannot be proved by parol evidence
since Article 1356 in relation to Article 1358 of the Civil Code requires that it should be in writing. 2 In
their
opposition 3 to said motion, petitioners argue that their complaint is essentially for collection of a sum of
money; it does not seek to enforce the sale, but aims to compel private respondents to refund a sum of
money which was paid to them as purchase price in a sale which did not materialize by reason of their
bad faith. Furthermore, the execution of the document was an undertaking of the private respondents,
which they refused to comply with. Hence, they cannot now be heard to complain against something
which they themselves brought about.

In his Order 4 of 18 April 1979, respondent Judge granted the motion to dismiss on the ground that the
complaint is barred by the Statute of Frauds. He says:

It cannot be disputed that the contract in this case is condemned by the Statutes of
Fraud (sic) it involves not merely the sale of real property (the building), it also
includes an alleged lease agreement that must certainly be for more than one year
(See Art. 1403, No. 2, subparagraph e, New Civil Code).

Plaintiffs cannot avoid the Statutes of Fraud (sic) by saying that this is merely an
action for the collection of a sum of money. To be entitled to the sum of P50,000.00, it
is necessary to show that such contract was executed and the same was violated but
plaintiffs are prevented from proving this alleged agreement by parol evidence.

Neither may plaintiffs claim that by the payment of the sum of P50,000.00 the
contract was removed from the Statutes of Fraud (sic). This is so because plaintiffs
 have not fully complied with their obligation to pay P170,000.00. If there had been full
payment of P170,000.00, the situation would have been different.

Plaintiffs knew or should have known that their contract (as described by them in
their complaint) was unenforceable; they had thereby voluntarily assumed the risks
attendant to such contract. Moreover, the primordial aim of the Statutes of Fraud (sic)
is to prevent fraud and perjury in the enforcement of obligations depending upon the
unassisted memory of witnesses (Shoemaker vs. La Tondea, 68 Phil. 24). The
Court would find it difficult to determine whether the sum of P50,000.00 was paid
because of the unenforceable contract or for some other transactions.

Their motion for reconsideration 5 having been denied by respondent Judge in his Order 6 of 21 June
1979 for the reason that the oral contract in this case was not removed from the operation of the Statute
of Frauds because there was no full or complete performance by the petitioners of the contract as
required in Paterno vs. Jao Yan 7 and Babao vs. Perez, 8 petitioners filed this petition 9 on 16 July 1979, alleging
therein as ground therefor grave abuse of discretion on the part of respondent Judge in issuing the orders
of 18 April 1979 and 21 June 1979.

After private respondent Alberto Dy filed his Comment 10 to the petition in compliance with the
resolution 11 of 23 July 1979 and petitioners filed their Reply 12 to said comment on 2 April 1980, this Court
gave due course 13 to the petition. Private respondent Lolita Lee Le Hua was considered to have waived
her right to file her comment to the petition. 14

Petitioners were subsequently required to file their Brief, which they complied with on 13 October
1981; 15 they make the following assignment of errors:

The lower court erred in holding that for a contract of purchase and sale to be
removed from the operation of the Statute of Frauds, there must be full and complete
payment of the purchase price.

II

The lower court erred in failing to appreciate the nature of petitioners' cause of
action.

III

The lower court erred in not finding that this case is not covered by the Statute of
Frauds.

IV

The lower court erred in not following the procedure prescribed by this Honorable
Court in cases when partial performance is alleged.
 V

The lower court erred in dismissing the case.

Private respondents did not file their Brief.

We find merit in the petition. Respondent Judge committed grave abuse of discretion in dismissing
the complaint on the ground that the claim is barred by the Statute of Frauds.

Article 1403 of the Civil Code declares the following contracts, among others, as unenforceable,
unless they are ratified:

xxx xxx xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:

(a) An agreement that by its terms is not to be performed within a

year from the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of

another;

(c) An agreement made in consideration of marriage, other than a

mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at

a price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of
the amount and kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale is made, it is a
sufficient memorandum;

(e) An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;

(f) A representation to the credit of a third person.

xxx xxx xxx

The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged. 16 It was not designed to further or perpetuate fraud. Accordingly, its application is limited. It
makes only ineffective actions for specific performance of the contracts covered by it; it does not declare
them absolutely void and of no effect. As explicitly provided for in the above-quoted paragraph (2), Article
1403 of the Civil Code, the contracts concerned are simply "unenforceable" and the requirement that they
or some note or memorandum thereof be in writing refers only to the manner they are to be proved.
It goes without saying then, as held in the early case of Almirol, et al. vs. Monserrat, 17 that the statute will
apply only to executory rather than executed contracts. Partial execution is even enough to bar the
application of the statute. In Carbonnel vs. Poncio, et al., 18 this Court held:

. . . It is well-settled in this jurisdiction that the Statute of Frauds is applicable only to

executory contracts (Facturan vs. Sabanal, 81 Phil. 512), not to contracts that are
totally or partially performed (Almirol, et al. vs. Monserrat, 48 Phil. 67, 70; Robles vs.
Lizarraga Hermanos, 50 Phil. 387; Diana vs. Macalibo, 74 Phil. 70).

Subject to a rule to the contrary followed in a few jurisdictions, it is the

accepted view that part performance of a parol contract for the sale of
real estate has the effect, subject to certain conditions concerning the
nature and extent of the acts constituting performance and the right
to equitable relief generally, of taking such contract from the operation
of the statute of frauds, so that chancery may decree its specific
performance or grant other equitable relief. It is well settled in Great
Britain and in this country, with the exception of a few states, that a
sufficient part performance by the purchaser under a parol contract
for the sale of real estate removes the contract form the operation of
the statute of frauds (49 Am. Jur. 722-723).

In the words of former Chief Justice Moran: "The reason is simple. In executory
contracts there is a wide field for fraud because unless they be in writing there is no
palpable evidence of the intention of the contracting parties. The statute has
precisely been enacted to prevent fraud." (Comments on the Rules of Court, by
Moran, Vol. III [1957 ed.] p. 178). However, if a contract has been totally or partially
performed, the exclusion of parol evidence would promote fraud or bad faith, for it
would enable the defendant to keep the benefits already derived by him form the
transaction in litigation, and, at the same time, evade the obligations, responsibilities
or liabilities assumed or contracted by him thereby.

It follows then that the statute applies only to executory contracts and in actions for their
specific performance. It does not apply to actions which are neither for violation of a contract
nor for the performance thereof. 19

There can be no dispute that the instant case is not for specific performance of the agreement to sell
the building and to assign the leasehold right. Petitioners merely seek to recover their partial
payment for the agreed purchase price of the building, which was to be paid on installments, with the
private respondents promising to execute the corresponding deed of conveyance, together with the
assignment of the leasehold rights, within two (2) months from the payment of the agreed
downpayment of P20,000.00. By their motion to dismiss, private respondents theoretically or
hypothetically admitted the truth of the allegations of fact in the complaint. 20 Among the allegations
therein are:
(1) that the P50,000.00 sought to be recovered represents the downpayment of P20,000.00 and two (2)
monthly installments of the purchase price, and (2) that petitioners decided, in effect, to withdraw from the
agreement by ordering the stop payment of the remaining six (6) checks and to return the possession of
the building to private respondents because of the latter's failure to comply with their agreement. The
action is definitely not one for specific performance, hence the Statute of Frauds does not apply. And even
if it were for specific performance, partial execution thereof by petitioners effectively bars the private
respondents from invoking it. Since it is for refund of what petitioners had paid under the agreement,
originally unenforceable under the statute, because petitioners had withdrawn therefrom due to the "bad
faith" of the private respondents, the latter cannot be allowed to take shelter under the statute and keep
the P50,000.00 for themselves. If this were the case, the statute would only become a shield for fraud,
allowing private respondents not only to escape performance of their obligations, but also to keep what
they had received from petitioners, thereby unjustly enriching themselves.

Besides, even if the action were for specific performance, it was premature for the respondent Judge
to dismiss the complaint by reason of the Statute of Frauds despite the explicit allegations of partial
payment. As this Court stated in Carbonnel vs. Poncio, et al.: 21

For obvious reasons, it is not enough for a party to allege partial performance in
order to hold that there has been such performance and
to render a decision declaring that the Statute of Frauds is inapplicable. But neither is
such party required to establish such partial performance
by documentary proof before he could have the opportunity to introduce oral
testimony on the transaction. Indeed, such oral testimony would usually be
unnecessary if there were documents proving partial performance. Thus, the
rejection of any and all testimonial evidence on partial performance, would nullify the
rule that the Statute of Frauds is inapplicable to contracts which have been partly
executed, and lead to the very evils that the statute seeks to prevent.

xxx xxx xxx

When the party concerned has pleaded partial performance, such party is entitled to
a reasonable chance to establish by parol evidence the truth of this allegation, as
well as the contract itself. "The recognition of the exceptional effect of part
performance in taking an oral contract out of the statute of frauds involves the
principle that oral evidence is admissible in such cases to prove both the contract
and the part performance of the contract" (49 Am. Jur. 927).

We thus rule that an action by a withdrawing party to recover his partial payment of the consideration
of a contract, which is otherwise unenforceable under the Statute of Frauds, by reason of the failure
of the other contracting party to comply with his obligation, is not covered by the Statute of Frauds.

WHEREFORE, the petition is hereby GRANTED. The challenged Orders of 18 April 1979 and 21
June 1979 in Civil Case No. Q-23593 of the court below are hereby ANNULLED and SET ASIDE,
and the complaint in said case is hereby ordered REINSTATED. The default order against private
respondent Lolita Lee Le Hua shall stand and private respondent Alberto Dy is ordered to file his
Answer to the complaint with the court below within ten (10) days from receipt of this decision. This
decision shall be immediately executory.

Costs against private respondents.

IT IS SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Romero, JJ., concur.

GREGORIO F. AVERIA and SYLVANNA A. VERGARA, representing the

absentee heir TERESA AVERIA, petitioners, vs. DOMINGO
AVERIA, ANGEL AVERIA, FELIPE AVERIA, and the Heirs of
FELIMON F. AVERIA, respondents.

DECISION

CARPIO-MORALES, J.:

Macaria Francisco (Macaria) and Marcos Averia contracted marriage

which bore six issues, namely: Gregorio, Teresa, Domingo, Angel, Felipe and
Felimon.

Macaria was widowed and she contracted a second marriage with Roberto
Romero (Romero) which bore no issue.

Romero died on February 28, 1968, leaving three adjoining residential

[1]

lots located at Sampaloc, Manila.

In a Deed of Extrajudicial Partition and Summary Settlement of the Estate

of Romero, the house and lot containing 150 square meters at 725
Extremadura Street, Sampaloc was apportioned to Macaria.

Transfer Certificate of Title (TCT) No. 93310 covering the Extremadura

property was accordingly issued in the name of Macaria. [2]

Alleging that fraud was employed by her co-heirs in the partition of the
estate of Romero, Macaria filed on June 1, 1970 an action for annulment of
title and damages before the Court of First Instance of Manila against her co-
heirs Domingo Viray, et al., docketed as Civil Case No. 79955. Macaria was
represented in the case by Atty. Mario C. R. Domingo. The case was pending
litigation for about ten years until the decision of the Court of Appeals which
adjudged Macaria as entitled to an additional 30 square meters of the estate
of Romero became final and executory.

Macarias son Gregorio and his family and daughter Teresas family lived
with her at Extremadura until her death on March 28, 1983. [3]

Close to six years after Macarias demise or on January 19, 1989, her
children Domingo, Angel and Felipe, along with Susan Pelayo vda. de Averia
(widow of Macarias deceased son Felimon), filed before the Regional Trial
Court (RTC) of Manila a complaint against their brother Gregorio and niece
Sylvanna Vergara representing her absentee mother Teresa Averia, for judicial
partition of the Extremadura property inclusive of the 30 square meters
judicially awarded. The case which was docketed as Civil Case No. 89-47554
[4]

is now the subject of the present decision.

The defendants Gregorio and Sylvanna Vergara, in their February 8, 1989

Answer to the Complaint, countered that Gregorio and his late wife Agripina
spent for the litigation expenses in Civil Case No. 79955, upon the request of
Macaria, and the couple spent not less P20,000.00 for the purpose which
amount due to the inflation of the Philippine peso is now equivalent to more or
less P200,000.00; that from 1974 to 1983, Macaria was bedridden and it was
Gregorios wife Agripina who nursed and took care of her; that before Macaria
died, she in consideration of the court and other expenses which were
defrayed by Gregorio and his wife in prosecuting Civil Case No. 79955 and of
the kindness of the said couple in caring for her, verbally sold to the spouses
Gregorio and Agripina one-half () of her Extremadura property.

Gregorio and Sylvanna further countered that the plaintiff Domingo sold
and assigned to the spouses Gregorio and Agripina his one sixth (1/6) share in
the remaining portion of the Extremadura property.

Gregorio and Sylvanna concluded in their Answer that the plaintiffs are not
co-owners of the Extremadura property as thereof is solely owned by Gregorio
and 1/6 of the other half representing Domingos share thereof had already
been sold and assigned by him (Domingo) to Gregorio and his wife who died
on May 20, 1987. [5]

During the pendency of the case or on June 7, 1989, Macarias son Felipe
executed a Waiver-Affidavit waiving his share in the property subject of
[6]

litigation in favor of his co-heirs.

After trial, the trial court, Branch 31 RTC of Manila, rendered a decision of
July 19, 1991 crediting the version of the defendants in this
[7]

wise, quoted verbatim:

The defendant Gregorio Averia, Sr. had established that he had paid plaintiff Domingo
Averia P10,000.00 although denied by the latter but Domingo Averia did not deny
receiving the amount of P5,000.00 on July 10, 1983 given by Gregorio Averias wife
Agrifina. According to the testimony of defendants witness, plaintiff Domingo Averia
sold on July 10, 1983 his inheritance share in the property [consisting of a] house and
lot located at 725 Extremadura because he was in . . . need of money and that he was
paid P5,000.00 on July 10, 1983 by Agrifina Averia and another P5,000.00 by Major
Gregorio Averia inside his room at the Makati Police Department three (3) days later.
The reason why Domingo Averia became insistent in claiming his inheritance is the
fact that Gregorio Averia refused the request of Domingo Averia and his children to
occupy the portion of subject house which was sold to him by their mother and it was
for this reason that they sought the assistance of the Citizens Legal Assistance Office
(CLAO), Atty. Benjamin Roxas in writing defendant Gregorio Averia to allow him
(Domingo Averia) to occupy a portion of subject house but plaintiff Domingo Averia
did not tell his brothers and sisters that he had already sold his 1/6 share of the
inheritance although verbally in favor of Gregorio Averia and his wife.

