1.  FIRST DIVISION  ANTONIO R. CORTES (in his G.R. No. 126083capacity as Administrator of theestate of Claro S. Cortes),

Petitioner, Present:

Panganiban, C.J. (Chairperson), - versus - Ynares-Santiago,

Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ.

HON. COURT OF APPEALSand VILLA ESPERANZA Promulgated:DEVELOPMENT CORPORATION,

Respondents. July 12, 2006 x ---------------------------------------------------------------------------------------- x  DECISION  YNARES-SANTIAGO, J.:

  

The instant petition for review seeks the reversal of the June 13, 1996 Decision1[1] of the Court of Appeals in CA-G.R. CV No. 47856, setting aside the June 24, 1993 Decision i[2] of the Regional Trial Court of Makati, Branch 138, which rescinded the contract of sale entered into by petitioner Antonio Cortes (Cortes) and private respondent Villa Esperanza Development Corporation (Corporation).  

The antecedents show that for the purchase price of P3,700,000.00, the Corporation as buyer, and Cortes as seller, entered into a contract of sale over the lots covered by Transfer Certificate of Title (TCT) No. 31113-A, TCT No. 31913-A and TCT No. 32013-A, located at Baclaran, Parañaque, Metro Manila. On various dates in 1983, the Corporation advanced to Cortes the total sum of P1,213,000.00. Sometime in September 1983, the parties executed a deed of absolute sale containing the following terms:ii[3]

1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO MILLION AND TWO HUNDRED THOUSAND (P2,200,000.00) PESOS, Philippine Currency, less all advances paid by the Vendee to the Vendor in connection with the sale; 

2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1,500,000.00] PESOS, Phil. Currency shall be payable within ONE (1) YEAR from date of execution of this instrument, payment of which shall be secured by an IRREVOCABLE STANDBY LETTER OF CREDIT to be issued by any reputable local banking institution acceptable to the Vendor. 

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i[2] Penned by Judge Fernando P. Agdamag; rollo, pp. 66-68.ii[3] Complaint, records, pp. 1-2.

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4. All expense for the registration of this document with the Register of Deeds concerned, including the transfer tax, shall be divided equally between the Vendor and the Vendee. Payment of the capital gains shall be exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be deducted upon signing of sale.iii[4]

Said Deed was retained by Cortes for notarization. 

On January 14, 1985, the Corporation filed the instant caseiv[5] for specific performance seeking to compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. According to the Corporation, despite its readiness and ability to pay the purchase price, Cortes refused delivery of the sought documents. It thus prayed for the award of damages, attorney’s fees and litigation expenses arising from Cortes’ refusal to deliver the same documents.

In his Answer with counterclaim,v[6] Cortes claimed that the owner’s duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. He added that portion of the subject property is occupied by his lessee who agreed to vacate the premises upon payment of disturbance fee. However, due to the Corporation’s failure to pay in full the sum of P2,200,000.00, he in turn failed to fully pay the disturbance fee of the lessee who now refused to pay monthly rentals. He thus prayed that the Corporation be ordered to pay the outstanding balance plus interest and in the alternative, to cancel the sale and forfeit the P1,213,000.00 partial down payment, with damages in either case.  

On June 24, 1993, the trial court rendered a decision rescinding the sale and directed Cortes to return to the Corporation the amount of P1,213,000.00, plus interest. It ruled that pursuant to the contract of the parties, the Corporation should have fully paid the amount of P2,200,000.00 upon the execution of the contract. It stressed that such is the law between the parties because the Corporation failed to present evidence that there was another agreement that modified the terms of payment as stated in the contract. And, having failed to pay in full the amount of P2,200,000.00 despite Cortes’ delivery of the Deed of Absolute Sale and the TCTs, rescission of the contract is proper.  In its motion for reconsideration, the Corporation contended that the trial court failed to consider their agreement that it would pay the balance of the down payment when Cortes delivers the TCTs. The motion was, however, denied by the trial court holding that the rescission should stand because the Corporation did not act on the offer of Cortes’ counsel to deliver the TCTs upon payment of the balance of the down payment. Thus:

 The Court finds no merit in the [Corporation’s] Motion for Reconsideration. As stated in the

decision sought to be reconsidered, [Cortes’] counsel at the pre-trial of this case, proposed that if [the Corporation] completes the down payment agreed upon and make arrangement for the payment of the balances of the purchase price, [Cortes] would sign the Deed of Sale and turn over the certificate of title to the [Corporation]. [The Corporation] did nothing to comply with its undertaking under the agreement between the parties. 

WHEREFORE, in view of the foregoing considerations, the Motion for Reconsideration is hereby DENIED.

SO ORDERED.vi[7] 

On appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to execute a Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together with the TCTs, simultaneous with the Corporation’s payment of the balance of the purchase price of P2,487,000.00. It found that the parties agreed that the Corporation will fully pay the balance of the down payment upon Cortes’ delivery of the three TCTs to the Corporation. The records show that no such delivery was made, hence, the Corporation was not remiss in the performance of its obligation and therefore justified in not paying the balance. The decretal portion thereof, provides:

 WHEREFORE, premises considered, [the Corporation’s] appeal is GRANTED. The decision

appealed from is hereby REVERSED and SET ASIDE and a new judgment rendered ordering [Cortes] to execute a deed of absolute sale conveying to [the Corporation] the parcels of land subject of and described in the deed of absolute sale, Exhibit D. Simultaneously with the execution of the deed of absolute sale and the delivery of the corresponding owner’s duplicate copies of TCT Nos. 31113-A,

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31931-A and 32013-A of the Registry of Deeds for the Province of Rizal, Metro Manila, District IV, [the Corporation] shall pay [Cortes] the balance of the purchase price of P2,487,000.00. As agreed upon in paragraph 4 of the Deed of Absolute Sale, Exhibit D, under terms and conditions, “All expenses for the registration of this document (the deed of sale) with the Register of Deeds concerned, including the transfer tax, shall be divided equally between [Cortes and the Corporation]. Payment of the capital gains shall be exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be deducted upon signing of sale.” There is no pronouncement as to costs. 

SO ORDERED.vii[8] Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be reinstated. There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the parties.

Reciprocal obligations are those which arise from the same cause, and which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other.viii[9]

 Article 1191 of the Civil Code, states:

 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. 

 As to when said failure or delay in performance arise, Article 1169 of the same Code provides that –

 ART. 1169  In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready

to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

Issue: whether there is delay in the performance of the parties’ obligation that would justify the rescission of the contract of sale.

 The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties, as shown not

necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement.  As such, therefore, documentary and parol evidence may be submitted and admitted to prove such intention.ix[10]

 In the case at bar, the stipulation in the Deed of Absolute Sale was that the Corporation shall pay in full the

P2,200,000.00 down payment upon execution of the contract. However, as correctly noted by the Court of Appeals, the transcript of stenographic notes reveal Cortes’ admission that he agreed that the Corporation’s full payment of the sum of P2,200,000.00 would depend upon his delivery of the TCTs of the three lots. In fact, his main defense in the Answer is that, he performed what is incumbent upon him by delivering to the Corporation the TCTs and the carbon duplicate of the Deed of Absolute Sale, but the latter refused to pay in full the down payment.x[11] Pertinent portion of the transcript, reads:

 [Q] Now, why did you deliver these three titles to the plaintiff despite the fact that it has not been

paid in full the agreed down payment?A Well, the broker told me that the down payment will be given if I surrender the titles. Q Do you mean to say that the plaintiff agreed to pay in full the down payment of P2,200,000.00

provided you surrender or entrust to the plaintiff the titles?A Yes, sir.xi[12]

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 What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title of the lots will

be transferred in the name of the Corporation upon full payment of the P2,200,000.00 down payment. Thus – ATTY. ANTARANQ Of course, you have it transferred in the name of the plaintiff, the title?A Upon full payment. 

x x x x ATTY. SARTEQ When you said upon full payment, are you referring to the agreed down payment of

P2,200,000.00?A Yes, sir.xii[13] By agreeing to transfer title upon full payment of P2,200,000.00, Cortes’ impliedly agreed to deliver the TCTs to

the Corporation in order to effect said transfer. Hence, the phrase “execution of this instrument” xiii[14] as appearing in the Deed of Absolute Sale, and which event would give rise to the Corporation’s obligation to pay in full the amount of P2,200,000.00, can not be construed as referring solely to the signing of the deed. The meaning of “execution” in the instant case is not limited to the signing of a contract but includes as well the performance or implementation or accomplishment of the parties’ agreement.xiv[15] With the transfer of titles as the corresponding reciprocal obligation of payment, Cortes’ obligation is not only to affix his signature in the Deed, but to set into motion the process that would facilitate the transfer of title of the lots, i.e., to have the Deed notarized and to surrender the original copy thereof to the Corporation together with the TCTs.

 Having established the true agreement of the parties, the Court must now determine whether Cortes delivered the

TCTs and the original Deed to the Corporation. The Court of Appeals found that Cortes never surrendered said documents to the Corporation. Cortes testified that he delivered the same to Manny Sanchez, the son of the broker, and that Manny told him that her mother, Marcosa Sanchez, delivered the same to the Corporation.

 Q Do you have any proof to show that you have indeed surrendered these titles to the plaintiff?A Yes, sir. Q I am showing to you a receipt dated October 29, 1983, what relation has this receipt with that

receipt that you have mentioned?A That is the receipt of the real estate broker when she received the titles. Q On top of the printed name is Manny Sanchez, there is a signature, do you know who is that

Manny Sanchez?A That is the son of the broker. 

x x x x Q May we know the full name of the real estate broker?A Marcosa Sanchez Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the plaintiff?A That is what [s]he told me. She gave them to the plaintiff. ATTY. ANTARANQ Are you really sure that the title is in the hands of the plaintiff? Q It is in the hands of the broker but there is no showing that it is in the hands of the plaintiff?A Yes, sir. 

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COURTQ How do you know that it was delivered to the plaintiff by the son of the broker?A The broker told me that she delivered the title to the plaintiff. ATTY. ANTARANQ Did she not show you any receipt that she delivered to [Mr.] Dragonxv[17] the title without any

receipt?A I have not seen any receipt. Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or not. It is

only upon the allegation of the broker?A Yes, sir.xvi[18] However, Marcosa Sanchez’s unrebutted testimony is that, she did not receive the TCTs. She also denied

knowledge of delivery thereof to her son, Manny, thus: Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986 that he allegedly

gave you the title to the property in question, is it true?A I did not receive the title. Q He likewise said that the title was delivered to your son, do you know about that?A I do not know anything about that.xvii[19]

 What further strengthened the findings of the Court of Appeals that Cortes did not surrender the subject

documents was the offer of Cortes’ counsel at the pre-trial to deliver the TCTs and the Deed of Absolute Sale if the Corporation will pay the balance of the down payment. Indeed, if the said documents were already in the hands of the Corporation, there was no need for Cortes’ counsel to make such offer. 

Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same together with the TCTs, the trial court erred in concluding that he performed his part in the contract of sale and that it is the Corporation alone that was remiss in the performance of its obligation. Actually, both parties were in delay. Considering that their obligation was reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the

Corporation therefore gave rise to a compensation morae or default on the part of both parties because neither has completed their part in their reciprocal obligation.xviii[20] Cortes is yet to deliver the original copy of the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of default,xix[21] such that it is as if no one is guilty of delay.xx[22]  

We find no merit in Cortes’ contention that the failure of the Corporation to act on the proposed settlement at the pre-trial must be construed against the latter. Cortes argued that with his counsel’s offer to surrender the original Deed and the TCTs, the Corporation should have consigned the balance of the down payment. This argument would have been correct if Cortes actually surrendered the Deed and the TCTs to the Corporation. With such delivery, the Corporation would have been placed in default if it chose not to pay in full the required down payment. Under Article 1169 of the Civil Code, from the moment one of the parties fulfills his obligation, delay by the other begins. Since Cortes did not perform his part, the provision of the contract requiring the Corporation to pay in full the down payment never acquired obligatory force. Moreover, the Corporation could not be faulted for not automatically heeding to the offer of Cortes. For one, its complaint has a prayer for damages which it may not want to waive by agreeing to the offer of Cortes’ counsel. For another, the previous representation of Cortes that the TCTs were already delivered to the Corporation when no such delivery was in fact made, is enough reason for the Corporation to be more cautious in dealing with him.  

The Court of Appeals therefore correctly ordered the parties to perform their respective obligation in the contract of sale, i.e., for Cortes to, among others, deliver the necessary documents to the Corporation and for the latter to pay in full, not only the down payment, but the entire purchase price. And since the Corporation did not question the Court of Appeal’s decision and even prayed for its affirmance, its payment should rightfully consist not only of the amount of P987,000.00, representing the balance of the P2,200,000.00 down payment, but the total amount of P2,487,000.00, the remaining balance in the P3,700,000.00 purchase price.

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 WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of Appeals in CA-G.R. CV

No. 47856, is AFFIRMED. 

2.SPOUSES ONNIE SERRANO AND AMPARO HERRERA, Petitioners

vs.GODOFREDO CAGUIAT, Respondent.