In the light of the foregoing, the Court, after a circumspect assessment of

the evidence presented by both parties, hereby declares, that defendant
Gregorio Averia then a major of police precinct in Makati was the person
responsible for the expenses in litigation in Civil Case No. 79955, involving the
property and their mother had indeed awarded him with portion of the property
and that Domingo Averia sold 1/6 of [his] share of the remaining portion of the
property to defendant Gregorio. (Underscoring supplied)

Accordingly, the trial court disposed as follows, quoted verbatim:

WHEREFORE, the remaining 5/6 of of the property may still be subject of
partition among the remaining heirs but the summary settlement of the remaining
estate of the 5/6 remaining portion of the estate . . . may be sold and the proceeds
thereof be distributed among the heirs in accordance with the aliquot portions of each
and every heir of the deceased Macaria Francisco.

Both parties are hereby ordered to shoulder their respective expenses for attorneys
fees and litigation costs. (Underscoring supplied)

On appeal to the Court of Appeals (CA) wherein the plaintiffs Domingo et

al. assigned two errors, to wit:

A. THE TRIAL COURT ERRED IN ITS FINDING THAT THERE WAS A SALE OF
ONE-HALF OF THE DECEASED MACARIA F. AVERIAS INTEREST AND
OWNERSHIP OVER THE SUBJECT PROPERTY IN FAVOR OF DEFENDANT-
APPELLEE GREGORIO AVERIA.

B. THE TRIAL COURT ERRED IN ALLOWING THE RECEPTION OF PAROL

EVIDENCE TO THE EFFECT THAT PLAINTIFF-APPELLANT DOMINGO AVERIA
HAD ALREADY DISPOSED OF HIS ONE SIXTH (1/6) SHARE OF THE SUBJECT
PROPERTY IN FAVOR OF DEFENDANT-APPELLEE GREGORIO
AVERIA[8] (Emphasis supplied),

the appellate court reversed the decision of the trial court.

In reversing the trial court, the appellate court, noting that the alleged
transfers made by Macaria and Domingo in favor of Gregorio were bereft of
any written memoranda, held that it was error for the trial court to rely solely
on the evidence adduced by the defendants consisting of the testimonies of
Gregorio, Veronica Bautista, Sylvanna Vergara Clutario, Atty. Mario C.R.
Domingo, Felimon Dagondon and Gregorio Averia, Jr. The CA explained its
ruling in this wise:

[T]he alleged conveyances purportedly made by Macaria Francisco and plaintiff-

appellant Domingo Averia are unenforceable as the requirements under the Statute of
Frauds have not been complied with. Article 1403, 2(e) of the New Civil Code is
explicit:

Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) x x x

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement thereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing and subscribed
by the party charged, or by this agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:

(a) x x x;

(b) x x x;

(e) an agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;

(f) x x x

The two (2) transactions in question being agreements for the sale of real property or
of an interest therein are in clear contravention of the prescription that it must be in
writing and subscribed by the party charged or by an agent thereof. Hence, the strong
insistence by defendants-appellees on the verbal conveyances cannot be made the
basis for the alleged ownership over the undivided interests claimed by Gregorio
Averia.

The parol evidence upon which the trial court anchored its award in favor of
defendant-appellee Gregorio Averia is irregular as such kind of evidence is foreclosed
by Article 1403 of the Civil Code that no evidence of the alleged agreements can be
received without the writing of secondary evidence which embodies the sale of the
real property. The introduction of the testimonies of Gregorio Averias witnesses
were timely objected to by plaintiffs-appellants. Since the testimonies of defendants-
appellees witnesses are inadmissible, then such exclusion has pulled the rug under the
assailed decision of the trial court and it has no more leg to stand on.

In the vain attempt to salvage the situation, defendants-appellees however argue that
the Article 1403 or the Statute of Frauds does not apply because the same only refers
to purely executory contracts and not to partially or completely executed contracts.
This contention is untenable. It was not amply demonstrated how such alleged
transfers were executed since plaintiffs-appellants have vigorously objected and
opposed the claims of ownership by defendants-appellees. He who asserts a fact or the
affirmative of an issue has the burden of proving it. Defendants-appellees miserably
failed in this respect.

While this Court cannot discount the fact that either defendant-appellee Gregorio
Averia or plaintiff-appellant Domingo Averia may have valid claims against the estate
of Macaria Francsico, such matter can best be threshed out in the proceedings for
partition before the court a quo bearing in mind that such partition is subject to the
payment of the debts of the deceased under Article 1078 of the Civil Code. (Citations
[9]

omitted; Emphasis and underscoring supplied)

The appellate court thus remanded the case to the trial court.

WHEREFORE, the decision dated July 19, 1991 is reversed and set aside. The case
is remanded to the court a quo which is directed to effect the partition of the subject
property or if not, possible, sell the entire lot and distribute the proceeds of the sale
based on equal shares among the children of the late Macaria Francisco after debts of
the said deceased are paid or settled pursuant to Article 1078 of the Civil Code.
(Underscoring supplied)
[10]

Gregorio and Sylvannas motion for reconsideration having been denied by

the appellate court, they lodged the Petition for Review on Certiorari at bar
upon the following assignment of errors:

I. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT

THERE WAS NO SALE OF ONE-HALF (1/2) OF THE DECEASED MACARIA F.
AVERIAS INTEREST AND OWNERSHIP OVER THE SUBJECT PROPERTY IN
FAVOR OF PETITIONER GREGORIO F. AVERIA.

II. THE COURT OF APPEALS (SECOND DIVISION) ERRED IN ITS FINDING THAT
THE RECEPTION OF PAROL EVIDENCE TO THE EFFECT THAT RESPONDENT
DOMINGO AVERIA HAD ALREADY SOLD HIS ONE SIXTH (1/6) SHARE IN THE
SUBJECT PROPERTY IN FAVOR OF PETITIONER GREGORIO AVERIA IS NOT
IN ACCORDANCE WITH LAW.[11]

Petitioners contend that contrary to the findings of the Court of Appeals,

they were able to amply establish, by the testimonies of credible witnesses,
the conveyances to Gregorio of of the Sampaloc property and 1/6 of the
remaining half representing the share of Domingo. [12]

With respect to the application by the appellate court of the Statute of

Frauds, petitioners contend that the same refers only to purely executory
contracts and not to partially or completely executed contracts as in the
instant case. The finding of the CA that the testimonies of petitioners
witnesses were timely objected to by respondents is not, petitioners insist,
borne out in the records of the case except with respect to the testimony of
Gregorio. [13]

Petitioners thus conclude that respondents waived any objection to the

admission of parol evidence, hence, it is admissible and
enforceable following Article 1405 of the Civil Code.
[14] [15] [16]

The Court finds for petitioner.

Indeed, except for the testimony of petitioner Gregorio bearing on the

verbal sale to him by Macaria of the property, the testimonies of petitioners
witnesses Sylvanna Vergara Clutario and Flora Lazaro Rivera bearing on the
same matter were not objected to by respondents. Just as the testimonies of
Gregorio, Jr. and Veronica Bautista bearing on the receipt by respondent
Domingo on July 23, 1983 from Gregorios wife of P5,000.00 representing
partial payment of the P10,000.00 valuation of his (Domingos) 1/6 share in the
property, and of the testimony of Felimon Dagondon bearing on the receipt by
Domingo of P5,000.00 from Gregorio were not objected to. Following Article
1405 of the Civil Code, the contracts which infringed the Statute of Frauds
17

were ratified by the failure to object to the presentation of parol evidence,

hence, enforceable.

ARTICLE 1403. The following contracts are unenforceable, unless they are ratified:

xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:

xxx

(e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;

x x x (Emphasis and underscoring supplied),

Contrary then to the finding of the CA, the admission of parol evidence
upon which the trial court anchored its decision in favor of respondents is not
irregular and is not foreclosed by Article 1405.

In any event, the Statute of Frauds applies only to executory contracts and
not to contracts which are either partially or totally performed. In the case at
18

bar, petitioners claimed that there was total performance of the contracts, full
payment of the objects thereof having already been made and the vendee
Gregorio having, even after Macarias death in 1983, continued to occupy the
property until and after the filing on January 19, 1989 of the complaint subject
of the case at bar as in fact he is still occupying it.

In proving the fact of partial or total performance, oral evidence may be

received as what the trial court in the case at bar did. Noted civilist Arturo M.
Tolentino elucidates on the matter:

The statute of frauds is not applicable to contracts which are either totally or partially
performed, on the theory that there is a wide field for the commission of frauds in
executory contracts which can only be prevented by requiring them to be in writing, a
fact which is reduced to a minimum in executed contracts because the intention of the
parties becomes apparent by their execution, and execution concludes, in most cases,
the rights of the parties. However it is not enough for a party to allege partial
performance in order to render the Statute of Frauds inapplicable; such partial
performance must be duly proved. But neither is such party required to establish
such partial performance by documentary proof before he could have the
opportunity to introduce oral testimony on the transaction. The partial
performance may be proved by either documentary or oral evidence. (Emphasis, 19

underscoring and italics supplied)

The testimonies of petitioners witnesses being credible and

straightforward, the trial court did not err in giving them credence.

The testimony of Sylvana Vergara Clutario, daughter of Teresa, in fact was

more than sufficient to prove the conveyance of half of the subject property by
Macaria to Gregorio.

ATTY. DOMINGO:

Q: Are you the same Sylvana Vergara representing the defendant Teresa Averia in this
case?

WITNESS:

A: Yes, sir.

Q: Now on February 28, 1972, about 5:30 in the afternoon, where were you?

A: As far as I can remember, I was inside my residence at 725 Extremadura at that

date, and time.

Q: On that date and time, where were you residing?

A: At said address, 725 Extremadura Street, that time and date at 5:30 in the
afternoon.

Q: Who were your companions if you have any?

A: I was there with my brothers and sisters and Uncle Gregorio and Auntie Agripina
and the children and my grand mother and also the lady who is leading in the
prayers because on that date it is the anniversary of the death of my grandfather.

Q: What is the name of your grandmother?

A: Macaria Averia, sir.

Q: Now, this Gregorio Averia whom you identified to be your Uncle, is he the same
Gregorio Averia who is also the defendant in this case?

WITNESS:
A: The same, sir.

Q: What is the name of your grandfather whom you said whose death anniversary you
are then celebrating on that date?

A: Roberto Romero, sir.

Q: What actually you were doing that time 5:30?

A: We had a gathering and merienda in recollection of the celebration (sic) of the death
of my grandfather, sir.

Q: When you said you were eating then, where were you eating then?

A: It was beside my grandmother.

Q: Where?

A: At the dining room, sir.

Q: So you were sitting at the dining table all of you?

A: Yes, sir the others were a little bit near the table.

Q: Who were seated in the dining table?

A: The Spouses Gregorio and Agripina, my sister Beth and my cousins and my Lola
Macaria.

Q: When you were then seated in taking that ginatan as you stated what
transpired?

A: Somebody called up and the one who called up was the Secretary of a lawyer
and they were asking for [payment of] expenses in connection with . . .
[Criminal Case No. 79955].

Q: You said that it was Agripina who was the one who answered that telephone
call. After answering it, what did she say to anyone seated in that table?

A: Agripina said if Gregorio has some money, he will pay them but Gregorio said
he will be responsible for the expenses.

Q: Did you come to know how much was amount being asked?

A: P500.00, sir.
 Q: What else happened after Gregorio said that he would answer for the
expenses to be sent to the lawyer?

A: My Lola said that she was embarrassed and ashame[d] because at that time
she d[id] not have any money and it was the couple who was taking the
expenses of the case.

Q: When you said Lola, you are referring to Macaria Averia?

A: Yes, sir.

Q: What else transpired?

A: Because of her embarrassment, she told [them that] one half (1/2) of the
House and Lot will be given to the couple to cover the expenses of the case.

ATTY. DOMINGO:

Q: To whom did your grandmother say this?

A: Well, she said that to Gregorio and Agripina and Gregorio told her, if that is
what you wish, I will agree to your proposal.

Q: What was the reply of your grand mother?

A: My Lola told Gregorio that since you agree, you better prepare all the
documents and we will make ready the documents for the division or
partition.

Q: Do you know what House and Lot one half (1/2) of which your grand mother
was given (sic) to your Uncle and Auntie . . .?

A: She is referring to the House and Lot where I used to live before.

Q: You are referring to the House and Lot located at 725 Extremadura Street,
Sampaloc, Manila.

A: Yes, sir.

x x x20 (Emphasis and underscoring supplied)

Not only on account of Sylvanas manner of testifying that her testimony

should be given weight. Her testimony was against the interest of her mother
Teresa whom she represented, her mother being also an heir of Macaria. If
the transfer by Macaria to Gregorio of of the property is upheld as valid and
enforceable, then the share of the other heirs including Sylvannas mother
would considerably be reduced.

That Atty. Mario C. R. Domingo who was admittedly Macarias counsel in

Civil Case No. 79955 (which, as priorly reflected, entailed a period of ten
years in court), affirmed on the witness stand that Gregorio and his wife were
the ones who paid for his attorneys fees amounting to P16,000.00 should no
21

doubt strongly lend credence to Gregorios claim to that effect.

As to the sale of Domingos 1/6 share to Gregorio, petitioners were able to

establish said transaction by parol evidence, consisting of the testimonies of
Gregorio Averia, Jr., Veronica Averia and Felimon Dagondon the
22 23 24

presentation of which was, it bears repeating, not objected to.

Albeit Domingo never denied having received the total amount

of P10,000.00 from Gregorio and his wife, he denied having sold to Gregorio
his interest over the property. Such disclaimer cannot, however, prevail over
the categorical, positive statements of petitioners above-named witnesses.

In sum, not only did petitioners witnesses prove, by their testimonies, the
forging of the contracts of sale or assignment. They proved the full
performance or execution of the contracts as well.

WHEREFORE, the petition is hereby GRANTED. The January 31, 2000

Decision of the Court of Appeals in CA-G.R. No. 44704 is hereby SET ASIDE.

The case is hereby remanded to the trial court, Branch 31 of the RTC of
Manila, for appropriate action, following Section 2 of Rule 69 of the Rules of
Civil Procedure.

SO ORDERED.

Panganiban, (Chairman), and Corona, JJ., concur.

Sandoval-Gutierrez, J., on leave.

ANGEL CLEMENO, JR., MALYN CLEMENO, and NILUS
SACRAMENTO, petitioners, vs. ROMEO R.
LOBREGAT, respondent.

DECISION

CALLEJO, SR., J.:

This is a petition for review of the Decision of the Court of Appeals in CA-
[1]

G.R. CV No. 53655 reversing the decision of the Regional Trial Court of
Quezon City, Branch 224, in Civil Case Nos. 92-12620 and 93-17268.