G.R. No. 139173             February 28, 2007

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision1 of the Court of Appeals dated January 29, 1999 and its Resolution dated July 14, 1999 in CA-G.R. CV No. 48824.Spouses Onnie and Amparo Herrera, petitioners, are the registered owners of a lot located in Las Piñas, Metro Manila covered by Transfer Certificate of Title No. T-9905. Sometime in March 1990, Godofredo Caguiat, respondent, offered to buy the lot. Petitioners agreed to sell it at P1,500.00 per square meter. Respondent then gave petitioners P100,000.00 as partial payment. In turn, petitioners gave respondent the corresponding receipt stating that respondent promised to pay the balance of the purchase price on or before March 23, 1990, thus: Las Piñas, Metro ManilaMarch 19, 1990RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT NO. T-9905, LAS PIÑAS, METRO MANILARECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIÑAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS.MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.SIGNED THIS 19th DAY OF MARCH, 1990 AT LAS PIÑAS, M.M.(SGD) AMPARO HERRERA                 (SGD) ONNIE SERRANO"2 On March 28, 1990, respondent, through his counsel Atty. Ponciano Espiritu, wrote petitioners informing them of his readiness to pay the balance of the contract price and requesting them to prepare the final deed of sale.3 On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a letter4 to respondent stating that petitioner Amparo Herrera is leaving for abroad on or before April 15, 1990 and that they are canceling the transaction. Petitioners also informed respondent that he can recover the earnest money of P100,000.00 anytime.Again, on April 6, 1990,5 petitioners wrote respondent stating that they delivered to his counsel Philippine National Bank Manager’s Check No. 790537 dated April 6, 1990 in the amount of P100,000.00 payable to him. In view of the cancellation of the contract by petitioners, respondent filed with the Regional Trial Court, Branch 63, Makati City a complaint against them for specific performance and damages, docketed as Civil Case No. 90-1067.6 On June 27, 1994, after hearing, the trial court rendered its Decision7 finding there was a perfected contract of sale between the parties and ordering petitioners to execute a final deed of sale in favor of respondent. The trial court held:In the evaluation of the evidence presented by the parties as to the issue as to who was ready to comply with his obligation on the verbal agreement to sell on March 23, 1990, shows that plaintiff’s position deserves more weight and credibility. First, the P100,000.00 that plaintiff paid whether as downpayment or earnest money showed that there was already a perfected contract. Art. 1482 of the Civil Code of the Philippines, reads as follows, to wit:‘Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.’Second, plaintiff was the first to react to show his eagerness to push through with the sale by sending defendants the letter dated March 25, 1990. (Exh. ‘D’) and reiterated the same intent to pursue the sale in a letter dated April 6, 1990. Third, plaintiff had the balance of the purchase price ready for payment (Exh. ‘C’). Defendants’ mere allegation that it was plaintiff who did not appear on March 23, 1990 is unavailing. Defendants’ letters (Exhs. ‘2’ and ‘5’) appear to be mere afterthought.

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On appeal, the Court of Appeals, in its assailed Decision of January 29, 1999, affirmed the trial court’s judgment. Forthwith, petitioners filed their motion for reconsideration but it was denied by the appellate court in its Resolution 8

dated July 14, 1999.Hence, the present recourse.The basic issue to be resolved is whether the document entitled "Receipt for Partial Payment" signed by both parties earlier mentioned is a contract to sell or a contract of sale. Petitioners contend that the Receipt is not a perfected contract of sale as provided for in Article 14589 in relation to Article 147510 of the Civil Code. The delivery to them of P100,000.00 as down payment cannot be considered as proof of the perfection of a contract of sale under Article 148211 of the same Code since there was no clear agreement between the parties as to the amount of consideration.

Generally, the findings of fact of the lower courts are entitled to great weight and should not be disturbed except for cogent reasons.14 Indeed, they should not be changed on appeal in the absence of a clear showing that the trial court

overlooked, disregarded, or misinterpreted some facts of weight and significance, which if considered would have altered the result of the case.1awphi1. G.R. No. 139173             February 28, 2007

We are not convinced.In San Miguel Properties Philippines, Inc. v. Spouses Huang,13 we held that the stages of a contract of sale are: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale, which is the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. With the above postulates as guidelines, we now proceed to determine the real nature of the contract entered into by the parties.It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended.14 Thus, when petitioners declared in the said "Receipt for Partial Payment" that they –RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF P100,000.00 AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIÑAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS.

MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.there can be no other interpretation than that they agreed to a conditional contract of sale, consummation of which is subject only to the full payment of the purchase price.A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price.The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, in Sing Yee v. Santos,16 we held that:[a] distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell where by agreement the ownership is reserved in the seller and is not to pass until the full payment, of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract.In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price.17 In this case, the "Receipt for Partial Payment" shows that the true agreement between the parties is a contract to sell.

First, ownership over the property was retained by petitioners and was not to pass to respondent until full payment of the purchase price. Thus, petitioners need not push through with the sale should respondent fail to remit the balance of the purchase price before the deadline on March 23, 1990. In effect, petitioners have the right to rescind unilaterally the contract the moment respondent fails to pay within the fixed period.18

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Second, the agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price.19 Third, petitioners retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to respondent, either by actual or constructive delivery, ownership of the property.20

It is true that Article 1482 of the Civil Code provides that "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price.21 Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply.As previously discussed, the suspensive condition (payment of the balance by respondent) did not take place. Clearly, respondent cannot compel petitioners to transfer ownership of the property to him. WHEREFORE, we GRANT the instant Petition for Review. The challenged Decision of the Court of Appeals is REVERSED and respondent’s complaint is DISMISSED.SO ORDERED.

3. RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO, LEONORA, BIBIANO,

JR., LIBRADO and ENRIQUETA, all surnamed OESMER, Petitioners, vs.

PARAISO DEVELOPMENT CORPORATION, Respondent.G.R. No. 157493             February 5, 2007

CHICO-NAZARIO, J.:Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to reverse and set aside the Court of Appeals Decision1 dated 26 April 2002 in CA-G.R. CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs. Paraiso Development Corporation, as modified by its Resolution2 dated 4 March 2003, declaring the Contract to Sell valid and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); and ordering them to execute the Deed of Absolute Sale concerning their 6/8 share over the subject parcels of land in favor of herein respondent Paraiso Development Corporation, and to pay the latter the attorney’s fees plus costs of the suit. The assailed Decision, as modified, likewise ordered the respondent to tender payment to the petitioners in the amount of P3,216,560.00 representing the balance of the purchase price of the subject parcels of land.The facts of the case are as follows:Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and sisters, and the co-owners of undivided shares of two parcels of agricultural and tenanted land situated in Barangay Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an area of 40,507 square meters (sq. m.) and Lot 834 containing an area of 14,769 sq. m., or a total land area of 55,276 sq. m. Both lots are unregistered and originally owned by their parents, Bibiano Oesmer and Encarnacion Durumpili, who declared the lots for taxation purposes under Tax Declaration No. 34383 (cancelled by I.D. No. 6064-A) for Lot 720 and Tax Declaration No. 34374 (cancelled by I.D. No. 5629) for Lot 834. When the spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired the lots as heirs of the former by right of succession.Respondent Paraiso Development Corporation is known to be engaged in the real estate business.Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of Carmona, Cavite, brought along petitioner Ernesto to meet with a certain Sotero Lee, President of respondent Paraiso Development Corporation, at Otani Hotel in Manila. The said meeting was for the purpose of brokering the sale of petitioners’ properties to respondent corporation.Pursuant to the said meeting, a Contract to Sell5 was drafted by the Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A check in the amount of

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P100,000.00, payable to Ernesto, was given as option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo and Jesus, did not sign the document.On 5 April 1989, a duplicate copy of the instrument was returned to respondent corporation. On 21 April 1989, respondent brought the same to a notary public for notarization.In a letter6 dated 1 November 1989, addressed to respondent corporation, petitioners informed the former of their intention to rescind the Contract to Sell and to return the amount of P100,000.00 given by respondent as option money.Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners, together with Adolfo and Jesus, filed a Complaint7 for Declaration of Nullity or for Annulment of Option Agreement or Contract to Sell with Damages before the Regional Trial Court (RTC) of Bacoor, Cavite. The said case was docketed as Civil Case No. BCV-91-49.During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an Order,8 dated 16 September 1992, to the effect that the deceased petitioner be substituted by his surviving spouse, Josefina O. Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer. However, the name of Rizalino was retained in the title of the case both in the RTC and the Court of Appeals.After trial on the merits, the lower court rendered a Decision9 dated 27 March 1996 in favor of the respondent, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding only to the undivided proportionate share of the signatory of this document and recipient of the check, [herein petitioner] co-owner Ernesto Durumpili Oesmer. The latter is hereby ordered to execute the Contract of Absolute Sale concerning his 1/8 share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter the attorney’s fees in the sum of Ten Thousand (P10,000.00) Pesos plus costs of suit.The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.10 Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26 April 2002, the appellate court rendered a Decision modifying the Decision of the court a quo by declaring that the Contract to Sell is valid and binding with respect to the undivided proportionate shares of the six signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The decretal portion of the said Decision states that: WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED. Judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided proportionate share of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land and in favor of herein [respondent] corporation, and to pay the latter the attorney’s fees in the sum of Ten Thousand Pesos (P10,000.00) plus costs of suit.11 Aggrieved by the above-mentioned Decision, petitioners filed a Motion for Reconsideration of the same on 2 July 2002. Acting on petitioners’ Motion for Reconsideration, the Court of Appeals issued a Resolution dated 4 March 2003, maintaining its Decision dated 26 April 2002, with the modification that respondent tender payment to petitioners in the amount of P3,216,560.00, representing the balance of the purchase price of the subject parcels of land. The dispositive portion of the said Resolution reads:WHEREFORE, premises considered, the assailed Decision is hereby modified.1awphi1.net Judgment is hereby rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and binding with respect to the undivided proportionate shares of the six (6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter attorney’s fees in the sum of Ten Thousand Pesos (P10,000.00) plus costs of suit. Respondent is likewise ordered to tender payment to the above-named [petitioners] in the amount of Three Million Two Hundred Sixteen Thousand Five Hundred Sixty Pesos (P3,216,560.00) representing the balance of the purchase price of the subject two parcels of land. 12 Hence, this Petition for Review on Certiorari.Petitioners come before this Court arguing that the Court of Appeals erred:

I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is not binding upon petitioner Ernesto Oesmer’s co-owners (herein petitioners Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora).

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II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is void altogether considering that respondent itself did not sign it as to indicate its consent to be bound by its terms. Moreover, Exhibit D is really a unilateral promise to sell without consideration distinct from the price, and hence, void.

Petitioners assert that the signatures of five of them namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the margins of the supposed Contract to Sell did not confer authority on petitioner Ernesto as agent to sell their respective shares in the questioned properties, and hence, for lack of written authority from the above-named petitioners to sell their respective shares in the subject parcels of land, the supposed Contract to Sell is void as to them. Neither do their signatures signify their consent to directly sell their shares in the questioned properties. Assuming that the signatures indicate consent, such consent was merely conditional. The effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is the approval of the sale by all the co-owners. Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the findings of the Court of Appeals, is not couched in simple language. They further claim that the supposed Contract to Sell does not bind the respondent because the latter did not sign the said contract as to indicate its consent to be bound by its terms. Furthermore, they maintain that the supposed Contract to Sell is really a unilateral promise to sell and the option money does not bind petitioners for lack of cause or consideration distinct from the purchase price.The Petition is bereft of merit. It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did not confer authority on petitioner Ernesto as agent authorized to sell their respective shares in the questioned properties because of Article 1874 of the Civil Code, which expressly provides that:Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.The law itself explicitly requires a written authority before an agent can sell an immovable. The conferment of such an authority should be in writing, in as clear and precise terms as possible. It is worth noting that petitioners’ signatures are found in the Contract to Sell. The Contract is absolutely silent on the establishment of any principal-agent relationship between the five petitioners and their brother and co-petitioner Ernesto as to the sale of the subject parcels of land. Thus, the Contract to Sell, although signed on the margin by the five petitioners, is not sufficient to confer authority on petitioner Ernesto to act as their agent in selling their shares in the properties in question. However, despite petitioner Ernesto’s lack of written authority from the five petitioners to sell their shares in the subject parcels of land, the supposed Contract to Sell remains valid and binding upon the latter.As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto who signed the said Contract to Sell; the other five petitioners also personally affixed their signatures thereon. Therefore, a written authority is no longer necessary in order to sell their shares in the subject parcels of land because, by affixing their signatures on the Contract to Sell, they were not selling their shares through an agent but, rather, they were selling the same directly and in their own right. The Court also finds untenable the following arguments raised by petitioners to the effect that the Contract to Sell is not binding upon them, except to Ernesto, because: (1) the signatures of five of the petitioners do not signify their consent to sell their shares in the questioned properties since petitioner Enriqueta merely signed as a witness to the said Contract to Sell, and that the other petitioners, namely: Librado, Rizalino, Leonora, and Bibiano, Jr., did not understand the importance and consequences of their action because of their low degree of education and the contents of the aforesaid contract were not read nor explained to them; and (2) assuming that the signatures indicate consent, such consent was merely conditional, thus, the effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is the approval by all the co-owners of the sale. It is well-settled that contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. 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. To produce a contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.13 In the case at bar, the Contract to Sell was perfected when the petitioners consented to the sale to the respondent of their shares in the subject parcels of land by affixing their signatures on the said contract. Such signatures show their acceptance of what has been stipulated in the Contract to Sell and such acceptance was made known to respondent corporation when the duplicate copy of the Contract to Sell was returned to the latter bearing petitioners’ signatures. As to petitioner Enriqueta’s claim that she merely signed as a witness to the said contract, the contract itself does not say so. There was no single indication in the said contract that she signed the same merely as a witness. The fact that her signature appears on the right-hand margin of the Contract to Sell is insignificant. The contract indisputably referred to the