The Antecedents

The Spouses Nilus and Teresita Sacramento were the owners of a parcel
of land covered by Transfer Certificate of Title (TCT) No. 158728 and the
house constructed thereon located at No. 68 Madaling Araw Street, Teresa
Heights Subdivision, Novaliches, Quezon City. The Spouses Sacramento
mortgaged the property with the Social Security System (SSS) as security for
their housing loan and, likewise, surrendered the owners and duplicate copies
of the certificate of title. On September 2, 1980, the spouses executed a Deed
of Sale with Assumption of Mortgage in favor of Maria Linda Clemeno and her
husband Angel C. Clemeno, Jr., with the conformity of the SSS. On March 6,
[2]

1981, the Register of Deeds issued TCT No. 277244 over the property in the
name of the vendees, who, in turn, executed a Real Estate Mortgage
[3]

Contract over the property in favor of the SSS to secure the payment of the
amount of P22,900.00, the balance of the loan. The Spouses Clemeno also
[4]

surrendered the owners duplicate copy of the said title to the SSS. However,
per the records of the SSS Loans Department, the vendors (the Spouses
Sacramento) remained to be the debtors.

On July 1, 1992, respondent Romeo R. Lobregat, a lawyer and an Election

Registrar in the Commission on Elections, filed a Complaint against the
petitioners, the Spouses Clemeno, and Nilus Sacramento for breach of
contract, specific performance with damages with the RTC of Quezon City.
The case was docketed as Civil Case No. 92-12620 and raffled to Branch
100. On May 7, 1993, the trial court dismissed the case without prejudice for
lack of interest on the part of the plaintiff to prosecute. The petitioners, for
[5]

their part, filed a Complaint against the respondent for recovery of possession
of property with damages, docketed as Civil Case No. 93-17268 and raffled to
Branch 93 of the court. In the meantime, the RTC, Branch 100 set aside its
Order in Civil Case No. 92-12620 and reinstated the case. The two (2) cases
were then consolidated in the RTC, Branch 100.

The Evidence of

The Respondent

On June 4, 1987, the respondent and petitioner Angel Clemeno, Jr.,

relatives by consanguinity, entered into a verbal contract of sale over the
property covered by TCT No. 277244 under the following terms and
conditions: (a) the respondent would pay the purchase price of the property in
the amount of P270,000.00, inclusive of the balance of the loan of the
petitioners, the Spouses Clemeno with the SSS within two years from June 4,
[6]

1987; (b) the respondent would pay the monthly amortizations of the vendors
[7]

loan with the SSS; and (c) upon the payment of the purchase price of the
property, the Spouses Clemeno would execute a deed of sale in favor of the
respondent. The respondent made a down payment of P25,000.00 for which
[8]

petitioner Clemeno, Jr. issued a receipt dated June 4, 1987. He then made a [9]

partial payment of P5,000.00 to petitioner Clemeno, Jr. on July 8, 1987, and [10]

another partial payment of P50,000.00 on February 9, 1988. The respondent [11]

paid the realty taxes due on the property for 1987 and 1988. [12]

In the meantime, petitioner Clemeno, Jr. read a press release from the
SSS in the newspapers allowing delinquent borrowers to restructure the
balance of their loans as of March 31, 1988 with no arrearages on the balance
of their account under certain terms and conditions. On February 26, 1988,
[13]

he paid the amount of P6,692.63 to the SSS, in partial payment of his loan
account. He also made a written request to the SSS for a restructuring of his
[14]

loan. Thereafter, the SSS Loans Collection Department issued on March 15,
[15]

1988, addressed to the borrower on record, that effective March 15, 1988, the
monthly amortization on the loan was P841.84. Petitioner Clemeno, Jr., as
[16]

mortgagor, affixed his conformity thereto. He then wrote a letter authorizing

[17]

the respondent to pay the balance of his restructured loan with the SSS,
which payments would be considered as partial payment of the house and lot.
Conformably, the respondent remitted to the SSS the monthly amortization
[18]

payments for the account of petitioner Clemeno, Jr. However, the receipts
issued by the SSS were in the name of petitioners Nilus Sacramento or
Clemeno, Jr. [19]

The respondent made additional partial payments for the sale of the
property to petitioner Clemeno, Jr. on January 17, 1989, and, March 20, 1989,
in the total amount of P10,000.00. He also continued remitting to the SSS
[20]

the monthly amortizations due for the account of petitioner Clemeno, Jr. [21]

The respondent was able to secure a loan of P160,000.00 on April 1,

1989, which was more than sufficient to cover his balance of the purchase of
the property. He then offered to pay the said balance to petitioner Clemeno,
Jr., but the latter told him to keep the money because the owners duplicate
[22]

copy of the title was still with the SSS and to instead continue paying the
monthly amortizations due. The respondent did so and made payments until
March 1990. He no longer paid after this date because the SSS informed
[23]

him that petitioner Clemeno, Jr. had already paid the balance of his account in
full on March 23, 1990. Indeed, on May 9, 1990, the SSS had executed a
Release of Real Estate Mortgage in favor of petitioner Clemeno, Jr. and
released the owners duplicate of TCT No. 277244. [24]

The respondent offered to pay the balance of the purchase price of the
property to petitioner Clemeno, Jr. and asked the latter to execute the deed of
sale over the property and deliver the title over the property under his name,
but petitioner Clemeno, Jr. refused to do so unless the respondent agreed to
buy the property at the price prevailing in 1992. The respondent refused.

On June 12, 1992, the respondents counsel wrote petitioner Clemeno, Jr.,
informing the latter that he (the respondent) had already paid P113,049.96 of
the purchase price of the property and that he was ready to pay the balance
thereof in the amount of P156,970.04. He demanded that petitioner Clemeno,
Jr. execute a deed of absolute sale over the property and deliver the title
thereto in his name upon his receipt of the amount of P156,970.04. [25]
 In his reply-letter, petitioner Clemeno, Jr. stated that he never sold the
property to the respondent; that he merely tolerated the respondents
possession of the property for one year or until 1987, after which the latter
offered to buy the property, which offer was rejected; and that he instead
consented to lease the property to the respondent. The petitioner also
declared in the said letter that even if the respondent wanted to buy the
property, the same was unenforceable as there was no document executed by
them to evince the sale. [26]

In their Answer to the complaint, the petitioners alleged that they entered
into a verbal lease-purchase agreement over the house and lot with the
respondent under the following terms and conditions:

(a) The purchase price will be P270,000.00 to be paid in full not later than June 1,
1988;

(b) The rental is P1,500.00 a month, for the whole period from June 1987 to June
1, 1988;

(c) If the whole purchase price is not paid on the agreed date, the total amount
equivalent to one-year rental shall be deducted from the amount already paid
by the plaintiff, who shall peacefully vacate the premises and surrender
possession of the house and lot to the defendants.

(d) The purchase price of P270,000.00 shall be payable: P90,000.00 upon taking
possession of the property, P90,000.00 payable within six (6) months
thereafter, and P90,000.00 not later than June 1, 1988.[27]

The petitioners further alleged that despite the respondents failure to

comply with the conditions of their agreement, the latter was still granted an
extension of until September 1989 to pay the purchase price of the property,
but managed to pay only P113,049.96, including the monthly amortizations of
their loan account with the SSS and realty tax payments. The petitioners
further alleged that the respondent even failed to pay any rental for the
property from June 1987 to June 1, 1988. They posited that the contract
between the parties was unenforceable under Article 1403(2) of the New Civil
Code, and prayed that judgment be rendered in their favor as prayed for by
them in their complaint in Civil Case No. 93-17268, thus:

WHEREFORE, it is most respectfully prayed that after due hearing, a decision in

favor of plaintiff be rendered, ordering Defendant

(a) And all other persons claiming under him to vacate the premises located at
86 Madaling Araw St., Teresa Heights Subdivision, Novaliches, Quezon
City;

(b) To pay plaintiff a balance of P64,349.14 for the use and occupancy of the
premises until May 31, 1993, and at the rate of P3,628.80 a month from
June 1, 1993 until the premises shall have been finally vacated;

(c) To pay P50,000.00 plus P2,000.00 per appearance as and for attorneys
fees; and

(d) To pay the costs of suit.

Plaintiff further prays for such other relief reasonable and conscionable in the
premises.[28]

The Evidence for the

Petitioners

Petitioner Clemeno, Jr. and the respondent were townmates. Sometime in

June 1987, petitioner Clemeno, Jr. agreed to sell the property for P270,000.00
payable in three (3) installments: (a) P90,000.00 upon the respondents taking
possession of the property; (b) P90,000.00 payable within six (6) months
thereafter; and (c) P90,000.00 not later than June 1, 1988. The respondent
assured petitioner Clemeno, Jr. that there would be nothing to worry about the
documentation of the sale; being a lawyer, he would take care of everything.
However, the respondent failed to pay the balance of the purchase price of the
property in the amount of P156,970.04 despite promises to do so.

On September 16, 1989, petitioner Clemeno, Jr. went to the respondents

house to talk to him anew, but the latter was nowhere to be found. He made a
typewritten letter to the respondent, stating that the latter had been given
more than enough time to exercise the option to buy the property but failed to
do so; hence, the offer was deemed cancelled. The petitioner left the letter
with the respondents daughter, Michelle Lobregat.

The trial court rendered judgment in favor of the petitioners, as follows:

Accordingly, therefore, the Court hereby renders judgment in favor of Angel

Clemeno, [Jr.] as against Romeo Lobregat and orders the latter and other persons
claiming under him to:

1. Vacate the premises located at No. 86 Madaling Araw Street, Teresa

Heights Subdivision, Novaliches, Quezon City;

2. Pay Angel Clemeno, Jr. the amount of P64,349.14 for the use and
occupancy of the premises until May 31, 1993 and at the rate
of P3,628.80 a month from June 1, 1993 until the premises have been
finally vacated;

3. Pay the amount of P50,000.00 as attorneys fees and other legal expenses,
and

4. To pay the costs of suit.

IT IS SO ORDERED. [29]

The trial court ruled that since both the sale and lease agreements were
not reduced to writing, both contracts were unenforceable under Article
1403(2) of the New Civil Code, and had decided the case based on justice
and equity.

The respondent appealed the decision to the Court of Appeals and raised
the following assignment of errors:

1. THE LOWER COURT, AFTER THE COMPLETE, MERITORIOUS AND WRITTEN

PIECES OF EVIDENCE SUBMITTED BY PLAINTIFF-APPELLANT LOBREGAT,
FAILED/REFUSED TO CONSIDER THE SAME. INSTEAD, DECIDED ONLY THE
CASE OF ACCION PUBLICIANA FILED BY DEFENDANT-APPELLEE A.
CLEMENO, JR.
 2. THE LOWER COURT FAILED TO CONSIDER THAT RECEIPTS ARE NOT
CONTRACT OF SALE BUT EVIDENCE FOR CONTRACT OF SALE AS EVEN
NOTED BY THE LOWER COURT.

3. THAT THE LOWER COURT FAILED TO CONSIDER THAT THE PIECES OF

EVIDENCE OF LOBREGAT CLEARLY SHOW THAT [THE] SALE WAS THE
TRANSACTION BETWEEN HEREIN PARTIES AS ADMITTED BY DEFENDANT-
APPELLEE A. CLEMENO, JR. (T.S.N., p. 16, Nov. 20, 1995) (T.S.N., pp. 26 & 27,
April 19, 1996)

3. THAT THE HONORABLE LOWER COURT DISREGARDED ITS OWN RULING AS

TO THE APPELLEES INTENTIONAL FAILURE TO FOLLOW/COMPLY WITH ITS
ORDER DATED MAY 31, 1996.

4. THAT THE LOWER COURT FAILED TO CONSIDER THE DELIBERATE OMISSION

OF DEFENDANTS-APPELLEES TO OBSERVE THE NON-FORUM SHOPPING
REQUIREMENT.

5. THAT THE LOWER COURT MISAPPLIED THE PRINCIPLE OF STATUTE OF

FRAUDS.[30]

On February 23, 1999, the Court of Appeals rendered judgment reversing

the decision of the trial court. The fallo of the decision reads:

WHEREFORE, the decision appealed from is REVERSED, and judgment is hereby

rendered:

1. In Civil Case No. Q-92-12620

(a) Ordering defendants-appellees to accept the remaining balance of the

purchase price of the house and lot subject of sale in the amount
of P156,109.00 and, thereafter, execute in favor of plaintiff-appellant the
corresponding deed of sale or proper mode of conveyance; and

(b) Ordering defendants-appellees to pay, jointly and severally, plaintiff-

appellant P50,000.00 by way of moral damages, P25,000.00 by way of
exemplary damages, and P15,000.00 as attorneys fees.

2. In Civil Case No. Q-93-17268 dismissing the complaint therein.

Costs against defendants-appellees.

SO ORDERED. [31]

The Court of Appeals ruled that the contract entered into between the
parties was a contract of sale, not a contract to sell. The appellate court also
ruled that Article 1403(2) was not applicable because the contract was already
partly performed, since partial payments had been made by the respondent as
evidenced by receipts signed by the petitioners.

The petitioners now come to this Court, contending that:

The Honorable Court of Appeals grossly erred in holding that the contract entered by
the parties is a contract of sale and not a contract to sell.
[32]

II

The Court of Appeals erred seriously when it held that Under Article 1356 of the Civil
Code, contract shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present and that the contract
of sale of a piece of land may be proved orally, totally ignoring the positive mandate
of Article 1358 of the Civil Code, [33]

III

The Honorable Court of Appeals erred in holding that the Statute of Frauds cannot be
raised as a defense against specific performance, there being partial performance of
the down-payment and subsequent installments, even if short of the full price and after
the expiry of the agreed dates of payment. [34]

The Court shall resolve these issues simultaneously as they are

interrelated.

The petitioners posit that the respondent failed to prove the essential
elements of a contract of sale over the subject property. They contend that the
receipts wherein they acknowledged the receipt of the amounts therein
specified do not conform to the legal requirements of a contract of sale, and
cited the ruling of this Court in Manotok Realty, Inc. vs. Court of Appeal. They [35]

also posit that even by his own admission, the respondent defaulted in the
payment of the purchase price of the property; hence, they are not obliged to
execute a deed of absolute sale over the property and deliver the title to him.
The petitioners assert that even if they had entered into an agreement with the
respondent, such agreement was a mere contract to sell, not a contract of
sale. They further assert that even if, indeed, the parties had entered into a
contract of sale, the same is unenforceable under paragraph 2, Article 1403 of
the New Civil Code, which provides that such contract must be in writing; and
Article 1358 of the New Civil Code which requires that such contract must
appear in a public document.

On the other hand, the appellate court held that the petitioners and the
respondent entered into a verbal contract of sale and not a contract to sell
over the subject property, thus:

In the case at bench, Clemeno had agreed to sell his house and lot to Lobregat for a
total consideration of P270,000.00 payable in installments within a period of two (2)
years. The receipt, Exhibit A, is self-explanatory: it speaks of the receipt by Clemeno
of the sum of P25,000.00 from Lobregat as advance payment of the subject house and
lot, the total purchase price of which is P270,000.00. Significantly, upon his receipt of
the advance payment, Clemeno delivered the possession of the premises to Lobregat
who is now the present possessor thereof. Subsequent payments were made by
Lobregat on the purchase price, all of which were duly receipted for by Clemeno. The
receipts Exhibits A-1, A-2 and A-3, for example, speak uniformly of additional part
payment for the house and lot subject of this case. Moreover, as suggested by
Clemeno himself, Lobregat had been religiously remitting the monthly payments on
Clemenos loan obligation with the SSS. Note, for instance, Exhibit A-4 one of the
many receipts of payment to SSS where it is indicated that the real estate loan is in the
name of Angel C. Clemeno, Jr., as borrower, but bears the name of Romeo Lobregat,
as payor, on behalf of Clemeno. It is as clear as sunlight that the parties had entered
into a contract of sale and not merely a contract to sell.
[36]

The petition has no merit.

We find and so hold that the contract between the parties was a perfected
verbal contract of sale, not a contract to sell over the subject property, with the
petitioner as vendor and the respondent as vendee. Sale is a consensual
contract and is perfected by mere consent, which is manifested by a meeting
of the minds as to the offer and acceptance thereof on three elements: subject
matter, price and terms of payment of the price. The petitioners sold their
[37]

property to the respondent for P270,000.00, payable on installments, and

upon the payment of the purchase price thereof, the petitioners were bound to
execute a deed of sale in favor of the respondent and deliver to him the
certificate of title over the property in his name. The parties later agreed for
the respondent to assume the payment of the petitioners loan amortization to
the SSS, which payments formed part of the purchase price of the property.
The evidence shows that upon the payment made by the respondent of the
amount of P27,000.00 on June 4, 1987, the petitioners vacated their house
and delivered possession thereof to the respondent. Conformably to Article
1477 of the New Civil Code, the ownership of the property was transferred to
the respondent upon such delivery. The petitioners cannot re-acquire
ownership and recover possession thereof unless the contract is rescinded in
accordance with law. The failure of the respondent to complete the payment
[38]

of the purchase price of the property within the stipulated period merely
accorded the petitioners the option to rescind the contract of sale as provided
for in Article 1592 of the New Civil Code.
[39]

The contract entered into by the parties was not a contract to sell because
there was no agreement for the petitioners to retain ownership over the
property until after the respondent shall have paid the purchase price in full,
nor an agreement reserving to the petitioners the right to unilaterally resolve
the contract upon the buyers failure to pay within a fixed period. Unlike in a
[40]

contract of sale, the payment of the price is a positive suspensive condition in

a contract to sell, failure of which is not a breach but an event that prevents
the obligation of the vendor to convey the title from becoming effective.[41]

The fact that the receipts issued by the SSS evidencing the respondents
remittances of the monthly amortization payments of the petitioners loan, and
that the receipts issued to the respondent for the payment of realty taxes for
1987 and 1988 were in the name of Nilus Sacramento and/or the petitioner
Clemeno, Jr., does not negate the fact of the transfer of the ownership over
the property to the respondent on June 4, 1987. Moreover, the deed of sale
over the property in favor of the respondent had not yet been executed by the
petitioners. The Spouses Sacramento and later, the petitioners, were the
borrowers, as per the records of the SSS.

The contract of sale of the parties is enforceable notwithstanding the fact

that it was an oral agreement and not reduced in writing as required by Article
1403(2) of the New Civil Code, which reads:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases, an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing, and subscribed
by the parties charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its contents:

(d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accepts and receives part of such goods and
chattels, or the evidences, or some of them, of such things in action, or pay at the time
some part of the purchase money: but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient memorandum;

This is so because the provision applies only to executory, and not to

completed, executed or partially executed contracts. In this case, the
[42]

contract of sale had been partially executed by the parties, with the transfer of
the possession of the property to the respondent and the partial payments
made by the latter of the purchase price thereof.

We agree with the petitioners contention that the respondent did not pay
the total purchase price of the property within the stipulated period. Moreover,
the respondent did not pay the balance of the purchase price of the property.
However, such failure to pay on the part of the respondent was not because
he could not pay, but because petitioner Angel Clemeno, Jr. told him not to do
so. The latter instructed the respondent to continue paying the monthly
amortizations due to the SSS on the loan. Unknown to the respondent,
petitioner Angel Clemeno, Jr. wanted to increase the purchase price of the
property at the prevailing market value in 1992, and not its value in 1987 when
the contract of sale was perfected.

The petitioners failed to prove their claim that a lease purchase agreement
over the property was entered into. Except for their bare claim, they failed to
adduce a morsel of documentary evidence to prove the same. On the other
hand, all the receipts issued by them on the partial payments made by the
respondent were for the purchase price of the property, and not as rentals
thereof.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of

merit. Costs against the petitioners.

SO ORDERED.

SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME, petitioners,

vs. BUKAL ENTERPRISES AND DEVELOPMENT
CORPORATION, respondent.

DECISION
CARPIO, J.:

The Case

This is a petition for review on certiorari of the Decision dated 3 January

[1]

2001 of the Court of Appeals in CA-G.R. CV No. 60747. The Court of Appeals
reversed the Decision of the Regional Trial Court, Branch 223, Quezon
[2]

City (trial court), which held that there was no perfected contract of sale since
there was no consent on the part of the seller.

The Facts

Petitioner Spouses Constante and Azucena Firme (Spouses Firme) are

the registered owners of a parcel of land (Property) located on Dahlia
[3]

Avenue, Fairview Park, Quezon City. Renato de Castro (De Castro), the vice
president of Bukal Enterprises and Development Corporation (Bukal
Enterprises) authorized his friend, Teodoro Aviles (Aviles), a broker, to
negotiate with the Spouses Firme for the purchase of the Property.
On 28 March 1995, Bukal Enterprises filed a complaint for specific
performance and damages with the trial court, alleging that the Spouses
Firme reneged on their agreement to sell the Property. The complaint asked
the trial court to order the Spouses Firme to execute the deed of sale and to
deliver the title to the Property to Bukal Enterprises upon payment of the
agreed purchase price.
During trial, Bukal Enterprises presented five witnesses, namely, Aviles,
De Castro, Antonio Moreno, Jocelyn Napa and Antonio Ancheta.
Aviles testified that De Castro authorized him to negotiate on behalf of
Bukal Enterprises for the purchase of the Property. According to Aviles, he
met with the Spouses Firme on 23 January 1995 and he presented them with
a draft deed of sale (First Draft) dated February 1995. The First Draft of the
[4]

deed of sale provides:

DEED OF ABSOLUTE SALE

KNOW ALL MEN BY THESE PRESENTS:

This DEED OF ABSOLUTE SALE made and executed by and between the Spouses
CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age, Filipino citizens
and with postal address at No. 1450 Union, Paco, City of Manila, hereinafter called
the VENDOR, and

BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly

organized and registered in accordance with Philippine Laws, with business address
at Dahlia Avenue, Fairview Park, Quezon City, herein represented by its PRESIDENT,
MRS. ZENAIDA A. DE CASTRO, hereinafter called the VENDEE.

WITNESSETH:

That the VENDOR is the absolute and registered owner of a certain parcel of land
located at Fairview Park, Quezon City, and more particularly described as follows:

A parcel of land (Lot 4, Block 33 of the consolidation-subdivision plan (LRC) Pcs-

8124, Sheet No. I, being a portion of the consolidation of Lots 41-B-2-A and 41-B-2-
C, Psd-1136 and Lot (LRC) Pcs-2665, (LRC) GLRO) Record. No. 1037), situated
in Quezon City, Island of Luzon. Bounded on the NE., points 2 to 5 by Road Lot 24,
of the consolidation-subdivision plan. Beginning at a point marked 1 on plan, being S.
67 deg. 23W., 9288.80 m. from BLLM I, Mp of Montalban, Rizal; thence N. 85 deg.
35E., 17.39 m. to point 2; thence S. 54 deg. 22E., 4.00 m. to point 3; thence S. 14 deg.
21E., 17.87 m. to point 4; thence 3 deg. 56E., 17.92 m. to point 5; thence N. 85 deg.
12 W., 23.38 m. to point 6; thence N. 4 deg. 55 W., 34.35 m. to the point of beginning;
containing an area of EIGHT HUNDRED AND SIX (806) SQUARE METERS, more
or less.

VENDORS title thereto being evidenced by Transfer Certificate of Title No. 264243
issued by the Register of Deeds of Quezon City;

That the VENDOR, for and in consideration of the sum of THREE MILLION TWO
HUNDRED TWENTY FOUR THOUSAND PESOS (P3,224,000.00) Philippine
Currency, to them in hand paid and receipt whereof is hereby acknowledged, do
hereby SELL, TRANSFER and CONVEY unto the said VENDEE, its assigns,
transferees and successors in interest the above described property, free from all liens
and encumbrances whatsoever;

It is hereby mutually agreed that the VENDEE shall bear all the expenses for the
capital gains tax, documentary stamps, documentation, notarization, removal and
relocation of the squatters, registration, transfer tax and other fees as may be required
by law;

That the VENDOR shall pay the real estate tax for the current year and back real
estate taxes, charges and penalties if there are any.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of
February, 1995, at Quezon City, Philippines.

CONSTANTE FIRME BUKAL ENTERPRISES AND

DEVELOPMENT CORP.

BY:

AZUCENA E. FIRME ZENAIDA A. DE CASTRO

VENDOR President

xxx

The Spouses Firme rejected this First Draft because of several

objectionable conditions, including the payment of capital gains and other
government taxes by the seller and the relocation of the squatters at the
sellers expense. During their second meeting, Aviles presented to the
Spouses Firme another draft deed of sale (Second Draft) dated March
[5]
1995. The Spouses Firme allegedly accepted the Second Draft in view of the
deletion of the objectionable conditions contained in the First Draft. According
to Aviles, the Spouses Firme were willing to sell the Property at P4,000 per
square meter. They then agreed that payment would be made at the Far East
Bank and Trust Company (FEBTC), Padre Faura Branch, Manila. However,
the scheduled payment had to be postponed due to problems in the transfer
of funds. The Spouses Firme later informed Aviles that they were no longer
interested in selling the Property.
[6]

De Castro testified that he authorized Aviles to negotiate for Bukal

Enterprises the purchase of the Property owned by the Spouses Firme. The
Property was located beside the Dahlia Commercial Complex owned by Bukal
Enterprises. Aviles informed him that the Spouses Firme agreed to sell the
Property at P4,000 per square meter, payable in cash for a lump sum
of P3,224,000. Furthermore, Bukal Enterprises agreed to pay the taxes due
and to undertake the relocation of the squatters on the Property. For this
purpose, Bukal Enterprises applied for a loan of P4,500,000 which FEBTC
granted. Bukal Enterprises then relocated the four families squatting on the
Property at a cost of P60,000 per family. After the squatters vacated the
Property, Bukal Enterprises fenced the area, covered it with filling materials,
and constructed posts and riprap. Bukal Enterprises spent
approximately P300,000 for these improvements. In a letter dated 7 March
[7]

1995, Bukal Enterprises offered to pay the purchase price of P3,224,000 to

the Spouses Firme upon execution of the transfer documents and delivery of
the owners duplicate copy of TCT No. 264243. The Spouses Firme did not
accept this offer but instead sent Bukal Enterprises a letter demanding that its
workers vacate the Property. Bukal Enterprises then filed a complaint
for specific performance and damages. [8]

Antonio Moreno, one of the alleged squatters on the Property, testified that
he constructed his house on the Property sometime in 1982. On 26 February
1995, he was summoned together with the other squatters to a meeting
with Aviles regarding their relocation. They agreed to relocate provided they
would be given financial assistance of P60,000 per family. Thus, on 6 March
1995, the squatter families were each paid P60,000 in the presence of De
Castro and Aviles. Thereafter, they voluntarily demolished their houses and
vacated the Property.[9]

Jocelyn Mapa, the manager of FEBTC, Padre Faura Branch, testified that
Bukal Enterprises has been their client since 1994. According to her, Bukal
Enterprises applied for a loan of P4,500,000 on the third week of February
1995 allegedly to buy a lot in Fairview. FEBTC approved the loan on the last
week of February and released the proceeds on the first week of March. [10]
 Antonio Ancheta (Ancheta), barangay captain of Barangay Fairview,
testified that he was present when one of the officers of Bukal Enterprises, a
certain Renato, paid each of the four squatter families around P60,000
to P100,000. Ancheta informed Dr. Constante Firme that he told the squatters
to leave considering that they already received payment for their relocation.
According to Ancheta, Dr. Constante Firme must have misunderstood him and
thought that the squatters left through Anchetas own efforts. [11]

On the other hand, Dr. Constante Firme (Dr. Firme) was the sole witness
for the defendant spouses.
Dr. Firme testified that on 30 January 1995, he and his wife met
with Aviles at the Aristocrat Restaurant in Quezon City. Aviles arranged the
meeting with the Spouses Firme involving their Property
in Fairview. Aviles offered to buy the Property at P2,500 per square
meter. The Spouses Firme did not accept the offer because they were
reserving the Property for their children. On 6 February 1995, the Spouses
Firme met again with Aviles upon the latters insistence. Aviles showed the
Spouses Firme a copy of a draft deed of sale (Third Draft) [12]

which Aviles prepared. The Third Draft of the deed of sale provides:

CONRACT OF SALE

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, executed this ___ day of February, 1995, by and between the
Spouses CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age, Filipino
citizen and with postal address at __________, Quezon City, hereinafter referred to as
the VENDORS, and BUKAL ENTERPRISES and DEVELOPMENT
CORPORATION, a corporation duly organized and registered in accordance with
Philippine Laws, with postal address at Fairview Park, Quezon City, herein
represented by its President and Chief Executive Officer, hereinafter referred to as the
VENDEE.