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"Heirs of Bibiano and Encarnacion Oesmer," and since there is no showing that Enriqueta signed the document in some other capacity, it can be safely assumed that she did so as one of the parties to the sale. Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta concurrently signed the Contract to Sell. As the Court of Appeals mentioned in its Decision,14 the records of the case speak of the fact that petitioner Ernesto, together with petitioner Enriqueta, met with the representatives of the respondent in order to finalize the terms and conditions of the Contract to Sell. Enriqueta affixed her signature on the said contract when the same was drafted. She even admitted that she understood the undertaking that she and petitioner Ernesto made in connection with the contract. She likewise disclosed that pursuant to the terms embodied in the Contract to Sell, she updated the payment of the real property taxes and transferred the Tax Declarations of the questioned properties in her name. 15 Hence, it cannot be gainsaid that she merely signed the Contract to Sell as a witness because she did not only actively participate in the negotiation and execution of the same, but her subsequent actions also reveal an attempt to comply with the conditions in the said contract.With respect to the other petitioners’ assertion that they did not understand the importance and consequences of their action because of their low degree of education and because the contents of the aforesaid contract were not read nor explained to them, the same cannot be sustained.We only have to quote the pertinent portions of the Court of Appeals Decision, clear and concise, to dispose of this issue. Thus,First, the Contract to Sell is couched in such a simple language which is undoubtedly easy to read and understand. The terms of the Contract, specifically the amount of P100,000.00 representing the option money paid by [respondent] corporation, the purchase price of P60.00 per square meter or the total amount of P3,316,560.00 and a brief description of the subject properties are well-indicated thereon that any prudent and mature man would have known the nature and extent of the transaction encapsulated in the document that he was signing.Second, the following circumstances, as testified by the witnesses and as can be gleaned from the records of the case clearly indicate the [petitioners’] intention to be bound by the stipulations chronicled in the said Contract to Sell.As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of the subject property as he in fact was the one who initiated the negotiation process and culminated the same by affixing his signature on the Contract to Sell and by taking receipt of the amount of P100,000.00 which formed part of the purchase price.x x x xAs to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly affixed his signature on a document written in a language (English) that he purportedly does not understand. He testified that the document was just brought to him by an 18 year old niece named Baby and he was told that the document was for a check to be paid to him. He readily signed the Contract to Sell without consulting his other siblings. Thereafter, he exerted no effort in communicating with his brothers and sisters regarding the document which he had signed, did not inquire what the check was for and did not thereafter ask for the check which is purportedly due to him as a result of his signing the said Contract to Sell. (TSN, 28 September 1993, pp. 22-23) The [appellate court] notes that Librado is a 43 year old family man (TSN, 28 September 1993, p. 19). As such, he is expected to act with that ordinary degree of care and prudence expected of a good father of a family. His unwitting testimony is just divinely disbelieving.The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by the said Contract to Sell. The theory adopted by the [petitioners] that because of their low degree of education, they did not understand the contents of the said Contract to Sell is devoid of merit. The [appellate court] also notes that Adolfo (one of the co-heirs who did not sign) also possess the same degree of education as that of the signing co-heirs (TSN, 15 October 1991, p. 19). He, however, is employed at the Provincial Treasury Office at Trece Martirez, Cavite and has even accompanied Rogelio Paular to the Assessor’s Office to locate certain missing documents which were needed to transfer the titles of the subject properties. (TSN, 28 January 1994, pp. 26 & 35) Similarly, the other co-heirs [petitioners], like Adolfo, are far from ignorant, more so, illiterate that they can be extricated from their obligations under the Contract to Sell which they voluntarily and knowingly entered into with the [respondent] corporation.The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753 [1992]), citing the case of Tan Sua Sia v. Yu Baio Sontua (56 Phil. 711), instructively ruled as follows:"The Court does not accept the petitioner’s claim that she did not understand the terms and conditions of the transactions because she only reached Grade Three and was already 63 years of age when she signed the documents. She was literate, to begin with, and her age did not make her senile or incompetent. x x x. At any rate, Metrobank had no obligation to explain the documents to the petitioner as nowhere has it been proven that she is unable to read or that the contracts were written in a language not known to her. It was her responsibility to inform herself of the meaning and consequence of the contracts she was signing and, if she found them difficult to comprehend,

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to consult other persons, preferably lawyers, to explain them to her. After all, the transactions involved not only a few hundred or thousand pesos but, indeed, hundreds of thousands of pesos. As the Court has held:x x x The rule that one who signs a contract is presumed to know its contents has been applied even to contracts of illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have the contract read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable persons to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were able to do and his failure to obtain a reading and explanation of it is such gross negligence as will estop from avoiding it on the ground that he was ignorant of its contents."16 That the petitioners really had the intention to dispose of their shares in the subject parcels of land, irrespective of whether or not all of the heirs consented to the said Contract to Sell, was unveiled by Adolfo’s testimony as follows:ATTY. GAMO: This alleged agreement between you and your other brothers and sisters that unless everybody will agree, the properties would not be sold, was that agreement in writing?WITNESS: No sir.ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus and you did not sign that agreement which had been marked as [Exhibit] "D", your brothers and sisters were grossly violating your agreement.WITNESS: Yes, sir, they violated what we have agreed upon.17 We also cannot sustain the allegation of the petitioners that assuming the signatures indicate consent, such consent was merely conditional, and that, the effectivity of the alleged Contract to Sell was subject to the suspensive condition that the sale be approved by all the co-owners. The Contract to Sell is clear enough. It is a cardinal rule in the interpretation of contracts 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.18 The terms of the Contract to Sell made no mention of the condition that before it can become valid and binding, a unanimous consent of all the heirs is necessary. Thus, when the language of the contract is explicit, as in the present case, leaving no doubt as to the intention of the parties thereto, the literal meaning of its stipulation is controlling. In addition, the petitioners, being owners of their respective undivided shares in the subject properties, can dispose of their shares even without the consent of all the co-heirs. Article 493 of the Civil Code expressly provides:Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. [Emphases supplied.]Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to Sell is still valid and binding with respect to the 6/8 proportionate shares of the petitioners, as properly held by the appellate court. Therefore, this Court finds no error in the findings of the Court of Appeals that all the petitioners who were signatories in the Contract to Sell are bound thereby. The final arguments of petitioners state that the Contract to Sell is void altogether considering that respondent itself did not sign it as to indicate its consent to be bound by its terms; and moreover, the Contract to Sell is really a unilateral promise to sell without consideration distinct from the price, and hence, again, void. Said arguments must necessarily fail.The Contract to Sell is not void merely because it does not bear the signature of the respondent corporation. Respondent corporation’s consent to be bound by the terms of the contract is shown in the uncontroverted facts which established that there was partial performance by respondent of its obligation in the said Contract to Sell when it tendered the amount of P100,000.00 to form part of the purchase price, which was accepted and acknowledged expressly by petitioners. Therefore, by force of law, respondent is required to complete the payment to enforce the terms of the contract. Accordingly, despite the absence of respondent’s signature in the Contract to Sell, the former cannot evade its obligation to pay the balance of the purchase price. As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to sell merely because it used the word option money when it referred to the amount of P100,000.00, which also form part of the purchase price. Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged by looking to the words they used to project that intention in their contract, all the words, not just a particular word or two, and words in context, not words standing alone.19 In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was referred to as "option money." However, a careful examination of the words used in the contract indicates that the money is not option money but earnest money. "Earnest money" and "option money" are not the same but distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest

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money is given only where there is already a sale, while option money applies to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.20 The sum of P100,000.00 was part of the purchase price. Although the same was denominated as "option money," it is actually in the nature of earnest money or down payment when considered with the other terms of the contract. Doubtless, the agreement is not a mere unilateral promise to sell, but, indeed, it is a Contract to Sell as both the trial court and the appellate court declared in their Decisions.WHEREFORE, premises considered, the Petition is DENIED, and the Decision and Resolution of the Court of Appeals dated 26 April 2002 and 4 March 2003, respectively, are AFFIRMED, thus, (a) the Contract to Sell is DECLARED valid and binding with respect to the undivided proportionate shares in the subject parcels of land of the six signatories of the said document, herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); (b) respondent is ORDERED to tender payment to petitioners in the amount of P3,216,560.00 representing the balance of the purchase price for the latter’s shares in the subject parcels of land; and (c) petitioners are further ORDERED to execute in favor of respondent the Deed of Absolute Sale covering their shares in the subject parcels of land after receipt of the balance of the purchase price, and to pay respondent attorney’s fees plus costs of the suit. Costs against petitioners.SO ORDERED.

4.    THIRD DIVISION  AMELIA S. ROBERTS, G.R. No. 166714

Petitioner, Present:

YNARES-SANTIAGO, J.,

Chairperson, - versus - AUSTRIA-MARTINEZ, CALLEJO, SR., and CHICO-NAZARIO, JJ.

MARTIN B. PAPIO, Promulgated:

Respondent. February 9, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x D E C I S I O N CALLEJO, SR., J.:

 Assailed in this petition for review on certiorari is the Decisionxxi[1] of the Court of Appeals (CA), in CA-G.R. CV

No. 69034 which reversed and set aside the Decisionxxii[2] of the Regional Trial Court (RTC), Branch 150, Makati City, in Civil Case No. 01-431. The RTC ruling had affirmed with modification the Decision xxiii[3] of the Metropolitan Trial Court (MeTC), Branch 64, Makati City in Civil Case No. 66847. The petition likewise assails the Resolution of the CA denying the motion for reconsideration of its decision.

The Antecedents The spouses Martin and Lucina Papio were the owners of a 274-square-meter residential lot located in Makati

(now Makati City) and covered by Transfer Certificate of Title (TCT) No. S-44980.xxiv[4] In order to secure a P59,000.00 loan from the Amparo Investments Corporation, they executed a real estate mortgage on the property. Upon Papio’s failure to pay the loan, the corporation filed a petition for the extrajudicial foreclosure of the mortgage.

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 Since the couple needed money to redeem the property and to prevent the foreclosure of the real estate mortgage,

they executed a Deed of Absolute Sale over the property on April 13, 1982 in favor of Martin Papio’s cousin, Amelia Roberts. Of the P85,000.00 purchase price, P59,000.00 was paid to the Amparo Investments Corporation, while the P26,000.00 difference was retained by the spouses.xxv[5] As soon as the spouses had settled their obligation, the corporation returned the owner’s duplicate of TCT No. S-44980, which was then delivered to Amelia Roberts.

 Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee) executed a two-year contract of lease

dated April 15, 1982, effective May 1, 1982. The contract was subject to renewal or extension for a like period at the option of the lessor, the lessee waiving thereby the benefits of an implied new lease. The lessee was obliged to pay monthly rentals of P800.00 to be deposited in the lessor’s account at the Bank of America, Makati City branch.xxvi[6]

  On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was issued in the name of Amelia

Roberts as owner.xxvii[7]

 Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and thereafter, for another year. xxviii[8] He then

failed to pay rentals, but he and his family nevertheless remained in possession of the property for a period of almost thirteen (13) years.

 In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded Papio that he failed to pay the monthly

rental of P2,500.00 from January 1, 1986 to December 31, 1997, and P10,000.00 from January 1, 1998 to May 31, 1998; thus, his total liability was P410,000.00. She demanded that Papio vacate the property within 15 days from receipt of the letter in case he failed to settle the amount.xxix[9] Because he refused to pay, Papio received another letter from Roberts on April 22, 1999, demanding, for the last time, that he and his family vacate the property.xxx[10] Again, Papio refused to leave the premises.

 On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde Aguilar, filed a Complaint xxxi[11] for

unlawful detainer and damages against Martin Papio before the MeTC, Branch 64, Makati City. She alleged the following in her complaint:

 Sometime in 1982 she purchased from defendant a 274-sq-m residential house and lot situated at No. 1046 Teresa

St., Brgy. Valenzuela, Makati City.xxxii[12] Upon Papio’s pleas to continue staying in the property, they executed a two-year lease contractxxxiii[13] which commenced on May 1, 1982. The monthly rental was P800.00. Thereafter, TCT No. 114478xxxiv[14] was issued in her favor and she paid all the realty taxes due on the property. When the term of the lease expired, she still allowed Papio and his family to continue leasing the property. However, he took advantage of her absence and stopped payment beginning January 1986, and refused to pay despite repeated demands. In June 1998, she sent a demand letterxxxv[15] through counsel requiring Papio to pay rentals from January 1986 up to May 1998 and to vacate the leased property. The accumulated arrears in rental are as follows: (a) P360,000.00 from January 1, 1986 to December 31, 1997 at P2,500.00 per month; and (b) P50,000.00, from January 1, 1998 to May 31, 1998 at P10,000.00 per month.xxxvi

[16] She came to the Philippines but all efforts at an amicable settlement proved futile. Thus, in April 1999, she sent the final demand letter to defendant directing him and his family to pay and immediately vacate the leased premises.xxxvii[17]

 Roberts appended to her complaint copies of the April 13, 1982 Deed of Absolute Sale, the April 15, 1982

Contract of Lease, and TCT No. 114478.  In his Answer with counterclaim, Papio alleged the following:  He executed the April 13, 1982 deed of absolute sale and the contract of lease. Roberts, his cousin who is a

resident of California, United States of America (USA), arrived in the Philippines and offered to redeem the property. Believing that she had made the offer for the purpose of retaining his ownership over the property, he accepted. She then remitted P59,000.00 to the mortgagor for his account, after which the mortgagee cancelled the real estate mortgage. However, he was alarmed when the plaintiff had a deed of absolute sale over the property prepared (for P83,000.00 as consideration) and asked him to sign the same. She also demanded that the defendant turn over the owner’s duplicate of TCT No. S-44980. The defendant was in a quandary. He then believed that if he signed the deed of absolute sale,

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Roberts would acquire ownership over the property. He asked her to allow him to redeem or reacquire the property at any time for a reasonable amount.xxxviii[18] When Roberts agreed, Papio signed the deed of absolute sale.

Pursuant to the right to redeem/repurchase given him by Roberts, Papio purchased the property for P250,000.00. In July 1985, since Roberts was by then already in the USA, he remitted to her authorized representative, Perlita Ventura, the amount of P150,000.00 as partial payment for the property.xxxix[19] On June 16, 1986, she again remitted P100,000.00, through Ventura. Both payments were evidenced by receipts signed by Ventura.xl[20] Roberts then declared that she would execute a deed of absolute sale and surrender the title to the property. However, Ventura had apparently misappropriated P39,000.00 out of the P250,000.00 that she had received; Roberts then demanded that she pay the amount misappropriated before executing the deed of absolute sale. Thus, the sole reason why Roberts refused to abide by her promise was the failure of her authorized representative to remit the full amount of P250,000.00. Despite Papio’s demands, Roberts refused to execute a deed of absolute sale. Accordingly, defendant posited that plaintiff had no cause of action to demand payment of rental and eject him from the property.