WITNESSETH:

That for and in consideration of the sum of THREE MILLION TWO HUNDRED
TWENTY FOUR THOUSAND PESOS (P3,224,000.00), Philippine Currency,
payable in the form hereinafter expressed, agreed to sell to the VENDEE and the
VENDEE has agreed to buy from the VENDORS, a parcel of land situated at Dahlia
Avenue corner Rolex Street, Fairview Park, Quezon City, containing an area of 806
Square Meters more or less, of which the VENDORS are the absolute registered
owners in accordance with the Land Registration Act, as evidenced by Transfer
Certificate of Title No. 264243 issued by the Register of Deeds of Quezon City, more
particularly described and bounded as follows:

(DESCRIPTION AND BOUNDARIES OF PROPERTY)

THE FURTHER TERMS AND CONDITIONS OF THE CONTRACT ARE AS

FOLLOWS:

1. The VENDEE agrees to pay the VENDORS upon execution of this Contract the sum
of ONE MILLION PESOS (P1,000,000.00), Philippine Currency, as downpayment
and agrees to pay the balance of TWO MILLION TWOHUNDRED TWENTY FOUR
THOUSAND PESOS (P2,224,000.00) at the post office address of the VENDORS in
Quezon City, or such other place or Office as the VENDORS may designate within a
period of sixty (60) days counted from the date of this Contract;
2. The VENDORS have hereunto authorized the VENDEE to mortgage the property
and submit this Contract, together with a certified true copy of the TCT, Tax
Declaration, Tax Clearance and Vicinity/Lot Plan, with their Lending Bank.The
proceeds of the VENDEES Loan shall directly be paid and remitted by the Bank to
the VENDORS;
3. The said parcel of land shall remain in the name of the VENDORS until the Lending
Bank of the VENDEE shall have issued a Letter Guaranty Payment in favor of the
VENDORS, at which time the VENDORS agree to execute a Deed of Absolute Sale
in favor of the VENDEE and cause the issuance of the Certificate of Title in the
name of the latter. The Capital Gains Tax and Documentary Stamps shall be
charged from the VENDORS in accordance with law;
4. The payment of the balance of P2,224,000.00 by the VENDEE to the
VENDORS shall be within a period of sixty (60) days effective from the date of this
Contract. After the lapse of 60 days and the loan has not yet been released due to
fortuitous events the VENDEE shall pay an interest of the balance a monthly interest
based on existing bank rate until said fortuitous event is no longer present;
5. The VENDEE shall remove and relocate the Squatters, however, such actual,
reasonable and necessary expenses shall be charged to the VENDORS upon
presentation of receipts and documents to support the act;
6. The VENDEE shall be allowed for all legal purposes to take possession of the parcel
of land after the execution of this Contract and payment of the downpayment;
7. The VENDEE shall shoulder all expenses like the documentation, registration,
transfer tax and relocation of the property.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of
February, 1995, at Quezon City, Philippines.

CONSTANTE E. FIRME BUKAL ENTERPRISES DEV. CORP.

VENDOR VENDEE
AZUCENA E. FIRME BY:
 VENDOR ________________________
President & Chief Executive Officer

xxx
The Spouses Firme did not accept the Third Draft because they found its
provisions one-sided. The Spouses Firme particularly opposed the provision
on the delivery of the Propertys title to Bukal Enterprises for the latter to obtain
a loan from the bank and use the proceeds to pay for the Property. The
Spouses Firme repeatedly told Aviles that the Property was not for sale
when Aviles called on 2 and 4 March 1995 regarding the Property. On 6
March 1995, the Spouses Firme visited their Property and discovered that
there was a hollow block fence on one side, concrete posts on another side
and bunkers occupied by workers of a certain Florante de Castro. On 11
March 1995, Spouses Firme visited the Property again with a surveyor. Dr.
Firme talked with Ancheta who told him that the squatters had voluntarily
demolished their shanties. The Spouses Firme sent a letter dated 20 March
[13]

1995 to Bukal Enterprises demanding removal of the bunkers and vacation by

the occupants of the Property. On 22 March 1995, the
Spouses Firme received a letter dated 7 March 1995 from Bukal Enterprises
[14]

demanding that they sell the Property. [15]

On 7 August 1998, the trial court rendered judgment against Bukal

Enterprises as follows:

WHEREFORE, in the light of the foregoing premises, the above-entitled case [is]
hereby DISMISSED and plaintiff BUKAL ENTERPRISES DEVELOPMENT
CORPORATION is hereby ordered to pay the defendants Spouses Constante and
Azucena Firme:

1. the sum of Three Hundred Thirty Five Thousand Nine Hundred Sixty Four
and 90/100 (P335,964.90) as and by way of actual and compensatory
damages;

2. the sum of Five Hundred Thousand Pesos (P500,000.00) as and by way of

moral damages;

3. the sum of One Hundred Thousand Pesos (P100,000.00) as and by way of

attorneys fees; and

4. the costs of the suit.

SO ORDERED. [16]
 Bukal Enterprises appealed to the Court of Appeals, which reversed and
set aside the decision of the trial court. The dispositive portion of the decision
reads:

WHEREFORE, premises considered, the Decision, dated August 7, 1998, is hereby

REVERSED and SET ASIDE. The complaint is granted and the appellees are directed
to henceforth execute the Deed of Absolute Sale transferring the ownership of the
subject property to the appellant immediately upon receipt of the purchase price
of P3,224,000.00 and to perform all such acts necessary and proper to effect the
transfer of the property covered by TCT No. 264243 to appellant. Appellant is
directed to deliver the payment of the purchase price of the property within sixty days
from the finality of this judgment. Costs against appellees.

SO ORDERED. [17]

Hence, the instant petition.

The Ruling of the Trial Court

The trial court held there was no perfected contract of sale. Bukal
Enterprises failed to establish that the Spouses Firme gave their consent to
the sale of the Property. The parties did not go beyond the negotiation stage
and there was no evidence of meeting of the minds between the
parties. Furthermore, Aviles had no valid authority to bind Bukal Enterprises in
the sale transaction. Under Sections 23 and 36 (No. 7) of the Corporation
Code, the corporate power to purchase a specific property is exercised by the
Board of Directors of the corporation. Without an authorization from the Board
of Directors, Aviles could not validly finalize the purchase of the Property on
behalf of Bukal Enterprises. There is no basis to apply the Statute of Frauds
since there was no perfected contract of sale.

The Ruling of the Court of Appeals

The Court of Appeals held that the lack of a board resolution

authorizing Aviles to act on behalf of Bukal Enterprises in the purchase of the
Property was cured by ratification. Bukal Enterprises ratified the purchase
when it filed the complaint for the enforcement of the sale.
The Court of Appeals also held there was a perfected contract of sale. The
appellate court ruled that the Spouses Firme revealed their intent to sell the
Property when they met with Aviles twice. The Spouses Firme rejected the
First Draft because they considered the terms unacceptable.
When Aviles presented the Second Draft without the objectionable provisions,
the Spouses Firme no longer had any cause for refusing to sell the
Property. On the other hand, the acts of Bukal Enterprises in fencing the
Property, constructing posts, relocating the squatters and obtaining a loan to
purchase the Property are circumstances supporting their claim that there was
a perfected contract of sale.
The Spouses Firme allowed Bukal Enterprises to exercise acts of
ownership over the Property when the latter introduced improvements on the
Property and evicted the squatters. These acts constitute partial performance
of the contract of sale that takes the oral contract out of the scope of the
Statute of Frauds.

The Issues

The Spouses Firme raise the following issues:

1. WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT THERE WAS A
PERFECTED CONTRACT OF SALE BETWEEN PETITIONERS AND
RESPONDENT DESPITE THE ADDUCED EVIDENCE PATENTLY TO THE
CONTRARY;
2. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE
ALLEGED CONTRACT OF SALE IS ENFORCEABLE DESPITE THE FACT THAT
THE SAME IS COVERED BY THE STATUTE OF FRAUDS;
3. WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THE FACT
THAT IT WAS NOT LEGALLY AND FACTUALLY POSSIBLE FOR RESPONDENT
TO PERFECT A CONTRACT OF SALE; AND
4. THE COURT OF APPEALS ERRED IN RULING THAT THE AWARD BY THE TRIAL
COURT OF MORAL AND COMPENSATORY DAMAGES TO PETITIONERS IS
IMPROPER.[18]

The Ruling of the Court

The petition is meritorious.

The fundamental question for resolution is whether there was a perfected
contract of sale between the Spouses Firme and Bukal Enterprises. This
requires a review of the factual and legal issues of this case. As a rule, only
questions of law are appealable to this Court under Rule 45 of the Rules of
[19]
Civil Procedure. The findings of fact by the Court of Appeals are generally
conclusive and binding on the parties and are not reviewable by this Court.
However, when the factual findings of the Court of Appeals are contrary to
[20]

those of the trial court or when the inference made is manifestly mistaken, this
Court has the authority to review the findings of fact. Likewise, this Court
[21]

may review findings of fact when the judgment of the Court of Appeals is
premised on a misapprehension of facts. This is the situation in this case.
[22]

Whether there was a perfected contract of sale

We agree with the finding of the trial court that there was no perfected
contract of sale. Clearly, the Court of Appeals misapprehended the facts of the
case in ruling otherwise.
First, the records indubitably show that there was no consent on the part
of the Spouses Firme. Aviles did not present any draft deed of sale during his
first meeting with the Spouses Firme on 30 January 1995. Dr. Firmewas
[23]

consistent in his testimony that he and his wife rejected the provisions of the
Third Draft presented by Aviles during their second meeting on 6 February
1995. The Spouses Firme found the terms and conditions unacceptable and
told Aviles that they would not sell the property. Aviles showed them only one
[24]

draft deed of sale (Third Draft) during their second and last meeting on 6
February 1995. When shown a copy of the First Draft, Dr. Firme testified that
[25]

it was not the deed of sale shown to them by Aviles during their second
meeting and that the Third Draft was completely different from the First Draft.
[26]

[27]

On the other hand, Aviles gave conflicting testimony as to what transpired

during the two meetings with the Spouses Firme. In his direct
examination, Aviles testified that during his first meeting with the
Spouses Firme on 23 January 1995, he showed them the First Draft which the
Spouses Firme rejected. On their second meeting, Aviles showed the
[28]

Spouses Firme the Second Draft, which the Spouses Firme allegedly
approved because the objectionable conditions contained in the First Draft
were already deleted. However, a perusal of the First Draft and the Second
Draft would show that both deeds of sale contain exactly the same provisions.
The only difference is that the date of the First Draft is February 1995 while
that of the Second Draft is March 1995.
When Aviles testified again as rebuttal witness, his testimony became
more confusing. Aviles testified that during his first meeting with the Spouses
Firme on 30 January 1995, he showed them the Third Draft, which was not
acceptable to the latter. However, upon further questioning by his
[29]

counsel, Aviles concurred with Dr. Firmes testimony that he presented the
Third Draft (Exh. 5; Exh. L) to the Spouses Firme only during their second
meeting. He also stated that he prepared and presented to the Spouses Firme
the First Draft (Exh. C) and the Second Draft (Exh. C-1) during their first or
second meeting. He testified:
ATTY. MARQUEDA:
Q: On page 11 of the tsn dated August 5, 1997 a question was posed How did you find
this draft the Contract of Sale which was presented to you by Mr. Aviles on the
second meeting? The answer is On the first meeting(sic), we find it totally
unacceptable, sir.[30] What can you say on this? Before that, Mr. Witness, what is
this Contract of Sale that you presented to Mr. Aviles on the second meeting? Is
this different from the Contract of Sale that was marked as Exhibit 5-L?
Q: May I see the document Exhibit 5 L?[31]
INTERPRETER:
Witness going over the record.
ATTY. MARQUEDA:
Q: Is that the same document that was presented by you to Mr. Firme on the
second meeting or there is a different contract?
A: This is the same document draft of the document that I submitted to them
during our second meeting. That was February. This was the draft.
Q: What about Exhibit C and C-1 [which] were identified by you. When was this
presented to Dr. Firme?
A: This is the same.
Q: Exhibit C and C-1?
A: Yes because I prepared two documents during our meeting. One already with
notarial, the one without notarial page and the other one with notarial page
already, so I prepared two documents but with the same contents both were dated
February of 1995.[32]
Q: So, you are referring now to Exhibit C and C-1 for the plaintiff?
A: C-1 is already in the final form because we agreed already as to the date of the
payment, so I prepared already another document which is dated March 1995.
[33]
(Emphasis supplied)

In his cross-examination, Aviles again changed his testimony. According to

him, he presented the Third Draft to the Spouses Firme during their first
meeting. However, when he went over the records, he again changed his
[34]

answer and stated that he presented the Third Draft during their second
meeting. [35]
 In his re-direct examination, Aviles gave another version of what he
presented to the Spouses Firme during the two meetings. According to him,
he presented the Third Draft during the first meeting. On their second meeting,
he presented the First and the Second Drafts to the Spouses Firme. [36]

Furthermore, Aviles admitted that the first proposal of Bukal Enterprises

was at P2,500 per square meter for the Property. But the First, Second and
[37]

Third Drafts of the deed of sale prepared by Aviles all indicated a purchase
price of P4,000 per square meter or a lump sum of P3,224,000 (P4,000 per
sq.m. x 806 sq.m. = P3,224,000) for the Property. Hence, Aviles could not
have presented any of these draft deeds of sale to the Spouses Firme during
their first meeting.
Considering the glaring inconsistencies in Aviles testimony, it was proper
for the trial court to give more credence to the testimony of Dr. Firme.
Even after the two meetings with Aviles, the Spouses Firme were firm in
their decision not to sell the Property. Aviles called the Spouses Firme twice
after their last meeting. The Spouses Firme informed Aviles that they were not
selling the Property. Aviles himself admitted this during his testimony, thus:
[38]

Q. Now, the next question which states: But did you not have any occasion to talk to
him after that second meeting? and the answer of Dr. Firme is He called up a
month after, thats March 2, 1995. What can you say on this?
A. I called him to inform him that the loan was already transferred from Makati to Padre
Faura Branch of the Far East Bank, so I scheduled already the payment of their
property.
Q. When?
A. On March 4, 1995.
Q. And then the next question which also states: What did you talked (sic) about over
the telephone? The answer of Dr. Firme was When I found out that he was calling,
I told him that the property is not for sale. What can you say on this?
A. He mentioned that they are no longer interested to sell their property, perhaps
they would like a higher price of the property. They did not mention to me. I do not
know what was their reason.
Q. The next question So, what happened next? The answer is He called up two days
later, March 4 and my wife answered the telephone and told him that the property
is not for sale, sir. What can you say on this?
A. That is true. That is what Mrs. Firme told me during our conversation on the
telephone that they are no longer interested to sell the property for obvious
reason.
Q. When was that?
A. March 4, 1995, your honor.[39] (Emphasis supplied)
 Significantly, De Castro also admitted that he was aware of the
Spouses Firmes refusal to sell the Property. [40]

The confusing testimony of Aviles taken together with De Castros

admission that he was aware of the Spouses Firmes refusal to sell the
Property reinforces Dr. Firmes testimony that he and his wife never consented
to sell the Property.
Consent is one of the essential elements of a valid contract. The Civil
Code provides:

Art. 1318. There is no contract unless the following requisites concur:

1. Consent of the contracting parties;

2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.