 Papio appended to his Answer the following: (1) the letter dated July 18, 1986 of Perlita Ventura to the plaintiff

wherein the former admitted having used the money of the plaintiff to defray the plane fares of Perlita’s parents to the USA, and pleaded that she be allowed to repay the amount within one year; (b) the letter of Eugene Roberts (plaintiff’s husband) to Perlita Ventura dated July 25, 1986 where he accused Ventura of stealing the money of plaintiff Amelia (thus preventing the latter from paying her loan on her house and effect the cancellation of the mortgage), and demanded that she deposit the balance;xli[21] and (c) plaintiff’s letter to defendant Papio dated July 25, 1986 requesting the latter to convince Ventura to remit the balance of P39,000.00 so that the plaintiff could transfer the title of the property to the defendant.xlii[22]

 Papio asserted that the letters of Roberts and her husband are in themselves admissions or declarations against

interest, hence, admissible to prove that he had reacquired the property although the title was still in her possession.  

In her Affidavit and Position Paper,xliii[23] Roberts averred that she had paid the real estate taxes on the property after she had purchased it; Papio’s initial right to occupy the property was terminated when the original lease period expired; and his continued possession was only by mere tolerance. She further alleged that the Deed of Sale states on its face that the conveyance of the property was absolute and unconditional. She also claimed that any right to repurchase the property must appear in a public document pursuant to Article 1358, Paragraph 1, of the Civil Code of the Phililppines. xliv[24] Since no such document exists, defendant’s supposed real interest over the property could not be enforced without violating the Statute of Frauds.xlv[25] She stressed that her Torrens title to the property was an “absolute and indefeasible evidence of her ownership of the property which is binding and conclusive upon the whole world.”

 Roberts admitted that she demanded P39,000.00 from the defendant in her letter dated July 25, 1986. However,

she averred that the amount represented his back rentals on the property.xlvi[26] She declared that she neither authorized Ventura to sell the property nor to receive the purchase price therefor. She merely authorized her to receive the rentals from defendant and to deposit them in her account. She did not know that Ventura had received P250,000.00 from Papio in July 1985 and on June 16, 1986, and had signed receipts therefor. It was only on February 11, 1998 that she became aware of the receipts when she received defendant Papio’s letter to which were appended the said receipts. She and her husband offered to sell the property to the defendant in 1984 for US$15,000.00 on a “take it or leave it” basis when they arrived in the Philippines in May 1984.xlvii[27] However, defendant refused to accept the offer. The spouses then offered to sell the property anew on December 20, 1997, for P670,000.00 inclusive of back rentals.xlviii[28] However, defendant offered to settle his account with the spouses.xlix[29] Again, the offer came on January 11, 1998, but it was rejected. The defendant insisted that he had already purchased the property in July 1985 for P250,000.00.

Roberts insisted that Papio’s claim of the right to repurchase the property, as well as his claim of payment

therefor, is belied by his own letter in which he offered to settle plaintiff’s claim for back rentals. Even assuming that the purchase price of the property had been paid through Ventura, Papio did not adduce any proof to show that Ventura had been authorized to sell the property or to accept any payment thereon. Any payment to Ventura could have no binding effect on her since she was not privy to the transaction; if at all, such agreement would be binding only on Papio and Ventura.

 

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She further alleged that defendant’s own inaction belies his claim of ownership over the property: first, he failed to cause any notice or annotation to be made on the Register of Deed’s copy of TCT No. 114478 in order to protect his supposed adverse claim; second, he did not institute any action against Roberts to compel the execution of the necessary deed of transfer of title in his favor; and third, the defense of ownership over the property was raised only after Roberts demanded him to vacate the property.

Based solely on the parties’ pleadings, the MeTC rendered its January 18, 2001 Decision l[30] in favor of Roberts. The fallo of the decision reads:

 WHEREFORE, premises considered, finding this case for the plaintiff, the defendant is hereby

ordered to: 

1. Vacate the leased premises known as 1046 Teresa St., Valenzuela, Makati City; 2. Pay plaintiff the reasonable rentals accrual for the period January 1, 1996 to December 13, 1997 at the

rate equivalent to Php2,500.00 per month and thereafter, Php10,000.00 from January 1998 until he actually vacates the premises;

 3. Pay the plaintiff attorney’s fees as Php20,000.00; and 4. Pay the costs

 SO ORDERED.li[31]

  The MeTC held that Roberts merely tolerated the stay of Papio in the property after the expiration of the contract

of lease on May 1, 1984; hence, she had a cause of action against him since the only elements in an unlawful detainer action are the fact of lease and the expiration of its term. The defendant as tenant cannot controvert the title of the plaintiff or assert any right adverse thereto or set up any inconsistent right to change the existing relation between them. The plaintiff need not prove her ownership over the property inasmuch as evidence of ownership can be admitted only for the purpose of determining the character and extent of possession, and the amount of damages arising from the detention.

 The court further ruled that Papio made no denials as to the existence and authenticity of Roberts’ title to the

property. It declared that “the certificate of title is indefeasible in favor of the person whose name appears therein and incontrovertible upon the expiration of the one-year period from the date of issue,” and that a Torrens title, “which enjoys a strong presumption of regularity and validity, is generally a conclusive evidence of ownership of the land referred to therein.”

 As to Papio’s claim that the transfer of the property was one with right of repurchase, the MeTC held it to be

bereft of merit since the Deed of Sale is termed as “absolute and unconditional.” The court ruled that the right to repurchase is not a right granted to the seller by the buyer in a subsequent instrument but rather, a right reserved in the same contract of sale. Once the deed of absolute sale is executed, the seller can no longer reserve the right to repurchase; any right thereafter granted in a separate document cannot be a right of repurchase but some other right.

 As to the receipts of payment signed by Ventura, the court gave credence to Roberts’s declaration in her Affidavit

that she authorized Ventura only to collect rentals from Papio, and not to receive the repurchase price. Papio’s letter of January 31, 1998, which called her attention to the fact that she had been sending people without written authority to collect money since 1985, bolstered the court’s finding that the payment, if at all intended for the supposed repurchase, never redounded to the benefit of the spouses Roberts.

 Papio appealed the decision to the RTC, alleging the following:

 I.

THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT OUTRIGHT ON THE GROUND OF LACK OF CAUSE OF ACTION.

 

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II.THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THE DOCUMENTARY EVIDENCE ADDUCED BY DEFENDANT-APPELLANT WHICH ESTABLISHED THAT A REPURCHASE TRANSACTION EXISTED BETWEEN THE PARTIES ONLY THAT PLAINTIFF-APPELLEE WITHHELD THE EXECUTION OF THE ABSOLUTE DEED OF SALE AND THE TRANSFER OF TITLE OF THE SAME IN DEFENDANT-APPELLANT’S NAME.

 III.THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THAT THE LETTERS OF PLAINTIFF-[APPELLEE] AND OF HER HUSBAND ADDRESSED TO DEFENDANT-APPELLANT AND HIS WIFE ARE IN THEMSELVES ADMISSION AND/OR DECLARATION OF THE FACT THAT DEFENDANT-APPELLANT HAD DULY PAID PLAINTIFF-APPELLEE OF THE PURCHASE AMOUNT COVERING THE SUBJECT PROPERTY.

 IV.

THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT OUTRIGHT CONSIDERING THAT PLAINTIFF-APPELLEE WHO IS [AN] AMERICAN CITIZEN AND RESIDENT THEREIN HAD NOT APPEARED IN COURT ONCE, NEITHER WAS HER ALLEGED ATTORNEY-IN-FACT, MATILDE AGUILAR NOR [DID] THE LATTER EVER [FURNISH] THE LOWER COURT A SPECIAL POWER OF ATTORNEY AUTHORIZING HER TO APPEAR IN COURT IN BEHALF OF HER PRINCIPAL.lii[32]

  Papio maintained that Roberts had no cause of action for eviction because she had already ceded her right thereto

when she allowed him to redeem and reacquire the property upon payment of P250,000.00 to Ventura, her duly authorized representative. He also contended that Roberts’s claim that the authority of Ventura is limited only to the collection of the rentals and not of the purchase price was a mere afterthought, since her appended Affidavit was executed sometime in October 1999 when the proceedings in the MeTC had already started.

 On March 26, 2001, Roberts filed a Motion for Issuance of Writ of Execution. liii[33] The court granted the motion

in an Orderliv[34] dated June 19, 2001. Subsequently, a Writ of Execution lv[35] pending appeal was issued on September 28, 2001. On October 29, 2001, Sheriff Melvin M. Alidon enforced the writ and placed Roberts in possession of the property.

 Meanwhile, Papio filed a complaint with the RTC of Makati City, for specific performance with damages against

Roberts. Papio, as plaintiff, claimed that he entered into a contract of sale with pacto de retro with Roberts, and prayed that the latter be ordered to execute a Deed of Sale over `the property in his favor and transfer the title over the property to and in his name. The case was docketed as Civil Case No. 01-851.

 On October 24, 2001, the RTC rendered judgment affirming the appealed decision of the MeTC. The fallo of the

decision reads:lvi[36]  Being in accordance with law and the circumstances attendant to the instant case, the court finds

merit in plaintiff-appellee’s claim. Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed in toto. 

SO ORDERED.lvii[37]

  Both parties filed their respective motions for reconsideration. lviii[38] In an Orderlix[39] dated February 26, 2002, the

court denied the motion of Papio but modified its decision declaring that the computation of the accrued rentals should commence from January 1986, not January 1996. The decretal portion of the decision reads:

 Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed with modification

that defendant pay plaintiff the reasonable rentals accrued for the period January 1, 1986 to December [31, 1997] per month and thereafter and P10,000.00 [per month] from January 1998 to October 28, 2001 when defendant-appellant actually vacated the subject leased premises. 

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SO ORDERED.lx[40]   

On February 28, 2002, Papio filed a petition for review lxi[41] in the CA, alleging that the RTC erred in not finding that he had reacquired the property from Roberts for P250,000.00, but the latter refused to execute a deed of absolute sale and transfer the title in his favor. He insisted that the MeTC and the RTC erred in giving credence to petitioner’s claim that she did not authorize Ventura to receive his payments for the purchase price of the property, citing Roberts’ letter dated July 25, 1986 and the letter of Eugene Roberts to Ventura of even date. He also averred that the MeTC and the RTC erred in not considering his documentary evidence in deciding the case. On August 31, 2004, the CA rendered judgment granting the petition. The appellate court set aside the decision of the RTC and ordered the RTC to dismiss the complaint. The decretal portion of the Decisionlxii[42] reads:

 WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE and a new

one entered: (1) rendering an initial determination that the “Deed of Absolute Sale” dated April 13, 1982 is in fact an equitable mortgage under Article 1603 of the New Civil Code; and (2) resolving therefore that petitioner Martin B. Papio is entitled to possession of the property subject of this action; (3) But such determination of ownership and equitable mortgage are not clothed with finality and will not constitute a binding and conclusive adjudication on the merits with respect to the issue of ownership and such judgment shall not bar an action between the same parties respecting title to the land, nor shall it be held conclusive of the facts therein found in the case between the same parties upon a different cause of action not involving possession. All other counterclaims for damages are hereby dismissed. Cost against the respondent.

 SO ORDERED.lxiii[43]

  

According to the appellate court, although the MeTC and RTC were correct in holding that the MeTC had jurisdiction over the complaint for unlawful detainer, they erred in ignoring Papio’s defense of equitable mortgage, and in not finding that the transaction covered by the deed of absolute sale by and between the parties was one of equitable mortgage under Article 1602 of the New Civil Code. The appellate court ruled that Papio retained the ownership of the property and its peaceful possession; hence, the MeTC should have dismissed the complaint without prejudice to the outcome of Civil Case No. 01-851 relative to his claim of ownership over the property.

 Roberts filed a motion for reconsideration of the decision on the following grounds:

 I.         Petitioner did not allege in his Answer the defense of equitable mortgage; hence, the lower courts

[should] not have discussed the same; 

II. Even assuming that Petitioner alleged the defense of equitable mortgage, the MeTC could not have ruled upon the said defense,

 III. The M[e]TC and the RTC were not remiss in the exercise of their jurisdiction.lxiv[44]

 The CA denied the motion.  In this petition for review, Amelia Salvador-Roberts, as petitioner, avers that:

  

I.     THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN DECLARING THAT THE M[e]TC AN(D) THE RTC WERE REMISS IN THE EXERCISE OF THAT JURISDICTION ACQUIRED BECAUSE IT DID NOT CONSIDER ALL PETITIONER’S DEFENSE OF EQUITABLE MORTGAGE.

 

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II.     THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN REQUIRING THE M[e]TC AND RTC TO RULE ON A DEFENSE WHICH WAS NEVER AVAILED OF BY RESPONDENT.lxv[45]

  Petitioner argues that respondent is barred from raising the issue of equitable mortgage because his defense in the

MeTC and RTC was that he had repurchased the property from the petitioner; by such representation, he had impliedly admitted the existence and validity of the deed of absolute sale whereby ownership of the property was transferred to petitioner but reverted to him upon the exercise of said right. The respondent even filed a complaint for specific performance with damages, which is now pending in the RTC of Makati City, docketed as Civil Case No. 01-851 entitled “Martin B. Papio vs. Amelia Salvador-Roberts.” In that case, respondent claimed that his transaction with the petitioner was a sale with pacto de retro. Petitioner posits that Article 1602 of the Civil Code applies only when the defendant specifically alleges this defense. Consequently, the appellate court was proscribed from finding that petitioner and respondent had entered into an equitable mortgage under the deed of absolute sale.

 Petitioner further avers that respondent was ably represented by counsel and was aware of the difference between

a pacto de retro sale and an equitable mortgage; thus, he could not have been mistaken in declaring that he repurchased the property from her.

 As to whether a sale is in fact an equitable mortgage, petitioner claims that the issue should be properly addressed

and resolved by the RTC in an action to enforce ownership, not in an ejectment case before the MeTC where the main issue involved is possession de facto. According to her, the obvious import of the CA Decision is that, in resolving an ejectment case, the lower court must pass upon the issue of ownership (in this case, by applying the presumptions under Art. 1602) which, in effect, would use the same yardstick as though it is the main action. The procedure will not only promote multiplicity of suits but also place the new owner in the absurd position of having to first seek the declaration of ownership before filing an ejectment suit.

 Respondent counters that the defense of equitable mortgage need not be particularly stated to apprise petitioner of

the nature and character of the repurchase agreement. He contends that he had amply discussed in his pleadings before the trial and appellate courts all the surrounding circumstances of the case, such as the relative situation of the parties at the time; their attitude, acts, conduct, and declarations; and the negotiations between them that led to the repurchase agreement. Thus, he argues that the CA correctly ruled that the contract was one of equitable mortgage. He insists that petitioner allowed him to redeem and reacquire the property, and accepted his full payment of the property through Ventura, the authorized representative, as shown by the signed receipts.

 The threshold issues are the following: (1) whether the MeTC had jurisdiction in an action for unlawful detainer

to resolve the issue of who between petitioner and respondent is the owner of the property and entitled to the de facto possession thereof; (2) whether the transaction entered into between the parties under the Deed of Absolute Sale and the Contract of Lease is an equitable mortgage over the property; and (3) whether the petitioner is entitled to the material or de facto possession of the property.

 The Ruling of the Court

 On the first issue, the CA ruling (which upheld the jurisdiction of the MeTC to resolve the issue of who between

petitioner or respondent is the lawful owner of the property, and is thus entitled to the material or de facto possession thereof) is correct. Section 18, Rule 70 of the Rules of Court provides that when the defendant raises the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession. The judgment rendered in an action for unlawful detainer shall be conclusive with respect to the possession only and shall in no wise bind the title or affect the ownership of the land or building. Such judgment would not bar an action between the same parties respecting title to the land or building.lxvi[46]

 The summary nature of the action is not changed by the claim of ownership of the property of the defendant. lxvii[47]

The MeTC is not divested of its jurisdiction over the unlawful detainer action simply because the defendant asserts ownership over the property.

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 The sole issue for resolution in an action for unlawful detainer is material or de facto possession of the property.

Even if the defendant claims juridical possession or ownership over the property based on a claim that his transaction with the plaintiff relative to the property is merely an equitable mortgage, or that he had repurchased the property from the plaintiff, the MeTC may still delve into and take cognizance of the case and make an initial or provisional determination of who between the plaintiff and the defendant is the owner and, in the process, resolve the issue of who is entitled to the possession. The MeTC, in unlawful detainer case, decides the question of ownership only if it is intertwined with and necessary to resolve the issue of possession.lxviii[48] The resolution of the MeTC on the ownership of the property is merely provisional or interlocutory. Any question involving the issue of ownership should be raised and resolved in a separate action brought specifically to settle the question with finality, in this case, Civil Case No. 01-851 which respondent filed before the RTC.

 The ruling of the CA, that the contract between petitioner and respondent was an equitable mortgage, is incorrect.

The fact of the matter is that the respondent intransigently alleged in his answer, and even in his affidavit and position paper, that petitioner had granted him the right to redeem or repurchase the property at any time and for a reasonable amount; and that, he had, in fact, repurchased the property in July 1985 for P250,000.00 which he remitted to petitioner through an authorized representative who signed receipts therefor; he had reacquired ownership and juridical possession of the property after his repurchase thereof in 1985; and consequently, petitioner was obliged to execute a deed of absolute sale over the property in his favor.

 Notably, respondent alleged that, as stated in his letter to petitioner, he was given the right to reacquire the

property in 1982 within two years upon the payment of P53,000.00, plus petitioner’s airfare for her trip to the Philippines from the USA and back; petitioner promised to sign the deed of absolute sale. He even filed a complaint against the petitioner in the RTC, docketed as Civil Case No. 01-851, for specific performance with damages to compel petitioner to execute the said deed of absolute sale over the property presumably on the strength of Articles 1357 and 1358 of the New Civil Code. Certainly then, his claim that petitioner had given him the right to repurchase the property is antithetical to an equitable mortgage.

  An equitable mortgage is one that, although lacking in some formality, form or words, or other requisites

demanded by a statute, nevertheless reveals the intention of the parties to change a real property as security for a debt and contain nothing impossible or contrary to law.lxix[49] A contract between the parties is an equitable mortgage if the following requisites are present: (a) the parties entered into a contract denominated as a contract of sale; and (b) the intention was to secure an existing debt by way of mortgage.lxx[50] The decisive factor is the intention of the parties.

 In an equitable mortgage, the mortgagor retains ownership over the property but subject to foreclosure and sale at

public auction upon failure of the mortgagor to pay his obligation. lxxi[51] In contrast, in a pacto de retro sale, ownership of the property sold is immediately transferred to the vendee a retro subject only to the right of the vendor a retro to repurchase the property upon compliance with legal requirements for the repurchase. The failure of the vendor a retro to exercise the right to repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title over the property.lxxii[52]

 One repurchases only what one has previously sold. The right to repurchase presupposes a valid contract of sale

between the same parties.lxxiii[53] By insisting that he had repurchased the property, respondent thereby admitted that the deed of absolute sale executed by him and petitioner on April 13, 1982 was, in fact and in law, a deed of absolute sale and not an equitable mortgage; hence, he had acquired ownership over the property based on said deed. Respondent is, thus, estopped from asserting that the contract under the deed of absolute sale is an equitable mortgage unless there is allegation and evidence of palpable mistake on the part of respondent;lxxiv[54] or a fraud on the part of petitioner. Respondent made no such allegation in his pleadings and affidavit. On the contrary, he maintained that petitioner had sold the property to him in July 1985 and acknowledged receipt of the purchase price thereof except the amount of P39,000.00 retained by Perlita Ventura. Respondent is thus bound by his admission of petitioner’s ownership of the property and is barred from claiming otherwise.lxxv[55]

 Respondent’s admission that petitioner acquired ownership over the property under the April 13, 1982 deed of

absolute sale is buttressed by his admission in the Contract of Lease dated April 15, 1982 that petitioner was the owner of the property, and that he had paid the rentals for the duration of the contract of lease and even until 1985 upon its

20

extension. Respondent was obliged to prove his defense that petitioner had given him the right to repurchase, and that petitioner obliged herself to resell the property for P250,000.00 when they executed the April 13, 1982 deed of absolute sale.

 We have carefully reviewed the case and find that respondent failed to adduce competent and credible evidence to

prove his claim. As gleaned from the April 13, 1982 deed, the right of respondent to repurchase the property is not incorporated

therein. The contract is one of absolute sale and not one with right to repurchase. The law states 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 stipulations shall control.lxxvi[56] When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it any other intention that would contradict its plain import. lxxvii[57] The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves, or the imposition upon one party to a contract or obligation to assume simply or merely to avoid seeming hardships. lxxviii[58] Their true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects. lxxix[59] As the Court held in Villarica, et al. v. Court of Appeals:lxxx[60]

 The right of repurchase is not a right granted the vendor by the vendee in a subsequent

instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case.lxxxi[61]

 In Ramos v. Icasiano,lxxxii[62] we also held that an agreement to repurchase becomes a promise to sell when made

after the sale because when the sale is made without such agreement the purchaser acquires the thing sold absolutely; and, if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser as absolute owner. An option to buy or a promise to sell is different and distinct from the right of repurchase that must be reserved by means of stipulations to that effect in the contract of sale.lxxxiii[63]

 There is no evidence on record that, on or before July 1985, petitioner agreed to sell her property to the

respondent for P250,000.00. Neither is there any documentary evidence showing that Ventura was authorized to offer for sale or sell the property for and in behalf of petitioner for P250,000.00, or to receive the said amount from respondent as purchase price of the property. The rule is that when a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void lxxxiv[64] and cannot produce any legal effect as to transfer the property from its lawful owner.lxxxv[65] Being inexistent and void from the very beginning, said contract cannot be ratified.lxxxvi[66] Any contract entered into by Ventura for and in behalf of petitioner relative to the sale of the property is void and cannot be ratified by the latter. A void contract produces no effect either against or in favor of anyone.lxxxvii[67]

 Respondent also failed to prove that the negotiations between him and petitioner has culminated in his offer to

buy the property for P250,000.00, and that they later on agreed to the sale of the property for the same amount. He likewise failed to prove that he purchased and reacquired the property in July 1985. The evidence on record shows that petitioner had offered to sell the property for US$15,000 on a “take it or leave it” basis in May 1984 upon the expiration of the Contract of Leaselxxxviii[68] —an offer that was rejected by respondent—which is why on December 30, 1997, petitioner and her husband offered again to sell the property to respondent for P670,000.00 inclusive of back rentals and the purchase price of the property under the April 13, 1982 Deed of absolute Sale. lxxxix[69] The offer was again rejected by respondent. The final offer appears to have been made on January 11, 1998xc[70] but again, like the previous negotiations, no contract was perfected between the parties.

 A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to

give something or to render some service.xci[71] Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur:

 (1)       Consent of the contracting parties;

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(2)       Object certain which is the subject matter of the contract;(3)       Cause of the obligation which is established.  Contracts are perfected by mere consent manifested by the meeting of the offer and the acceptance upon the thing

and the cause which are to constitute the contract.xcii[72] Once perfected, they bind the contracting parties and the obligations arising therefrom have the form of law between the parties which must be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.xciii[73]

 There was no contract of sale entered into by the parties based on the Receipts dated July 1985 and June 16, 1986,

signed by Perlita Ventura and the letter of petitioner to respondent dated July 25, 1986. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a

determinate thing and the other, to pay therefor a price certain in money or its equivalent. xciv[74] The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:xcv[75]

 A definite agreement as to the price is an essential element of a binding agreement to sell

personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.xcvi[76]

  

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract. xcvii[77] When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.xcviii[78]

 Respondent’s reliance on petitioner’s letter to him dated July 25, 1986 is misplaced. The letter reads in full:

 7-25-86

 Dear Martin & Ising,

 Enclosed for your information is the letter written by my husband to Perlita. I hope that you will

be able to convince your cousin that it’s to her best interest to deposit the balance of your payment to me of P39,000.00 in my bank acct. per our agreement and send me my bank book right away so that we can transfer the title of the property.

 Regards, Amie xcix[79]

  

We have carefully considered the letter of Perlita Ventura, dated July 18, 1986, and the letter of Eugene Roberts, dated July 25, 1986, where Ventura admitted having used the money of petitioner amounting to P39,000.00 without the latter’s knowledge for the plane fare of Ventura’s parents. Ventura promised to refund the amount of P39,000.00, inclusive of interests, within one year.c[80] Eugene Roberts berated Ventura and called her a thief for stealing his and petitioner’s money and that of respondent’s wife, Ising, who allegedly told petitioner that she, Ising, loaned the money to her parents for their plane fare to the USA. Neither Ventura nor Eugene Roberts declared in their letters that Ventura had used the P250,000.00 which respondent gave to her.  

Petitioner in her letter to respondent did not admit, either expressly or impliedly, having received P211,000.00 from Ventura. Moreover, in her letter to petitioner, only a week earlier, or on July 18, 1986, Ventura admitted having spent the P39,000.00 and pleaded that she be allowed to refund the amount within one (1) year, including interests.

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 Naririto ang total ng pera mo sa bankbook mo, P55,000.00 pati na yong deposit na sarili mo at

bale ang nagalaw ko diyan ay P39,000.00. Huwag kang mag-alala ibabalik ko rin sa iyo sa loob ng isang taon pati interest.

Ate Perci[81]

  

It is incredible that Ventura was able to remit to petitioner P211,000.00 before July 25, 1986 when only a week earlier, she was pleading to petitioner for a period of one year within which to refund the P39,000.00 to petitioner.

It would have bolstered his cause if respondent had submitted an affidavit of Ventura stating that she had remitted P211,000.00 out of the P250,000.00 she received from respondent in July 1985 and June 20, 1986.

 IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of

Appeals in CA-G.R. CV No. 69034 is REVERSED and SET ASIDE. The Decision of the Metropolitan Trial Court, affirmed with modification by the Regional Trial Court, is AFFIRMED.

 SO ORDERED.

  

5. THIRD DIVISION R.R. PAREDES, W.S. TIFFANY, T.R. KOTZE, H. MUSSAIN, FRANCISCO A. CRUZ, EDGARDO C. CATAGUIS, E.M. LAPUZ, ATTY. JOSELIA POBLADOR, JOSE DE LUSONG, EDUARDO A. RICARDO, ATTY. ARIEL F. ABONAL, and ADOLFO GARCIA, Petitioners,  - versus-  TARCISIO S. CALILUNG, Respondent.

  G.R. No. 156055 Present: YNARES-SANTIAGO, J., Chairperson,AUSTRIA-MARTINEZ, CALLEJO, SR.,* CHICO-NAZARIO, andNACHURA, JJ.    Promulgated:  March 5, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x D E C I S I O N  CHICO-NAZARIO, J.:  

Before this Court is a Petition for Review on Certioraricii[1] under Rule 45 of the Rules of Court seeking the reversal and setting aside of the Decision,ciii[2] dated 29 January 2001, and Resolution,civ[3] dated 14 November 2002, of the Court of Appeals in CA-G.R. SP No. 54862. In its assailed Decision, the Court of Appeals reversed the Resolution, cv[4]

dated 27 July 1998, of the Department of Justice (DOJ), which affirmed the Resolution, cvi[5] dated 7 October 1997, of the Makati City Prosecution Office, finding no probable cause and dismissing the herein respondent’s complaint, docketed as I.S. No. 97-22188-191; and, instead, disposed as follows –

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 WHEREFORE, the resolution of the Department of Justice dated November 26, 1997, is hereby

set aside. The Prosecutor of Makati, is hereby Ordered to file an information of Estafa against the respondents.