The absence of any of these essential elements will negate the existence
of a perfected contract of sale. Thus, where there is want of consent, the
[41]

contract is non-existent. As held in Salonga, et al. v. Farrales, et al.:

[42] [43]

It is elementary that consent is an essential element for the existence of a contract, and
where it is wanting, the contract is non-existent. The essence of consent is the
conformity of the parties on the terms of the contract, the acceptance by one of the
offer made by the other. The contract to sell is a bilateral contract. Where there is
merely an offer by one party, without the acceptance of the other, there is no consent.
(Emphasis supplied)

In this case, the Spouses Firme flatly rejected the offer of Aviles to buy the
Property on behalf of Bukal Enterprises. There was therefore no concurrence
of the offer and the acceptance on the subject matter, consideration and terms
of payment as would result in a perfected contract of sale. Under Article 1475
[44]

of the Civil Code, the contract of sale is perfected at the moment there is a
meeting of minds on the thing which is the object of the contract and on the
price.
Another piece of evidence which supports the contention of the
Spouses Firme that they did not consent to the contract of sale is the fact they
never signed any deed of sale. If the Spouses Firme were already agreeable
to the offer of Bukal Enterprises as embodied in the Second Draft, then the
Spouses Firme could have simply affixed their signatures on the deed of sale,
but they did not.
 Even the existence of a signed document purporting to be a contract of
sale does not preclude a finding that the contract is invalid when the evidence
shows that there was no meeting of the minds between the seller and buyer.
In this case, what were offered in evidence were mere unsigned deeds of
[45]

sale which have no probative value. Bukal Enterprises failed to show the
[46]

existence of a perfected contract of sale by competent proof.

Second, there was no approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the Spouses
Firme. Aviles did not have the proper authority to negotiate for Bukal
Enterprises. Avilestestified that his friend, De Castro, had asked him to
negotiate with the Spouses Firme to buy the Property. De Castro, as Bukal
[47]

Enterprises vice president, testified that he authorized Aviles to buy the

Property. However, there is no Board Resolution authorizing Aviles to
[48]

negotiate and purchase the Property on behalf of Bukal Enterprises. [49]

It is the board of directors or trustees which exercises almost all the

corporate powers in a corporation. Thus, the Corporation Code provides:

SEC. 23. The board of directors or trustees. Unless otherwise provided in this Code,
the corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders of stock, or where
there is no stock, from among the members of the corporation, who shall hold office
for one (1) year and until their successors are elected and qualified. x x x

SEC. 36. Corporate powers and capacity. Every corporation incorporated under this
Code has the power and capacity:
xxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property, including
securities and bonds of other corporations, as the transaction of a lawful
business of the corporation may reasonably and necessarily require, subject to
the limitations prescribed by the law and the Constitution.
xxx

Under these provisions, the power to purchase real property is vested in

the board of directors or trustees. While a corporation may appoint agents to
negotiate for the purchase of real property needed by the corporation, the final
say will have to be with the board, whose approval will finalize the transaction.
A corporation can only exercise its powers and transact its business through
[50]

its board of directors and through its officers and agents when authorized by a
board resolution or its by-laws. As held in AF Realty & Development, Inc.
[51]

v. Dieselman Freight Services, Co.: [52]

Section 23 of the Corporation Code expressly provides that the corporate powers of
all corporations shall be exercised by the board of directors. Just as a natural person
may authorize another to do certain acts in his behalf, so may the board of directors of
a corporation validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board. Absent
such valid delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not in the course
of, or connected with, the performance of authorized duties of such director, are
held not binding on the corporation. (Emphasis supplied)

In this case, Aviles, who negotiated the purchase of the Property, is neither
an officer of Bukal Enterprises nor a member of the Board of Directors of
Bukal Enterprises. There is no Board Resolution authorizing Aviles to
negotiate and purchase the Property for Bukal Enterprises. There is also no
evidence to prove that Bukal Enterprises approved whatever
transaction Aviles made with the Spouses Firme. In fact, the president of
Bukal Enterprises did not sign any of the deeds of sale presented to the
Spouses Firme. Even De Castro admitted that he had never met the
Spouses Firme. Considering all these circumstances, it is highly improbable
[53]

for Aviles to finalize any contract of sale with the Spouses Firme.
Furthermore, the Court notes that in the Complaint filed by Bukal
Enterprises with the trial court, Aviles signed the verification and certification
[54]

of non-forum shopping. The verification and certification of non-forum

[55]

shopping was not accompanied by proof that Bukal Enterprises

authorized Aviles to file the complaint on behalf of Bukal Enterprises.
The power of a corporation to sue and be sued is exercised by the board
of directors. The physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly authorized for the
purpose by corporate by-laws or by a specific act of the board of directors. [56]

The purpose of verification is to secure an assurance that the allegations

in the pleading are true and correct and that it is filed in good faith. True, this
[57]

requirement is procedural and not jurisdictional. However, the trial court

should have ordered the correction of the complaint since Aviles was neither
an officer of Bukal Enterprises nor authorized by its Board of Directors to act
on behalf of Bukal Enterprises.
 Whether the Statute of Frauds is applicable

The Court of Appeals held that partial performance of the contract of sale
takes the oral contract out of the scope of the Statute of Frauds. This
conclusion arose from the appellate courts erroneous finding that there was a
perfected contract of sale. The records show that there was no perfected
contract of sale. There is therefore no basis for the application of the Statute
of Frauds. The application of the Statute of Frauds presupposes the existence
of a perfected contract. Article 1403 of the Civil Code provides:
[58]

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;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing and subscribed
by the party charged or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:

xxx

(e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;

xxx

Whether Bukal Enterprises is a builder in good faith

Bukal Enterprises is not a builder in good faith. The Spouses Firme did not
accept Aviles offer to purchase the Property. Aviles testified that when he
called the Spouses Firme on 2 March 1995, Dr. Firme informed him that they
were no longer interested in selling the Property. On 4 March
1995, Aviles called again and this time Mrs. Firme told him that they were not
selling the Property. Aviles informed De Castro of the refusal of the
Spouses Firme to sell the Property. However, Bukal Enterprises still
proceeded in relocating the squatters and constructing improvements on the
Property. De Castro testified:
ATTY. EJERCITO:
Q: The truth of the matter, Mr. Witness, is that the post was constructed sometime late
1994. Is that not correct?
A: No, sir. It is not true.
Q: When was it constructed?
A: That March.
Q: When in March?
A: 1995.
Q: When in March 1995?
A: From the period of March 2, 1995 or two (2) weeks after the removal of the
squatters.
Q: When were the squatters removed?
WITNESS:
A: March 6 and 7 because there were four (4) squatters.
ATTY. EJERCITO:
Q: When did you find out that the Spouses Firme did not want to sell the same?
A: First week of March 1995.
Q: In your Complaint you said you find out on March 3, 1995. Is that not correct?
A: I cannot exactly remember, sir.
ATTY. MARQUEDA:
In the Complaint it does not state March 3. Maybe counsel was thinking of this
Paragraph 6 which states, When the property was rid of the squatters on March 2,
1995 for the documentation and payment of the sale, xxx.
ATTY. EJERCITO:
Q: So, you found out on March 2, 1995 that the defendants were no longer
interested in selling to you the property. Is that correct?
A: Yes, sir, because Mr. Aviles relayed it to me.
Q: Mr. Aviles relayed to you that the Spouses Firme were no longer interested in
selling to you the property in March 2, 1995. Is that correct?
A: Yes, sir. Mr. Aviles told me.
Q: In so many words, Mr. Witness, you learned that the Spouses Firme were no
longer interested in selling the property before you spent allegedly all the
sum of money for the relocation of squatters for all this construction that
you are telling this Court now?
WITNESS:
A: The refusal to sell is not yet formal and the lawyer sent a letter tendering full
payment of the purchase price.
 ATTY. EJERCITO:
Q: You mean to say that you did not believe Mr. Aviles when he told you that the
Spouses Firme were no longer selling the property?
A: No, sir.
Q: Was there anything formal when you say the Spouses Firme agreed to sell the
property?
A: None, sir.
Q: And yet that time you believe Mr. Aviles when he verbally told you that the
Sps. Firme agreed to sell the property? At what point of the transaction with
the Spouses Firme were you advised by your lawyer?
WITNESS:
A: At the time when they refused to sell the lot.
ATTY. EJERCITO:
Q: Was that before the squatters were relocated allegedly by Bukal Enterprises?
A: Yes, sir.
Q: In fact, it was the lawyer who advised you to relocate the squatters. Is it not true?
A: No, sir.[59] (Emphasis supplied)

Bukal Enterprises is obviously a builder in bad faith. No deed of sale has

been executed in this case. Despite the refusal of the Spouses Firme to sell
the Property, Bukal Enterprises still proceeded to introduce improvements on
the Property. Bukal Enterprises introduced improvements on the Property
without the knowledge and consent of the Spouses Firme. When the
Spouses Firme learned about the unauthorized constructions made by Bukal
Enterprises on the Property, they advised the latter to desist from further acts
of trespass on their Property. [60]

The Civil Code provides:

Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what
is built, planted or sown without right of indemnity.

Art. 450. The owner of the land on which anything has been built, planted or sown in
bad faith may demand the demolition of the work, or that the planting or sowing be
removed, in order to replace things in their former condition at the expense of the
person who built, planted or sowed; or he may compel the builder or planter to pay the
price of the land, and the owner the proper rent.

Under these provisions the Spouses Firme have the following options: (1)
to appropriate what Bukal Enterprises has built without any obligation to pay
indemnity; (2) to ask Bukal Enterprises to remove what it has built; or (3) to
compel Bukal Enterprises to pay the value of the land. Since the [61]

Spouses Firme are undoubtedly not selling the Property to Bukal Enterprises,
they may exercise any of the first two options. They may appropriate what has
been built without paying indemnity or they may ask Bukal Enterprises to
remove what it has built at Bukal Enterprises own expense.
Bukal Enterprises is not entitled to reimbursement for the expenses
incurred in relocating the squatters. Bukal Enterprises spent for the relocation
of the squatters even after learning that the Spouses Firme were no longer
interested in selling the Property. De Castro testified that even though the
Spouses Firme did not require them to remove the squatters, they chose to
spend for the relocation of the squatters since they were interested in
purchasing the Property. [62]

Whether the Spouses Firme are entitled to

compensatory and moral damages

The Court agrees with the Court of Appeals to delete the award for
compensatory and moral damages. In awarding actual damages, the trial
court took into account the traveling expenses incurred by the
Spouses Firme who are already residing in the United States. However, the
trial court failed to consider the testimony of Dr. Firme that they normally travel
to the Philippines more than once a year to visit their children. Thus, the [63]

expenses for the roundtrip tickets dated 1996-1997 could not be attributed
solely for the attendance of hearings in the case.
Nevertheless, an award of nominal damages of P30,000 is warranted
since Bukal Enterprises violated the property rights of the Spouses Firme.
The Civil Code provides:
[64]

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered
by him.

Art. 2222. The court may award nominal damages in every obligation arising from
any source enumerated in article 1157, or in every case where any property right has
been invaded.
 The award of damages is also in accordance with Article 451 of the Civil
Code which states that the landowner is entitled to damages from the builder
in bad faith.[65]

WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and

RENDER a new one:

1. Declaring that there was no perfected contract of sale;

2. Ordering Bukal Enterprises to pay the Spouses Firme P30,000 as nominal

damages.

SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Azcuna, JJ., concur.
Ynares-Santiago, J., on official leave.

LYDIA SUMIPAT, LAURITO SUMIPAT, ALEJANDRO SUMIPAT, ALICIA

SUMIPAT, and LIRAFE SUMIPAT, petitioners, vs. BRIGIDO
BANGA, HERMINIGILDO TABOTABO, VIVIANO TABOTABO,
BERNARDITA ANION, and LEONIDA TABOTABO, respondents.

DECISION

TINGA, J.:

This is a Petition for Review on Certiorari of the Decision of the Court of

[1] [2]

Appeals which reversed and set aside the decision of the Regional Trial
[3]

Court (RTC) and partially annulled the Deed of Absolute Transfer and/or
Quitclaim (the deed) subject of this case.

We quote the appellate courts findings of fact:

The spouses Placida Tabo-tabo and Lauro Sumipat, who contracted marriage on July
20, 1939, acquired three parcels of land two of which were covered by Original
Certificate of Title No. P-17842 and Transfer Certificate of Title No. T-15826.

The couple was childless.

Lauro Sumipat, however, sired five illegitimate children out of an extra-marital affair
with Pedra Dacola, namely: herein defendants-appellees Lydia, Laurito, Alicia,
Alejandro and Lirafe, all surnamed Sumipat.

On January 5, 1983, Lauro Sumipat executed a document denominated DEED OF

ABSOLUTE TRANSFER AND/OR QUIT-CLAIM OVER REAL PROPERTIES (the
assailed document) in favor of defendants-appellees covering the three parcels of land
(the properties). On the document appears the signature of his wife Placida which
indicates that she gave her marital consent thereto.

It appears that on January 5, 1983 when the assailed document was executed, Lauro
Sumipat was already very sick and bedridden; that upon defendant-appellee Lydias
request, their neighbor Benjamin Rivera lifted the body of Lauro Sumipat whereupon
Lydia guided his (Lauro Sumipats) hand in affixing his signature on the assailed
document which she had brought; that Lydia thereafter left but later returned on the
same day and requested Lauros unlettered wife Placida to sign on the assailed
document, as she did in haste, even without the latter getting a responsive answer to
her query on what it was all about.

After Lauro Sumipats death on January 30, 1984, his wife Placida, hereinafter referred
to as plaintiff-appellant, and defendants-appellees jointly administered the properties
50% of the produce of which went to plaintiff-appellant.

As plaintiff-appellants share in the produce of the properties dwindled until she no

longer received any and learning that the titles to the properties in question were
already transferred/made in favor of the defendants-appellees, she filed a complaint
for declaration of nullity of titles, contracts, partition, recovery of ownership now the
subject of the present appeal.

Defendant-appellee Lydia disclaims participation in the execution of the assailed

document, she claiming to have acquired knowledge of its existence only on January
10, 1983 or five days after its execution when Lauro Sumipat gave the same to her.