  

During the time material to the Petition at bar, petitioners Francisco A. Cruz (Cruz), Edgardo C. Cataguis (Cataguis), Atty. Joselia J. Poblador (Atty. Poblador), Jose De Lusong (De Lusong), Eduardo A. Ricardo (Ricardo), and Atty. Ariel F. Abonal (Atty. Abonal) were serving, in various capacities, as officials of Caltex Philippines, Inc. (CPI). Petitioner Cruz was the Vice President for Corporate Planning and a member of the Board of Directors of CPI; petitioner Cataguis was the General Manager for Marketing and also a member of the Board of Directors of CPI; petitioner Atty. Poblador was the Corporate Secretary and General Manager for Legal and Tax of CPI; petitioner De Lusong was the General Manager for Marketing Retail of CPI; petitioner Ricardo was the General Manager for Marketing of CPI for the years 1990-1996; and petitioner Atty. Abonal was the internal Legal Counsel of CPI.

 On 3 May 1997, respondent Tarcisio S. Calilung (Atty. Calilung), a lawyer and a businessman, instituted a

Complaint, docketed as I.S. No. 97-22188-191, against the aforementioned petitioners and several others. Respondent included in his complaint R.R. Paredes, W.S. Tiffany, T.R. Kotze, H. Mussain, and E.M. Lapuz, who had likewise served as officials of CPI but are no longer connected with the company and whose whereabouts as of present time are unknown. They did not participate in any proceedings. Respondent also included in his complaint Adolfo B. Garcia (Garcia), the Deputy Sheriff of the Manila Regional Trial Court (RTC), Branch 31, who participated in the proceedings before the Makati City Prosecution Office and the DOJ, but no longer participated in the instant petition.

 In his complaint before the Makati City Prosecution Office, respondent charged petitioners, et al., with several

counts of estafa. Respondent’s Original Complaint was summarized in the Resolution, cvii[6] dated 7 October 1997, of the Makati City Prosecution Office, to wit –

 [Herein respondent] Tarcisio S. Calilung alleged that [herein petitioner] Atty. Joselia Poblador,

Chief Legal Counsel of Caltex Philippines (Caltex for brevity) negotiated to him the sale of several parcels of land consisting of 228.9 hectares, more or less[,] situated at Barrio Alibagu, Ilagan, Isabela. Atty. Poblador represented to [respondent] that Caltex is the absolute owner of all the parcels [of] land as it acquired the same at a Sheriff’s Auction Sale, a copy of a Sheriff’s Certificate of Final Sale was shown to [respondent]. Likewise, Atty. Poblador represented and assured complainant that subject property is not covered by the Agrarian Reform Program and that the adverse occupants thereof are mere squatters. Consequently, [respondent] paid the total amount of P3.5 Million for all the said parcels of land in two payments. Thereupon, a Deed of Assignment with Consolidation of Title dated June 22, 1995 was executed between Caltex Philippines and Tarcisio S. Calilung. Later, [respondent] discovered that none of the representations made to him by [petitioner] Atty. Poblador is true. Contrary to Atty. Poblador’s representation, Caltex Philippines is not the absolute owner of the several parcels of land sold to him. Accordingly, the several parcels of land are owned by the heirs of Antonia Medina (sic). Caltex Philippines is the owner of only one share of the co-heirs which it acquired at the Sheriff’s Auction. Further, [respondent] learned that on August 3, 1993, Caltex thru E.A. Ricardo, manager for Marketing, has already sold the subject parcels of land to the Department of Agrarian Reform under Voluntary Offer To Sell program of the Government. Also, complainant averred that the Sheriff’s Certificate of Final Sale executed by Deputy Sheriff Adolfo Garcia shown to him was falsified as it showed that Caltex’s bid of P2.7 Million was successful and it is the absolute owner of all the parcels of land. The truth however, is that Caltex is the owner of only one share of one of the co-heirs. Lastly, Caltex through E.A. Ricardo misrepresented to the Department of Agrarian Reform that the subject property is agricultural inorder (sic) that it will qualify and be sold under the Agrarian Reform Program. The truth of the matter is the said parcels of land are pasturelands thus, exempt from the coverage of the Agrarian Reform Program. Hence, [respondent] filed this complaint for Estafa against R.H. Paredes, W.S. Tiffany, T.R. Kotze, H. Mussain, F.A. Cruz, E.C. Cataguis, E.M. Lauz who are members of the Board of Caltex Philippines, Atty. Joselia Poblador, Chief Legal Counsel, Jose De Lusong, signatory of the Deed of Assignment and E.A. Ricardo, manager for Marketing and Atty. Ariel F. Abonal, assistant Secretary to the Board of Caltex Philippines who according to him acted in concert in perpetrating the crime charged. Likewise, a

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complaint for Falsification is instituted against Adolfo Garcia who connived with the above-mentioned officers/members of the Board of Caltex Philippines for falsification.

  

To answer the respondent’s accusations against them, petitioners Atty. Poblador, Cruz, Cataguis, De Lusong, and Ricardo, submitted their Joint Counter-Affidavit,cviii[7] averring that the respondent’s complaint was without basis in fact and in law, and that they could not be held liable for estafa. The contents of their Joint Counter-Affidavit were concisely recounted by the Makati City Prosecutor in her Resolution,cix[8] dated 7 October 1997 –

 Jose de Lusong and Atty. Poblador claimed that they did not at any time represent that Caltex

Philippines is the absolute owner of the entire subject parcels of land. [Herein petitioners] narrated that Caltex’s rights and interests on subject parcels of land arose

from Civil Case No. 84-22434 entitled Caltex Philippines vs. Antonia Vda. de Medina at Branch 31, RTC-Manila. Antonia Vda. de Medina is Caltex’s judgment debtor and is [respondent’s] mother-in-law. During the pendency of the case, or on February 7, 1984, 5 Notices of Levy on Attachment were issued against the rights, titles and interest of [respondent’s] mother-in-law. The undivided shares of the other heirs, two (2) children of Antonia Vda. de Medina were never levied. On September 17, 1984, a decision was rendered in favor of Caltex Philippines and the same became final and executory. On July 24, 1989, a Writ of Execution was issued. On July 24, 1989, Deputy Sheriff Adolfo B. Garcia issued a Notice of Levy Execution [sic] where only the shares, rights and interests of [respondent’s] mother-in-law over subject parcels of land were levied upon. Likewise, a notice of Sheriff’s Sale was issued. On August 23, 1989, Caltex, through Atty. Rafael Durian bidded P4.5 Million for the purchase of the rights, shares of [respondent’s] mother-in-law in subject parcels of land. Consequently, the subject parcels of land (shares and interests of Antonia Vda. de Medina which is 66.67% of the entire property) were sold to Caltex Philippines in the amount of P2,785,620.00. After the execution of the sale, [respondent’s] mother-in-law was given one (1) year within which to redeem her interest over the subject land.

 After the lapse of the one (1) year redemption period given to Antonia Vda. de Medina,

[respondent] went to Caltex office and propose [sic] to reacquire the interest of Antonia Vda. de Medina and to pay the defficiency (sic) judgment obligation of his mother-in-law. Caltex Philippines, through its office accepted the proposal of [respondent] to buy the parcels of land. Complainant further requested that all cases against his mother-in-law be withdrawn. Caltex Philippines agreed and the sale of the said subject parcels of land to [respondent] in the amount of P3.5 Million materialized. On the first payment made by the [respondent], Caltex Philippines executed a Deed of Waiver and Quitclaim in all cases filed against [respondent’s] mother-in-law. Thereupon, a Deed of Assignment with Consolidation of Title was executed by herein parties after the balance [thereof] was tendered by [respondent].

 On the alleged sale by Caltex Philippines of subject parcels of land to the Department of Agrarian

Reform, [petitioners] denied having sold the same to DAR. According to [petitioners], it was Antonia Vda. de Medina through her attorney-in-fact Carlito Baluang who transacted the voluntary Officer (sic) To Sell with the Department of Agrarian Reform sometime in 1988 and 1989. Subsequently, by virtue of the Deed of Assignment (With Special Power of Attorney Couple (sic) With Interest) executed by Antonia Vda. de Medina ceded in favor of Caltex Philippines, wherein Antonia Vda. de Medina “all her rights, interests, claims and participation from the proceeds of land compensation for all the property that she has voluntarily offered to sell” to Caltex Philippines and constituted the latter as its (sic) exclusive attorney-in-fact to follow-up with the Department of Agrarian Reform. Accordingly, this matter is make (sic) known to [respondent]. It was on the strength of [respondent’s] relation to Antonia Vda. de Medina and his assurance that he has connections with DAR that CPI decided to sell subject property to [respondent].

 [Petitioners] denied the allegation of [respondent] that Caltex officers and directors conspire (sic)

with Deputy Sheriff Adolfo B. Garcia and notary Public Atty. Ariel Abonal in the falsification of the

cviii[7] Id. at 211-227.cix[8] Id. at 266-267.

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Sheriff’s Certificate of Final Sale by representing that Caltex bidded for the entirety of all the parcels of land subject of the sale and using the said falsified documents to convince [respondent] of Caltex’s absolute title over the subject parcels of land.

 Lastly, the declaration [of] Mr. Eduardo A. Ricardo that subject parcels of land is (sic)

agricultural in nature in the Voluntary Officer (sic) To Sell to the DAR can hardly be considered a crime moreso that there is no other proof presented than the mere self-serving statement of Mr. Ricardo. Besides, in the Deed of Assignment with Consolidation of Title, there is not (sic) warranty as to the properties[’] classification or primary use given.

  

Deputy Sheriff Garcia submitted his own Counter-Affidavit with a Counter-Complaint for Perjury.cx[9] He essentially affirmed the narration made in the petitioners’ Joint Counter-Affidavit, particularly, the events arising from Civil Case No. 84-22434, instituted by CPI against respondent’s mother-in-law, Antonia Vda. de Medina, before the Manila RTC. After the Decision, dated 17 September 1984, rendered by the Manila RTC against Antonia Vda. de Medina, became final and executory, and upon failure of Antonia Vda. de Medina to pay her judgment debt to CPI, Deputy Sheriff Garcia proceeded to implement the Writ of Execution which levied upon Antonia Vda. de Medina’s rights, interests, title and participation in the subject real properties. At the execution sale held on 24 August 1989, CPI won the bidding. It bought Antonia Vda. de Medina’s limited interests over the subject real properties in the total amount of P4.5 Million. CPI’s winning bid was broken downcxi[10] as follows –

P2,785,620.00 For the parcels of land covered by TCT Nos. T-132694, T-133034, T-94234, T-124684, T-139590, T-138153, T-138154, T-138155, T-133033, T-133021, T-133022, T-133023, T-133024, T-133025, T-133026, T-133027, T-133028, T-133029, T-133030, T-133031, T-133032, T-133033 and T-133034; and,

 P1,714,380.00 For the parcels of land covered by Tax Declaration

Nos. 01-262, 01-265, 01-25080, 01-29376 and 01-23470

 P4,500,000.00 Total

 When Antonia Vda. de Medina failed to redeem her interest in the subject real properties within a year from the execution sale, ownership over the said interest was consolidated in CPI. Deputy Sheriff Garcia explained that he prepared the Final Certification of Sale on 24 October 1990, although it was notarized only on 1 February 1994. He denied that he ever conspired with CPI, through its officers and directors, to make false representations to respondent that CPI was the absolute owner of the subject real properties; to maliciously conceal from respondent that CPI already sold the subject real properties to the Department of Agrarian Reform (DAR); or to falsify the Sheriff’s Certificate of Final Sale so as to convince respondent that CPI had absolute title over the subject real properties. He averred that he conducted the execution sale as part of his official duties and in accordance with the Rules of Court and the judgment issued by the Manila RTC in Civil Case No. 84-22434. He also maintained that only the rights and interests of Antonia Vda. de Medina over the subject real properties were covered by the execution.

 Respondent submitted a Reply-Affidavit in which he insisted that the concealment of a prior sale, the falsification

of the Sheriff’s Certificate of Final Sale and the conspiracy among the petitioners, et al., and the others can be readily seen. Once again, reference is herein made to the Resolution, dated 7 October 1997 of the Makati City Prosecution Office which relatedcxii[11] thus –

 [Herein respondent] alleged that he married the daughter of Antonia Vda. de Medina on

November 22, 1994. In early November of 1994, Atty. Villacorta, [respondent’s] counsel, inquired from Caltex about the redemption of subject parcels of land. Caltex refused their offer to redeem the property because the period for redemptions (sic) has long expired. However, Caltex proposed that if they are interested in the remaining subject properties, they can purchase the same, Caltex demanded for P9

26

Million for the fourteen (14) parcels of land consisting of 228.9 hectares. Caltex never informed [respondent] or his counsel that the entire properties were sold to DAR for [P]1 Million. On November 1994, [respondent] formally offered to buy the entire fourteen (14) parcels of land [pay for] P3.5 Million as earnest money which was accepted by Atty. Poblador. Even if the titles over the subject parcels of land was (sic) still in the name of Antonia Medina (sic), he believed Atty. Poblador’s representation that Caltex is the absolute owner by virtue of the Sheriff’s Certificate of Final Sale handed to him. Nowhere in the Sheriff’s Certificate of Final Sale that only ¼ undivided share of Antonia Medina was auctioned.

 The certificate of Final Sale was dated October 24, 1990 but notarized only on November 15,

1994, which is more than a week before he paid the earnest money on November 29, 1994. Lastly, the declared sale price of P2,785,620.00 does not correspond to the written winning bid by Caltex for P4.5 Million.

  

To support his foregoing allegations, respondent also submitted the Affidavitcxiii[12] of his counsel, Atty. Rolando A. Villacorta (Atty. Villacorta), who supposedly represented and assisted him during the negotiations with CPI for the purchase of the subject real properties. Atty. Villacorta attested that he met with both petitioners Attys. Poblador and Abonal of CPI regarding respondent’s offer to purchase the subject real properties; that Atty. Poblador, in response to a direct query by respondent, expressly denied that the subject real properties were covered by the Comprehensive Agrarian Reform Program (CARP) of the Government; and that respondent was never informed that what he was purchasing was not the whole of the subject real properties, consisting of 229 hectares, but only an undivided share therein.

 In their Joint Rejoinder,cxiv[13] petitioners Cruz, Cataguis, De Lusong, Ricardo and Attys. Poblador and Abonal

denied meeting and talking to Atty. Villacorta. According to petitioners Attys. Poblador and Abonal, at the beginning of their negotiations for the purchase by respondent of the subject real properties from CPI, the latter was accompanied, not by Atty. Villacorta, but an Atty. Karl Miranda from the Office of the Solicitor General (OSG), acting as a broker. During their meeting, they discussed about the redemption of the rights, interests, and title of Antonia Vda. de Medina over the subject real properties. In their succeeding meetings, petitioners stressed that respondent was informed that CPI was selling and assigning only the limited rights, interests, and title of Antonia Vda. de Medina over the subject real properties, and that the subject real properties were under the coverage of CARP and were subject of a Voluntary Offer to Sell (VOS). Petitioners pointed out that respondent himself admitted that he was purchasing only the limited interest of Antonia Vda. de Medina in the subject real properties when he stated in his letter, cxv[14] dated 29 November 1994, addressed to CPI, that, “We are pleased to inform you that we accept your offer to sell to us for P3.5 Million your interest in the foreclosed Medina properties.”

 Moreover, to belie the attestations of respondent and Atty. Villacorta in their affidavits, petitioners presented the

Affidavits of Attys. Rodrigo B. Libunao, Jr.cxvi[15] and Catherine T. Manahan,cxvii[16] Legal Counsel and Tax Counsel, respectively, of CPI, who were also present during the meetings of petitioner Atty. Poblador with respondent. They both alleged that they were called to join the meeting in October 1994 wherein respondent was accompanied, not by Atty. Villacorta, but Atty. Miranda of the OSG; that respondent claimed to be married to Ma. Luisa Victoria Medina, the daughter of Antonia Vda. de Medina, and he was interested in acquiring CPI’s rights, interests, and title to the subject real properties in exchange for CPI’s execution of a waiver or quitclaim to secure the release of Antonia Vda. de Medina who was in prison by reason of the criminal cases filed by CPI against her; and that Atty. Poblador made full disclosure to respondent that CPI had, and was assigning to respondent, only the limited rights, interests, and title of Antonia Vda. de Medina over the subject real properties, and that the subject real properties were under the coverage of CARP and the subject of the VOS initiated by Antonia Vda. de Medina herself, through her attorney-in-fact Carlito Balauag.

 Atty. Libunao further claimed that on 1 December 1994, when respondent came unaccompanied to the CPI Office

to pay the P1 Million earnest money, Atty. Libunao again explained to him in detail the following – 

a.       That CPI was merely a co-owner of the said properties as there were other heirs to the estate, one of whom was his wife, and that only the undivided share pertaining to Antonia Vda. de Medina which we acquired in an execution sale in Civil Case No. 84-22434 could be transferred to him.

 

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b.      That photocopies of the TCT’s to the subject parcels of land were furnished, and exhibited to, him and he carefully noted that the subject parcels of land were in the name of “Heirs of Antonio Medina.”

 c.      That the subject parcels of land were covered by the Comprehensive Agrarian Reform Program

(CARP) by virtue of a Voluntary Offer to Sell signed by Antonia Vda. de Medina, through her attoreney-in-fact, Mr. Carlito Balauag. A copy of this document was also furnished Atty. Calilung.

d.      That out of the sixteen (16) parcels of land under process by the DAR, two (2) lots are ready for compensation and that the money has already been deposited by the DAR in a trust account in the Landbank branch in Tuguegarao, Cagayan.

e.      That the fourteen (14) subject parcels of land are still under process by the MARO in Ilagan, Isabela and that the latter has started to identify the actual occupants and proposed beneficiaries of the same.

 

iii[4] Exhibit “D,” records, p. 10.iv[5] Records, pp. 1-4.v[6] Id. at 35-39.vi[7] Id. at 102.vii[8] Id. at 50-51. Petitioner filed a motion for reconsideration but was denied on August 30, 1996; rollo, p. 53.viii[9] Asuncion v. Evangelista, 375 Phil. 328, 356 (1999), citing Tolentino, Arturo, Commentaries and Jurisprudence on the Civil Code of the Phil., Vol. IV, 1985 edition, p. 175.ix[10] Agas v. Sabico, G.R. No. 156447, April 26, 2005, 457 SCRA 263, 275.x[11] Rollo, p. 62.xi[12] TSN, March 11, 1986, records, p. 324.xii[13] Id. at 373.xiii[14] “1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO MILLION AND TWO HUNDRED THOUSAND (P2,200,000.00)

PESOS, Philippine Currency, less all advances paid by the Vendee to the Vendor in connection with the sale; (Emphasis supplied)xiv[15] Eastern Assurance & Surety Corporation v. Intermediate Appellate Court, G.R. No. 69450, November 22, 1988, 179 SCRA 561, 567.xv[17] Mr. Renato Dragon is the President of respondent Corporation and the signatory to the Deed of Sale. See records, p. 11. xvi[18] TSN, March 11, 1988, records, pp. 367-369.xvii[19] TSN, October 27, 1989, records, pp. 389-390.xviii[20] Paras, Civil Code, Book IV, Fourteenth edition, p. 123. xix[21] Vitug, Compendium of Civil Law and Jurisprudence, 1993 edition, p. 482.xx[22] Paras, supra.xxi

xxii

xxiii

xxiv

xxv

xxvi

xxvii

xxviii

xxix

xxx

xxxi

xxxii

xxxiii

xxxiv[14] Id. at 10.xxxv16.xxxvi[16] Id. at 15.xxxvii

xxxviii[18] Id at 24-25.xxxix[19] Id. at 29, 124.

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f.       That payment of compensation under the CARP was being delayed by the fact that the heirs of Antonio Medina have not initiated any estate settlement proceeding and that none of the heirs has ever participated in the DAR conferences, despite notice.cxviii[17]

  When Atty. Libunao again asked him if he really understood the complexities of the CARP issues affecting the subject real properties, respondent allegedly “confidently replied that he had been successful in preserving his and his family’s landholdings in Pampanga and that he will do the same for the subject parcels of land.”cxix[18]

 On 7 October 1997, the Makati City Prosecution Office wrapped up its preliminary investigation and issued its

Resolution, in which it made the following findings and recommendationscxx[19] – 

After a careful examination of the evidence obtaining in this case the undersigned finds that: (1) there appears no conceivable fraudulent representations committed by [herein petitioners, et al.] (Caltex

xl[20] Id. at 30, 125.xli[21] Id. at 33-35.xlii[22] Id. at 126-133.xliii[23] CA rollo, pp. 99-110.xliv[24] Art. 1358 of the Civil Code provides: Art. 1358. The following must appear in a public document:

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

xlv[25] Art. 1317 of the Civil Code states: Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law or right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.

xlvi[26] CA rollo, p. 110.xlvii[27] Records, p. 176.xlviii[28] Id. at 177-178.xlix[29] Id. at 179.l[30] Id. at 241-251; CA rollo, pp. 131-141.li[31] Id. at 251; id. at 141.lii[32] Records, pp. 339-340.liii[33] Id. at 286-299.liv[34] Id. at 318-321.lv[35] Id. at 381-382.lvi[36] Id. at 369-378.lvii[37] Id. at 378.lviii[38] Id. at 386-399.lix[39] Id. at 426-428.lx[40] Id. at 428. lxi[41] CA rollo, pp. 6-23.lxii[42] Rollo, pp. 24-35.lxiii[43] Id. at 35.lxiv[44] CA rollo, p. 277.lxv[45] Rollo, pp. 15-16.lxvi[46] RULES OF COURT, RULE 70, Sec. 18.lxviii[48] Arambulo v. Gungab, G.R. No. 156581, September 30, 2005, 471 SCRA 640, 649.lxix[49] Ceballos v. Intestate Estate of Emigdio Mercado, G.R. No. 155856, May 28, 2004, 430 SCRA 323, 335.lxx[50] Matanguihan v. Court of Appeals, G.R. No. 115033, July 11, 1997, 275 SCRA 380, 390.lxxi[51] Ramos v. Sarao, G.R. No. 149756, February 11, 2005, 451 SCRA 103, 113.

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Officers) in the negotiation and sale of subject parcels of land, (2) there is no sufficient proof to show that the Sheriff’s Certificate of Final Sale was falsified by [Deputy Sheriff Garcia] in connivance with [petitioners, et al.] Caltex Officers; and (3) that there is insufficient evidence to substantiate [respondent’s] claim that [petitioners, et al.] (Caltex Officers) made false declaration that subject parcels of land are productive agricultural land so these parcels of land may be covered and sold under the Agrarian Reform Program of the Government.

 x x x x Seemingly, [respondent] would want to extricate himself from a bad bargain and annul the effects

of an unwise act. If the [respondent] failed to apprise himself of the consequence of his purchase of subject parcels of land from Caltex[,] he was simply unfortunate. As it would appear all documents and informations (sic) about the parcels of land subject matter of the sale transactions entered by the parties

lxxii[52] De Guzman, Jr. v. Court of Appeals, G.R. No. 46935, December 21, 1987, 156 SCRA 701, 711lxxiii[53] Nool v. Court of Appeals, G.R. No. 116635, July 24, 1997, 276 SCRA 149, 159-160.lxxiv[54] RULES OF COURT, RULE 129, Sec. 4.lxxv[55] Philippine Ports Authority v. City of Iloilo, 453 Phil. 927, 934 (2003).lxxvi[56] CIVIL CODE, Art. 1370.lxxvii[57] German Marine Agencies, Inc. v. National Labor Relations Commission, 403 Phil. 572, 589 (2001).lxxviii[58] The Insular Life Assurance Co., Ltd. v. Court of Appeals, G.R. No. 126850, April 28, 2004, 428 SCRA 79, 92lxxix[59] Vicente v. Planters Development Bank, 444 Phil. 309, 318 (2003).lxxx[60] 135 Phil. 166 (1968).lxxxi[61] Id. at 193.lxxxii[62] 51 Phil. 343 (1927).lxxxiii[63] Id. at 346.lxxxiv[64] CIVIL CODE, Art. 1874.lxxxv[65] City-Lite Realty Corporation v. Court of Appeals, 382 Phil. 268, 276 (2000).lxxxvi[66] San Juan Structural & Textile Fabrication, Inc. v. Court of Appeals, G.R. No. 129459, September 29, 1998, 296 SCRA 631, 648.lxxxvii[67] Abalos v. Macatangay, Jr., G.R. No. 155043, September 30, 2004, 439 SCRA 649, 661.lxxxviii[68] Records, p. 176.lxxxix[69] Id. at 177-178.xc[70] Id. at 181.xci[71] CIVIL CODE, Art. 1305.xcii[72] Gomez v. Court of Appeals, 395 Phil. 115, 125-126 (2000).xciii[73] CIVIL CODE, Art. 1315.xciv[74] CIVIL CODE, Art. 1458.xcv[75] G.R. No. 158149, February 9, 2006, 482 SCRA 108.xcvi[76] Id. at 129.xcvii[77] Palattao v. Court of Appeals, 431 Phil. 438, 450 (2002).xcviii[78] Boston Bank of the Philippines v. Manalo, supra note 75, at 129.xcix[79] Records, p. 32.c[80] Id. at 131-133.ci[81] Id. at 39.* On leave.cii[1] Rollo, pp. 14-71.ciii [2] Penned by Associate Justice Eloy R. Bello, Jr. with Associate Justices Eugenio S. Labitoria and Perlita J. Tria Tirona, concurring; id. at 82-92.civ [3] Id. at 94-97.cv[4] Id. at 394-399.cvi [5] Id. at 262-268.cvii[6] Id. at 267-268.cx[9] Id. at 96-103.

30

are in [respondent’s] hands for his scrutiny. [Respondent] is a lawyer and as such it can be presumed that he knows the complexities/controversies attached to the interests and rights of his mother-in-law (Antonia Vda. de Medina) over the parcels of land he wants to purchase from [petitioners, et al.] Caltex Officers. Clearly, there was no misrepresentation and/or concealment regarding the ownership of Caltex over subject parcels of land. Neither was there falsification committed on the Sheriff’s Certificate of Title.

 x x x x WHEREFORE, premises considered, it is respectfully recommended that complainant (sic)

against [petitioners, et al.] Caltex Officers and Adolfo Garcia be dismissed, as it is hereby upon, approval, dismissed.

 Likewise, it is recommended that the counter-charge of perjury against [respondent] be

dismissed.  

Aggrieved, respondent filed with the DOJ a Petition for Review of the Resolution, dated 7 October 1997, of the Makati City Prosecution Office. However, on 27 July 1998, the DOJ resolvedcxxi[20] to dismiss his Petition for Review, ratiocinating thus – 

The record clearly shows that the subject parcels of land were previously owned by the late Antonio Medina. Upon the latter’s death, the said properties were inherited by Antonia Vda. de Medina and her children through intestate succession. When Caltex filed a civil case against Antonia Vda. de Medina, who is [herein respondent’s] mother-in-law, the latter’s rights, title and interests over the subject properties were levied on attachment during the pendency of the said case. Thereafter, upon judgment in favor of Caltex in the said civil case; and, pursuant to the writ of execution issued therein, the rights, title and interests of Antonia Vda. de Medina over the said parcels of land were levied on execution and, consequently, sold at public auction with Caltex eventually winning the bid. Finally, a certificate of sheriff’s sale was issued and based thereon Caltex became the owner of the undivided interest of Antonia Vda. de Medina over the subject parcels of land.

 We find it incredible for [respondent] not to have known the foregoing circumstances. It must be

stressed that [respondent is] a member of the family of Antonia Vda. de Medina. It taxes one’s credulity that [respondent] would have had no personal knowledge about the family’s properties which were the subject of the sale transaction [respondent] had with Caltex. Besides, [respondent is] a lawyer [himself]. As such, not only [was respondent] expected to know the intricacies and complexities of the sale transaction [he] entered with Caltex but also [respondent] had all the means and resources to check and counter-check the veracity of [herein petitioners, et al.’s] representations. Indeed, it is hard to believe that [respondent] chose to just take the word of [petitioners, et al.] that Caltex is the owner of all the subject properties rather than examine the documents pertaining thereto before parting with a substantial amount of money. We take with a grain of salt [respondent’s] allegation that during the sale negotiations [respondent was] unaware of the extent of the ownership of Caltex over the properties in question not only because of [respondent’s] stature as a lawyer-businessman but also because of [his] personal knowledge thereon by reason of [his] being a member of the family of Antonia Vda. de Medina from

cxi[10] Id. at 98-99.cxii[11] Id. at 265.cxiii[12] Id. at 269-270.cxiv[13] Id. at 20-30.cxv[14] Id. at 127.cxvi[15] Id. at 15-19.cxvii[16] Id. at 12-14.cxviii[17] Id. at 17-18.cxix[18] Id. at 18.cxx[19] Id. at 262-264.