Branch 6 of the Regional Trial Court of Dipolog City decided the case in favor of
defendants-appellees, it holding that by virtue of the assailed document the due
execution of which was not contested by plaintiff-appellant, the properties were
absolutely transferred to defendants-appellees. [4]
 The trial court found that the subject properties are conjugal having been
acquired during the marriage of Lauro Sumipat and Placida Tabotabo
(Placida). However, because Placida failed to question the genuineness and
due execution of the deed and even admitted having affixed her signature
thereon, the trial court declared that the entirety of the subject properties, and
not just Lauro Sumipats conjugal share, were validly transferred to the
defendants, the petitioners herein.[5]

On appeal, the appellate court held that since Placida was unlettered,
[6]

the appellees, the petitioners herein, as the parties interested in enforcing

[7]

the deed, have the burden of proving that the terms thereof were fully
explained to her. This they failed to do.
[8]

Under the Civil Code, a contract where consent is given through mistake,
violence, intimidation, undue influence or fraud is voidable. In order that
[9]

mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract.[10]

The appellate court found that Placida did not understand the full import of
the deed because the terms thereof were not explained to her either by the
petitioners or by the notary public before whom the deed was acknowledged.
According to the appellate court, Judge Pacifico Garcia (Judge Garcia), before
whom the deed was acknowledged, did not identify Placida as having
appeared before him on January 5, 1983 to acknowledge the deed.
The jurat indicates that it was only Lauro Sumipat who appeared before Judge
Garcia and to whom he explained the contents of the deed. Further, the
appellate court noted that Judge Garcia himself was under the impression that
the deed conveyed the exclusive properties of Lauro Sumipat. Hence, he
could not have explained to Placida that the deed actually transferred the
conjugal properties of Lauro Sumipat and Placida. [11]

The Court of Appeals, therefore, annulled the deed insofar as it covers

Placidas conjugal share in the subject properties because the latters consent
thereto was vitiated by mistake when she affixed her signature on the
document.
 The petitioners filed a Motion for Reconsideration on the grounds of
estoppel, absence of fraud and prescription. The appellate court denied
the Motion for Reconsideration in its Resolution dated October 16, 2002
[12]

ruling that the grounds relied upon have been addressed in its Decision dated
April 11, 2002. Anent the ground of prescription, the appellate court held that
since the properties were acquired through fraud or mistake, the petitioners
are considered trustees of an implied trust for the benefit of Placida. Citing
jurisprudence, the Court of Appeals ruled that actions based on implied or
[13]

constructive trust prescribe 10 years from the issuance of a Torrens Title over
the property. Since two (2) of the subject properties were issued Transfer
Certificates of Title (TCT) Numbered T-40037 and T-40038 under the
[14] [15]

petitioners names on August 18, 1987, the Complaint for declaration of nullity
of titles, partition, recovery of ownership and possession, reconveyance,
accounting and damages, which was filed on March 3, 1993, was filed well
within the prescriptive period.

The petitioners are now before this Court principally claiming that Placida
freely consented to the execution of the deed and that they did not commit
fraudulent acts in connection with its execution. They also reiterate their
argument that the Court of Appeals should have dismissed the case on the
ground of prescription. It is their contention that the present action being one
to annul a contract on the ground of fraud, it should have been filed within four
(4) years from the discovery of fraud or registration of the instrument with the
Registry of Deeds.

The respondents filed their Comment dated February 7, 2003, essentially

[16]

echoing the findings of the Court of Appeals on the matter of Placidas

consent. According to them, Placida was deceived and misled into affixing her
signature on the deed. They further claim that Placida did not actually appear
before the notary public to acknowledge the instrument.

In their Reply dated April 29, 2003, the petitioners insist that Placida was
[17]

not illiterate and that Lauro Sumipat validly transferred the titles over the
properties in question to them. They also argue that if Placida did not
understand the import of the deed, she could have questioned Lauro Sumipat
about it since the deed was executed a year before the latter died.
 The trial court and the Court of Appeals are in agreement that the subject
properties are conjugal, having been acquired during the marriage of Lauro
Sumipat and Placida. They came out, however, with disparate denouements.
While the trial court upheld the validity of the deed as an instrument of transfer
of all the litigated parcels of land in their entirety on the ground that Placida
failed to question its authenticity and due execution, the appellate court struck
the deed down insofar as the conjugal share of Placida is concerned based on
its finding that her consent was vitiated by mistake.

At bottom, the crux of the controversy is whether the questioned deed by

its terms or under the surrounding circumstances has validly transferred title
to the disputed properties to the petitioners.

A perusal of the deed reveals that it is actually a gratuitous disposition of

property a donation although Lauro Sumipat imposed upon the petitioners the
condition that he and his wife, Placida, shall be entitled to one-half (1/2) of all
the fruits or produce of the parcels of land for their subsistence and support.
The preliminary clauses of the deed read:

That conscious of my advanced age and failing health, I feel that I am not capable
anymore of attending to and maintaining and keeping in continuous cultivation my
above described properties;

That my children are all desirous of taking over the task of maintaining my properties
and have demonstrated since childhood the needed industry and hard work as they
have in fact established possession over my real properties and introduced more
improvements over my lands, the fruit of which through their concerted efforts and
labors, I myself and my family have enjoyed;

That it would be to the best interest of my above mentioned children that the
ownership over my above described properties be transferred in their names, thereby
encouraging them more in developing the lands to its fullest productivity.
[18]

The deed covers three (3) parcels of land. Being a donation of

[19]

immovable property, the requirements for validity set forth in Article 749 of the
Civil Code should have been followed, viz:
Art. 749. In order that the donation of the immovable may be valid, it must be made in
a public document, specifying therein the property donated and the value of the
charges which the donee must satisfy.

The acceptance may be made in the same deed of donation or in a separate public
document, but it shall not take effect unless it is done during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be notified thereof
in an authentic form, and this step shall be noted in both instruments.

Title to immovable property does not pass from the donor to the donee by
virtue of a deed of donation until and unless it has been accepted in a public
instrument and the donor duly notified thereof. The acceptance may be made
in the very same instrument of donation. If the acceptance does not appear in
the same document, it must be made in another. Where the deed of donation
fails to show the acceptance, or where the formal notice of the acceptance,
made in a separate instrument, is either not given to the donor or else not
noted in the deed of donation and in the separate acceptance, the donation is
null and void. [20]

In this case, the donees acceptance of the donation is not manifested

either in the deed itself or in a separate document. Hence, the deed as an
instrument of donation is patently void.

We also note the absence of any proof of filing of the necessary return,
payment of donors taxes on the transfer, or exemption from payment thereof.
Under the National Internal Revenue Code of 1977, the tax code in force at
the time of the execution of the deed, an individual who makes any transfer by
gift shall make a return and file the same within 30 days after the date the gift
is made with the Revenue District Officer, Collection Agent or duly authorized
Treasurer of the municipality in which the donor was domiciled at the time of
the transfer. The filing of the return and payment of donors taxes are
[21]

mandatory. In fact, the registrar of deeds is mandated not to register in the

registry of property any document transferring real property by way of
gifts inter vivos unless a certification that the taxes fixed and actually due on
the transfer had been paid or that the transaction is tax exempt from the
Commissioner of Internal Revenue, in either case, is presented. [22]
 Neither can we give effect to the deed as a sale, barter or any other
onerous conveyance, in the absence of valid cause or consideration and
consent competently and validly given. While it is true that the appellate
[23]

court found Placidas consent to have been vitiated by mistake, her testimony
on the matter actually makes out a case of total absence of consent, not
merely vitiation thereof. She testified in this regard, thus:

Q- What have you been doing on that day on January 5, 1983?

A- I was at home boiling water.

Q- While you were boiling water in the house, at that time who arrived, if there was
any?

A- Lydia Sumipat arrived.

Court:-(To the witness)

Q- Who is this Lydia Sumipat?

A- The daughter of my husband with his paramour.

Q- How old was she?

A- I did not know if she was already 30 years old at that time because he was born in
1950.

Atty. Legorio:-(To the witness)

Q- When you said Lydia Sumipat, you are referring to one of the defendants in this
case?

A- Yes, sir. She is the one.

Q- This Lydia Sumipat you are referring to as one of the principal defendant and
daughter of your husband with his paramour, in January, 1983 what was her
educational attainment, if you know?

A- She has already finished schooling.

Q- Do you know what she obtained?

A- Teacher.
 Q- You said she arrived in the afternoon of January 5, 1983 in your house while you
were boiling water. What did she do when she arrived there?

A- She brought with her a paper.

Q- What did she say to you?

A- She told me to sign that paper immediately because there is the witness waiting and
so I asked from her what was that paper I am going to sign. I asked her because I
am unlettered but she said never mind just sign this immediately.

Q- By the way, what is your highest educational attainment?

A- I have never gone to school.

Q- Do you know how to read or to write?

A- I know how to write only my name.

Q- You know how to write your name only?

A- Yes, sir.

Q- You said she told you to sign that piece of paper and you asked her what was that
and she told you you just sign that, what did you do then?

A- She was in a hurry to let me sign that document so I signed it without knowing what
was that.

Q- Did she tell you that piece of paper was a document wherein the land including your
land in Siayan were to be given to them?

A- I did not give my land.[24]

During cross-examination, Placida again denied any knowledge of the

nature of the deed:

q You are aware that the titles over these lots had already been transferred in the name
of the defendants?

a They surreptitiously transferred the title in their names, I do not know about it.

q You mean to say you signed a document transferring them in their names?
 a There was a piece of paper brought to me to be signed by Lydia; I asked whats all
about but she did not tell me; I was forced to sign considering that according to her
somebody was waiting for it.

q What do you mean that you are force to sign?

a She told me to sign that paper immediately because there is a witness waiting that
paper but she was alone when she came to me.

q So you signed that paper?

a I signed it because she was in a hurry.

q That was done during the lifetime of your husband?

a Yes, sir.

q And your husband also signed that paper?

a I do not know because I have not seen my husband signed, Lydia only came to me to
let me sign that paper.

q Is it not a fact that you and your husband were brought before the office of Judge
Pacifico Garcia of Manukan, and in the office you signed that document?

a I have not gone to the Municipal building of Manukan and I do not know Judge
Garcia.

q But what you know now that the titles are transferred in the name of the defendants?

a It was Lydia who caused the transfer of the titles in their names.

q And you know that fact when you signed that paper?

a At the time I signed the paper, I do not know yet that the title would be transferred, it
was only at the time when I requested my niece to follow it up because according
to them I am no longer entitled to the land.[25]

In Baranda v. Baranda, this Court declared that the deeds of sale

[26]

questioned therein are not merely voidable (as intimated by the plaintiffs
themselves in their complaint for annulment of the deeds and reconveyance of
the lots) but null and void ab initio as the supposed seller declared under oath
that she signed the deeds without knowing what they were. The significant
circumstance meant, the Court added, that her consent was not merely
marred by vices of consent so as to make the contracts voidable, but that she
had not given her consent at all.

Parenthetically, as Placidas Complaint is entitled Declaration of Nullity of

Titles; Contracts; Partition, Recovery of Ownership and Possession;
Reconveyance; Accounting and Damages with Prayer for Preliminary
Injunction and Receivership, the validity of the deed was directly assailed, but
its absolute nullity was not specifically raised as an issue. Nevertheless, both
the RTC and the appellate court took the cue from Placidas theory that the
deed is merely voidable as regards her conjugal share of the properties.
However, since the real issue is whether the questioned deed has validly
transferred ownership of the litigated properties, it is appropriate for the Court
to inquire into the form of the deed and the existence of valid consent thereto
to ascertain the validity or nullity of the deed.

From the substantive and procedural standpoints, the objectives to

write finis to a protracted litigation and avoid multiplicity of suits are worth
pursuing at all times. Conformably, we have ruled in a number of cases that
an appellate court is accorded broad discretionary power to consider even
errors not assigned. We have applied this tenet, albeit as a matter of
exception, in the following instances: (1) grounds not assigned as errors but
affecting jurisdiction over the subject matter; (2) matters not assigned as
errors on appeal but are evidently plain or clerical errors within contemplation
of law; (3) matters not assigned as errors on appeal but consideration of
which is necessary in arriving at a just decision and complete resolution of the
case or to serve the interests of justice or to avoid dispensing piecemeal
justice; (4) matters not specifically assigned as errors on appeal but raised in
the trial court and are matters of record having some bearing on the issue
submitted which the parties failed to raise or which the lower court ignored; (5)
matters not assigned as errors on appeal but closely related to an error
assigned; and (6) matters not assigned as errors on appeal but upon which
the determination of a question properly assigned is dependent. [27]

In the instant case, the validity of the deed was directly assailed although
both parties are of the view that it is not an absolute nullity. The correct
characterization of the deed is, therefore, determinative of the present
controversy. Elsewise framed, the issue of validity or nullity is interwoven with
the positions adopted by the parties and the rulings made by the courts below.
Hence, we shall be resolute in striking down the deed especially as it appears
on its face to be a patent nullity.

Having said this, we shall now proceed to the issue of prescription. Being
an absolute nullity, both as a donation and as a sale, the deed is subject to
attack at any time, in accordance with the rule in Article 1410 of the Civil Code
that an action to declare the inexistence of a void contract does not prescribe.

We are thus unimpressed by the petitioners contention that the appellate

court should have dismissed Placidas appeal on the ground of prescription.
Passage of time cannot cure the fatal flaw in an inexistent and void contract.
The defect of inexistence of a contract is permanent and incurable; hence, it
[28]

cannot be cured either by ratification or by prescription.

[29]

Turning now to the effects of the absolute nullity of the deed, it is well-
settled that when there is a showing of illegality, the property registered is
deemed to be simply held in trust for the real owner by the person in whose
name it is registered, and the former then has the right to sue for the
reconveyance of the property. The action for the purpose is also
imprescriptible. As long as the land wrongfully registered under the Torrens
system is still in the name of the person who caused such registration, an
action in personam will lie to compel him to reconvey the property to the real
owner. [30]

One final note. After this Decision shall have become final and executory,
the parties may either extrajudicially divide the estates of Lauro Sumipat and
Placida Tabotabo pursuant to Rule 74 of the Rules of Court or judicially settle
the estates pursuant to Rules 78, et seq., in accordance with
this Decision and the law.

WHEREFORE, the instant Petition for Review on Certiorari is DENIED.

The Decision of the Regional Trial Court dated September 29, 1997 and
the Decision of the Court of Appeals dated April 11, 2002, as well as
its Resolution dated October 16, 2002, are VACATED. In lieu thereof,
judgment is hereby rendered in favor of the respondents, to wit: (i)
DECLARING the Deed of Absolute Transfer and/or Quitclaim dated January 5,
1983 NULL AND VOID; and (ii) ORDERING the CANCELLATION of Transfer
Certificates of Title Numbered T-40037 and T-40038 (Zamboanga del Norte)
and the tax declaration covering the unregistered parcel of land, all issued in
the names of the petitioners Lydia, Laurito, Alicia, Alejandro and Lirafe, all
surnamed Sumipat, and the REINSTATEMENT of Original Certificate of Title
No. P-17842 (Zamboanga del Norte) Transfer Certificate Title No. T-15826
(Zamboanga del Norte) and the tax declaration covering the unregistered
parcel of land, all in the name of Lauro Sumipat . . . married to Placida
Tabotabo.

Costs against the petitioners.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario,

JJ., concur.

ELIX GOCHAN AND SONS REALTY CORPORATION and STA. LUCIA

REALTY AND DEVELOPMENT CORPORATION, petitioners, vs.
HEIRS OF RAYMUNDO BABA, namely, BESTRA BABA, MARICEL
BABA, CRESENCIA BABA, ANTONIO BABA, and PETRONILA
BABA, represented by Attorney-in-fact VIRGINIA
SUMALINOG, respondents.

DECISION

YNARES-SANTIAGO, J.:

The purpose of an action or suit and the law to govern it, including the period of
prescription, is to be determined by the complaint itself, its allegations and prayer for
relief. Thus, while the issues of possession and fraud are material to the prescriptibility
[1]

of suits captioned as reconveyance and quieting of title, it would not be so where, from
[2]

the allegations of the complaint, the action is in reality one for declaration of nullity of
contracts on the ground of absence of the essential requisites thereof. These contracts
are void ad initio and actions to declare their inexistence do not prescribe.
[3]

This is a petition for review on certiorari seeking to set aside the February 12, 1999
Decision of the Court of Appeals in CA-G.R. CV No. 57080, which reversed the May 3,
[4]
1997 Order of the Regional Trial Court of Lapu-Lapu City, Branch 54, in Civil Case No.
[5]

4494-L.

The facts show that Lot No. 3537, a conjugal property of spouses Raymundo Baba
and Dorotea Inot, was originally titled under Original Certificate of Title No. RO-0820, in [6]

the name of Dorotea. After Raymundos demise in 1947, an extrajudicial settlement of

his estate, including Lot No. 3537, was executed on December 8, 1966, among the [7]

heirs of Raymundo, namely, Dorotea Inot and his 2 children, Victoriano Baba and
Gregorio Baba. One-half undivided portion of the 6,326 square meter lot was
adjudicated in favor of Dorotea, and the other half divided between Victoriano and
Gregorio. On December 28, 1966, Dorotea, Victoriano and Gregorio, in consideration of
the amount of P2,346.70, sold Lot No. 3537 to petitioner Felix Gochan and Sons Realty
Corporation (Gochan Realty). Consequently, OCT No. RO-0820 was cancelled and in
[8]

lieu thereof, Transfer Certificate of Title No. T-1842, dated February 23, 1968 was
issued in favor of Gochan Realty. Sometime in 1995, the latter entered into a joint
[9]

venture agreement with Sta. Lucia Realty and Development Corporation Inc. for the
development, among others, of Lot No. 3537, into a subdivision. [10]

On June 13, 1996, respondents Bestra, Maricel, Crecencia, Antonio and Petronila,
all surnamed Baba, filed a complaint for quieting of title and reconveyance with
damages against petitioners with the RTC of Lapu-Lapu City, Branch 54, docketed as
Civil Case No. 4494-L. They alleged that they are among the 7 children of Dorotea Inot
and Raymundo Baba; that petitioners connived with Dorotea Inot, Victoriano and
Gregorio Baba in executing the extrajudicial settlement and deed of sale which
fraudulently deprived them of their hereditary share in Lot No. 3537; and that said
transactions are void insofar as their respective shares are concerned because they
never consented to the said sale and extrajudicial settlement, which came to their
knowledge barely a year prior to the filing of the complaint. [11]

In its answer, petitioner Gochan Realty averred that respondents have no

[12]

personality to sue because they are not children of Dorotea Inot and Raymundo Baba;
that even assuming they are lawful heirs of the spouses, their action is barred by
estoppel, laches and prescription for having been filed more than 28 years after the
issuance of the transfer certificate of title in its name; and that any defect in the
transactions leading to its acquisition of Lot No. 3537 will not affect its title because it is
a purchaser in good faith and for value.

Meanwhile, petitioner Sta. Lucia Realty and Development Corporation Inc. was
declared in default for failure to file an answer within the reglementary period. [13]
 On May 3, 1997, the complaint for quieting of title and reconveyance with damages
filed against petitioner was dismissed on the ground of prescription and laches. The trial
court ruled that respondents action is one for enforcement of implied or constructive
trust based on fraud which prescribes in 10 years from the issuance of title over the
property. Hence, respondents action was barred by prescription and laches for having
been filed after 28 years from the time Gochan Realty obtained title to the property.

Respondents appealed to the Court of Appeals which reversed the decision of the
trial court and reinstated the complaint of respondents. While it also found that
respondents action is a suit to enforce an implied or constructive trust based on fraud, it
ruled that since respondents are in possession of the disputed property, their action
cannot be barred by prescription and laches, being in the nature of a suit for quieting of
title. Petitioners motion for reconsideration was denied on May 25, 1999.

Hence, the instant petition where the sole issue raised for resolution is whether or
not respondents complaint is dismissible on the ground of prescription and laches.

In determining whether the complaint is barred by the statute of limitations, both

courts held that respondents action is grounded on fraud, and applied the rule that the
fraudulent conveyance of the property creates an implied trust, an obligation created by
law, which prescribes in ten years from the date of the issuance of the certificate of title.
However, the Court of Appeals held that such an action does not prescribe when the
[14]

disputed property is in the possession of the plaintiff seeking reconveyance. The issue
[15]

of possession, however, is not material in the case at bar. A circumspect scrutiny of the
complaint reveals that although the respondents describe the extrajudicial settlement
and deed of sale as fraudulent insofar as their shares are concerned, their action in
reality seeks to declare said deeds as inexistent for lack of consent, an essential
element for the existence of a contract. The settled rule is that the purpose of an action
or suit and the law to govern it, including the period of prescription, is to be determined
by the complaint itself, its allegations and prayer for relief.
[16]

In the case at bar, the allegations of the complaint unmistakably assail the
extrajudicial settlement and deed of sale with respect to their share on the ground of
absence of consent. Thus, respondents alleged in their complaint

2.2 Dorotea Inot, Gregorio Baba, Victoriano Baba and defendant Felix Gochan and
Realty Corporation, conniving and confederating with each other, with the evil motive
and bad intent of getting the corresponding hereditary share of the plaintiffs caused
the [issuance of a] Transfer Certificate of Title covering the entire lot in the name of
defendant Felix Gochan and Realty Corporation They have made to appear in a
document denominated as Extrajudicial Settlement dated 8 February 1966 and Deed
of Absolute Sale dated 28 December 1966 in favor of defendant Felix Gochan and
Realty Corporation, that they have validly executed the same free from legal infirmity
and element of perjury, notwithstanding clear and full knowledge about plaintiffs real
right and interest thereto, machine copies of the said document are hereto attached as
Annex C and D respectively;

2.3 To all legal intents and purposes, plaintiffs herein never disposed of their share to
anybody much less to the defendant Felix Gochan and Realty Corporation.

2.4 Subsequently, other defendant Sta. Lucia Realty Corporation, despite its
knowledge about the defect in the title entered into a Joint Venture Agreement with
other defendant Felix Gochan Realty Corporation and the same being annotated in
TCT No. T-1824 as Entry Nos. 9371-XIII-D.B,9372 and 9373;

2.5 Complainants, upon knowledge about the said humiliating situation, did not waste
time in exhausting all its recovering mode and legal remedies thru seeking relief unto
this Honorable Court.

2.6 The assessed value of the lot is P38,220.00;

xxxxxxxxx

3.0 Consequently, the fraudulent acts of the defendant Felix Gochan and Realty
Corporation and the eventual participation of the defendant Sta. Lucia Realty
Corporation shall have no legal and valid effect insofar as the corresponding and
respective share of each plaintiff is concerned which is Three Hundred Fifty Five
(355) Square meters, more or less, each or a total area of One Thousand Nine Hundred
Seventy-Five (1,975) square meters, more or less. The deed of conveyance aforestated
shall not therefore bind the plaintiffs;
[17]

Hence, for purposes of determining whether respondents action has prescribed,

fraud in the conveyance of the disputed lot and the possession thereof by the
respondents are not material. The fact that the conveyance of a property was
fraudulent, either because it was procured without the knowledge of some of the co-
owners or by virtue of the owners forged signature or by a fictitious deed of sale, does
not automatically make fraud the basis for reconveyance of the disputed property. The
real question in the instant case (without, however, prejudging the validity or invalidity of
the sale to Gochan Realty), is whether or not from the allegations of the complaint, there
exists a cause of action to declare the inexistence of the contract of sale with respect to
the shares of respondents in Lot No. 3537 on the ground of absence of any of the
essential requisites of a valid contract. If the answer is in the negative, then the
dismissal of the complaint must be upheld, otherwise, the dismissal on the ground of
prescription is erroneous because actions for the declaration of inexistence of contracts
on the ground of absence of any of the essential requisites thereof do not prescribe.

Under Article 1318 of the Civil Code, there is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) object certain which is the
subject matter of the contract; and (3) cause of the obligation.The absence of any of
these essential requisites renders the contract inexistent and an action or defense to
declare said contract void ab initio does not prescribe, pursuant to Article 1410 of the
same Code. In Delos Reyes v. Court of Appeals, it was held that one of the requisites
[18]

of a valid contract under Article 1318 of the Civil Code, namely, the consent and the
capacity to give consent of the parties to the contract, is an indispensable condition for
the existence of consent. There is no effective consent in law without the capacity to
give such consent. In other words, legal consent presupposes capacity. Thus, there is
said to be no consent, and consequently, no contract when the agreement is entered
into by one in behalf of another who has never given him authorization therefor unless
he has by law a right to represent the latter.
[19]

In Heirs of Romana Ingjug-Tiro v. Casals, the Court, applying Article 1410 of the
[20]

Civil Code declared that a claim of prescription is unavailing where the assailed
conveyance is void ab initio with respect to those who had no knowledge of the
transaction. The case involved a fraudulent sale and extrajudicial settlement of a lot
executed without the knowledge and consent of some of the co-owners. It was held that
the sale of the realty is void in so far as it prejudiced the shares of said co-owners and
that the issuance of a certificate of title over the whole property in favor of the vendee
does not divest the other co-owners of the shares that rightfully belonged to them. The
nullity of the said sale proceeds from the absence of legal capacity and consent to
dispose of the property. Thus

Article 1458 of the New Civil Code provides: By the contract of sale one of the
contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its
equivalent. It is essential that the vendors be the owners of the property sold otherwise
they cannot dispose that which does not belong to them. As the Romans put it: Nemo
dat quod non habet. No one can give more than what he has. The sale of the realty to
respondents is null and void insofar as it prejudiced petitioners interests and
participation therein. At best, only the ownership of the shares of Luisa, Maria and
Guillerma in the disputed property could have been transferred to respondents.

Consequently, respondents could not have acquired ownership over the land to the
extent of the shares of petitioners. The issuance of a certificate of title in their favor
could not vest upon them ownership of the entire property; neither could it validate
the purchase thereof which is null and void. Registration does not vest title; it is
merely the evidence of such title. Our land registration laws do not give the holder any
better title than what he actually has. Being null and void, the sale to respondents of
petitioners shares produced no legal effects whatsoever.

Similarly, the claim that Francisco Ingjug died in 1963 but appeared to be a party to
the Extrajudicial Settlement and Confirmation of Sale executed in 1967 would be fatal
to the validity of the contract, if proved by clear and convincing evidence. Contracting
parties must be juristic entities at the time of the consummation of the contract. Stated
otherwise, to form a valid and legal agreement it is necessary that there be a party
capable of contracting and a party capable of being contracted with. Hence, if any one
party to a supposed contract was already dead at the time of its execution, such
contract is undoubtedly simulated and false and therefore null and void by reason of
its having been made after the death of the party who appears as one of the contracting
parties therein. The death of a person terminates contractual capacity.

In actions for reconveyance of property predicated on the fact that the conveyance
complained of was null and void ab initio, a claim of prescription of action would be
unavailing. The action or defense for the declaration of the inexistence of a contract
does not prescribe[21]

Likewise, in the cases of Solomon v. Intermediate Appellate Court, Vda. De [22]

Portugal v. Intermediate Appellate Court, Garanciang v. Garanciang, and Lacsamana

[23] [24]

v. Court of Appeals, the Court ruled that conveyances by virtue of a forged signature or
[25]

a fictitious deed of sale are void ab initio. The absence of the essential requites of
consent and cause or consideration in these cases rendered the contract inexistent and
the action to declare their nullity is imprescriptible.

Nemo dat quod non habet No one can give more than what he has. Assuming that
[26]

the allegations in respondents complaint are true, their claim that the execution of the
extrajudicial settlement and the deed of sale involving Lot No. 3537, which led to the
issuance of a certificate of title in the name of Gochan Realty, was without their
knowledge or consent, gives rise to an imprescriptible cause of action to declare said
transactions inexistent on the ground of absence of legal capacity and consent. Hence,
the dismissal of respondents complaint on the ground of prescription was erroneous.

On the other hand, laches is defined as failure or neglect for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence, could or
should have been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting presumption that the party entitled to assert it has
abandoned it or has declined to assert it. Its elements are: (1) conduct on the part of
[27]

the defendant, or of one under whom he claims, giving rise to the situation which the
complaint seeks a remedy; (2) delay in asserting the complainants rights, the
complainant having had knowledge or notice of the defendants 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.
[28]

Though laches applies even to imprescriptible actions, its elements must

[29]
be
proved positively. Laches is evidentiary in nature which could not be established
[30]
by
mere allegations in the pleadings and can not be resolved in a motion to dismiss. [31]
At
this stage therefore, the dismissal of the complaint on the ground of laches is
premature.

It is but fair, without prejudging the issues, that the parties be allowed to
substantiate their respective claims and defenses in a full-blown trial, and obtain a ruling
on all the issues presented in their pleadings. Indeed, while the averments in the
[32]

complaint show that respondents action is imprescriptible, Gochan Realty is not

precluded from presenting evidence that it is a purchaser in good faith or that
respondents have no personality to sue for reconveyance or, even assuming that they
are lawful heirs of Dorotea Inot and Raymundo Baba, that they are guilty of laches or
are estopped from questioning the validity of the extrajudicial partition and deed of sale
of Lot No. 3537 with respect to their shares.

The trial court thus erred in dismissing respondents complaint on the ground of
prescription and laches, and while the Court of Appeals is correct in ordering the
reinstatement of the complaint, its decision is sustained on a different ground.

WHEREFORE, in view of all the foregoing, the petition is DENIED. The Decision of
the Court of Appeals in CA-G.R. CV No. 57080, which ordered that the instant case be
REMANDED to the Regional Trial Court of Lapu-Lapu City, Branch 54, for trial and
judgment on the merits is AFFIRMED.
SO ORDERED.

Vitug, Carpio, and Azcuna, JJ., concur.

Davide, Jr., C.J., abroad, on official business.