31

whom Caltex acquired the subject properties. Under this milieu, no amount of fraudulent misrepresentations from [petitioners, et al.] could have misled [him] into executing with Caltex the Deed of Assignment with Consolidation of Title over the properties in question.

 The foregoing circumstances not only create suspicion as to [respondent’s] actual motive in filing

the instant complaint but also strengthen [petitioners’] claim that there is, indeed, reasonable ground to believe that [respondent] entered into the transaction in question knowing fully well that what was being sold by Caltex was only the undivided interest of [his] mother-in-law who is one (1) of the co-heirs in (sic) the subject parcels of land.

 Besides, no clearer acknowledgment by [respondent] of [his] knowledge on (sic) the

circumstances surrounding the subject properties than as stated in par. 3, p. 5, of the Deed of Assignment with Consolidation of Title can be made, which states thus –

 x x x x

 “4. ASSIGNEE [respondent] further acknowledges that he is fully aware of

the circumstances under which these Properties were acquired by ASSIGNOR [CPI] and that he has examined the title and inspected the said properties and has verified their location together with their boundaries.” x x x

 As regards the findings of the City Prosecutor on [respondent’s] other charges for estafa under

Article 315, par. (3) of the Revised Penal Code and falsification/use of falsified documents, we can find no cogent reason to alter, modify much less reverse the same. 

WHEREFORE, [respondent’s] instant petition for review is hereby dismissed.  Respondent’s Motion for Reconsideration was denied by the DOJ in another Resolution dated 30 June 1999. This prompted respondent to file with the Court of Appeals a Petition for Certiorari under Rule 65 of the Rules of

Court, contending that the DOJ and the Makati City Prosecution Office committed grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing respondent’s complaint in I.S. No. 97-22188-191. The Court of Appeals, in its Decision,cxxii[21] dated 29 January 2001, reversed the findings of the DOJ and the Makati City Prosecution Office, and ordered the filing of an information for estafa against the petitioners, based on the following raison d'être –

 The Court after a perusal over (sic) the ruling of the Department of Justice believes that said

resolution deserves scant consideration. This is so because the issue on double sale was just taken in passing by the Department of Justice, when that issue is paramount in the case.

 It appears on record that E.A. Ricardo, General Manager – Marketing commercial of Caltex

offered for sell (sic) to DAR the subject property. x x x x It should be noted that the sale to DAR is unlike the ordinary contract to sell transactions wherein

one could determine when a sale is consummated. But at this instance, where voluntary offer to sell has been made, where process has been undergoing at that time, We opine that there is already sale considering the unique circumstance of selling the subject landholding to the DAR.

 This is so because under Administrative Order No. 5 series of 1992, it provides that landowners

who entered into Voluntary Offer to sell can no longer back out, except under the exceptional circumstances as earlier illustrated. The present case is one that is not of the exception. Hence, if a landowner can no longer back out since he entered into that kind of transaction and by entering into

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another sale such as in this case, fully knowing of the circumstances but without divulging the same to the petitioner, would that not tantamount to misrepresentation, fraud and deceit.

 A careful perusal on (sic) the comments and arguments of the [herein petitioners] that it (sic) did

not refute in whatever manner that there was a sale that took place between the Department of Agrarian Reform and the CPI. As a matter of fact, a reading of the foregoing, in consonance with the VOS would connote that the sale has indeed been entered into because Caltex knew that a process has been undertaken by the DAR (p. 175 [petitioners’] Comment) x x x.

 These are an admission (sic) so far, that there was indeed a previous transfer of the subject

parcels of land to the DAR as they never disputed that there was a sale between CPI and DAR. The words of CALTEX are simple and explicit, there was an “offer” and “transfer” and that there was already an ongoing process of the VOS. Hence, there was a sale by virtue of the voluntary offer to sell under the Comprehensive Agrarian Reform Program. The only thing is that, Caltex denies responsibility that it was the one who offered the sale to DAR, but it claim (sic) instead that it was Antonia Vda. de Medina. But this argument bears no weight. Regardless of whether or not Antonia Vda. de Medina was the one who offered to sell the property to DAR, CALTEX can’t absolve itself from any responsibility.

 x x x x So whether or not the first voluntary offer to sell to the Department of Agrarian Reform was

made by Antonia Vda. de Medina and the second offer was made by CALTEX to DAR, to our mind is, of no moment. One thing is thus, clear, CALTEX who duly executed the necessary documents. There is nothing on record which would reveal that [petitioners] was (sic) able to prove that [herein respondent] was fully informed of the first sale made to DAR.

 Further, [petitioners] claimed that being a son-in-law,it (sic) would be impossible for

[respondent] not to know it. This is not sufficient reason to conclude that [respondent] was aware of the attending circumstances. And we cannot therefore, agree with the conclusion of the DOJ.

 Clearly then, the evidence points out that what appears to have been sold were the properties

described in the 14 TCT’s without any qualification thereon. And that the existence of a double sale can’t be contested, there being an admission by the [petitioners] that there was a sale made to DAR prior to herein [respondent].

 x x x x With the acts of CALTEX in the case at bar it can be gleaned therefrom that there was no clear

transactions [sic] that took place, thus, there was an evident misrepresentation to the damage and prejudice of the [respondent]. As supported by the Deed of Assignment itself, the assurances given by the assignor CALTEX to [respondent] is a grave misrepresentation to the [respondent] who is the buyer of the properties in question. That where there was no divulgement made by the CALTEX to petitioner of the sale to DAR, there is no question that deceit is present. The presence of damage and deceit are ( sic) apparent in the present case, hence, the very elements of Estafa exist.

 Even granting that the sale was only with respect to the individual share or interest of CALTEX,

it can’t be denied that deceit was committed by [petitioners, et al.] in not being fair, honest in not revealing the real status of the subject lot. x x x Had it not been of such misrepresentation, the Court believes that [respondent] would not have parted substantial amount of money.

 From the foregoing premises, a prima facie case of ESTAFA was herein committed by the

[petitioners, et al.] on the ground of double sale. And the only way to determine whether [petitioners, et al.] herein are guilty or not is in a full blown trial before a Court. However, we do not find any participation of the Deputy Sheriff Adolfo Garcia on the issue of double sale, it appearing that he has

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nothing to do with the transaction between CALTEX and Department of Agrarian Reform. This Court is convinced that the Deputy Sheriff had just performed a ministerial duty imposed upon him by law.

  

After their Motion for Reconsideration was denied by the Court of Appeals, in its Resolution, cxxiii[22] dated 14 November 2002, petitioners come before this Court via a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioners posit that the Court of Appeals erred in finding that there exists a prima facie case against them considering that: (1) Petitioners never deceived respondent with regard to the background circumstances of the subject real properties; (2) There was no “double sale” made by CPI of its rights and interests in the subject real properties; and (3) There exists no proof of specific overt acts or omission of each of the petitioners which would constitute conspiracy in committing the alleged crime of estafa.

 This Court finds the Petition at bar meritorious. In his complaint, respondent charges petitioners, together with other persons no longer part of the present Petition,

of two counts of estafa by means of deceit: (1) estafa by means of false pretenses, under Article 315(2)(a) of the Revised Penal Code; and (2) estafa by means of concealment, under Article 315(3)(c) of the same Code. Relevant provisions of the Revised Penal Code expressly read thus –

 ART. 315. Swindling (estafa). – Any person who shall defraud another by any of the means

mentioned hereinbelow shall be punished by: x x x x 

[P]rovided that in the four cases mentioned, the fraud be committed by any of the following means: 

x x x x 

(2) By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneous with the commission of the fraud:

 (a) By using a fictitious name, or falsely pretending to possess power, influence, qualifications,

property, credit, agency, business or imaginary transactions, or by means of other similar deceits; x x x x (3)  Through any of the following fraudulent means: x x x x (c) By removing, concealing or destroying, in whole or in part, any court record, office files,

document or any other paper. The elements of estafa by means of deceit,cxxiv[23] whether committed by false pretenses or concealment, are the

following – a. That there must be a false pretense, fraudulent act or fraudulent means. b.      That such false pretense, fraudulent act or fraudulent means must be made or executed prior to or

simultaneously with the commission of the fraud. c.      That the offended party must have relied on the false pretense, fraudulent act, or fraudulent means,

that is, he was induced to part with his money or property because of the false pretense, fraudulent act, or fraudulent means.

 d.      That as a result thereof, the offended party suffered damage.

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 Now the question is whether there exists probable cause that petitioners committed the crime of estafa by means

of deceit which would warrant the filing of an information against them before the trial court. Probable cause has been defined as the existence of such facts and circumstances as would excite the belief, in a

reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the crime for which he was prosecuted. Probable cause is a reasonable ground of presumption that a matter is, or may be, well-founded, such a state of facts in the mind of the prosecutor as would lead a person of ordinary caution and prudence to believe, or entertain an honest or strong suspicion, that a thing is so. The term does not mean "actual and positive cause" nor does it import absolute certainty. It is merely based on opinion and reasonable belief. Thus, a finding of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is believed that the act or omission complained of constitutes the offense charged. Precisely, there is a trial for the reception of evidence of the prosecution in support of the charge. cxxv[24] While probable cause demands more than "bare suspicion," it requires "less than evidence which would justify conviction." A finding of probable cause merely binds over the suspect to stand trial. It is not a pronouncement of guilt.cxxvi[25]

  The conduct of preliminary investigation for the purpose of determining the existence of probable cause is executive in nature.cxxvii[26] The prosecution of crimes appertains to the executive department of the government whose principal power and responsibility is to see that the laws of the land are faithfully executed. A necessary component of this power to execute the laws is the right to prosecute their violators. The right to prosecute vests the prosecutor with a wide range of discretion, the discretion of whether, what and whom to charge, the exercise of which depends on a smorgasbord of factors which are best appreciated by prosecutors.cxxviii[27]

 The main function of a government prosecutor during his conduct of preliminary investigation is to determine the

existence of probable cause and to file the corresponding information should he find it to be so. cxxix[28] The purpose of a preliminary investigation is to secure the innocent against hasty, malicious and oppressive prosecution, and to protect him from an open and public accusation of crime, from the trouble, expense and anxiety of a public trial, and also to protect the state from useless and expensive trials. A preliminary investigation serves not only the purposes of the State. More important, it is a part of the guarantees of freedom and fair play which are birthrights of all who live in this country. It is, therefore, imperative upon the fiscal to relieve the accused from the pain of going through a trial once it is ascertained that no probable cause exists to form a sufficient belief as to the guilt of the accused.cxxx[29]

 A prosecutor, by the nature of his office, is under no compulsion to file a particular criminal information where he

is not convinced that he has evidence to prop up the averments thereof, or that the evidence at hand points to a different conclusion. This is not to discount the possibility of the commission of abuses on the part of the prosecutor. But this Court must have to recognize that a prosecutor should not be unduly compelled to work against his conviction. cxxxi[30] Although the power and prerogative of the prosecutor, to determine whether or not the evidence at hand is sufficient to form a reasonable belief that a person committed an offense, is not absolute but subject to judicial review, it would be embarrassing for him to be compelled to prosecute a case when he is in no position to do so, because in his opinion he does not have the necessary evidence to secure a conviction, or he is not convinced of the merits of the case.cxxxii[31]

 Hence, this Court consistently adheres to its policy of non-interference in the conduct of preliminary

investigations, and to leave to the investigating prosecutor sufficient latitude of discretion in the determination of what constitutes sufficient evidence as will establish probable cause for the filing of an information against a supposed offender.cxxxiii[32]

 In the present case, the Makati City Prosecution Office, as well as the DOJ, found no probable cause that

petitioners committed estafa by deceit to the damage of respondent. There was no factual or legal basis for the Court of Appeals to reverse the findings of the prosecutor who conducted the preliminary investigation in I.S. No. 97-22188-191.

 It should do well for the Court of Appeals to remember that the DOJ Resolutions, dated 27 July 1998 and 30 June

1999, affirming the dismissal by the Makati City Prosecution Office of respondent’s complaint against petitioners, were brought before it via a Petition on Certiorari under Rule 65 of the Rules of Court. Its duty is confined to determining whether the executive determination of probable cause was done without or in excess of jurisdiction or with grave abuse of discretion. Thus, although it is entirely possible that the investigating prosecutor may erroneously exercise the

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discretion lodged in him by law, this does not render his act amenable to correction and annulment by the extraordinary remedy of certiorari, absent any showing of grave abuse of discretion amounting to excess of jurisdiction.cxxxiv[33]

 For the courts to grant the extraordinary writ of certiorari, so as to justify the reversal of the investigating

prosecutor’s finding on the existence or absence of probable cause to file an information, the one seeking the writ must be able to establish the following –

 For grave abuse of discretion to prosper as a ground for certiorari, it must first be demonstrated

that the lower court or tribunal has exercised its power in an arbitrary and despotic manner, by reason of passion or personal hostility, and it must be patent and gross as would amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act in contemplation of law.   Grave abuse of discretion is not enough.  Excess of jurisdiction signifies that the court, board or office, has jurisdiction over the case but has transcended the same or acted without authority. cxxxv[34]

  

Try as we might, this Court cannot find grave abuse of discretion on the part of the DOJ, when it affirmed the finding of the Makati City Prosecution Office, that there was no probable cause to file an information for estafa by means of deceit against petitioners and resolved to dismiss respondent’s complaint. There is absolutely no showing that the DOJ, in the exercise of its power to review on appeal the findings of the Makati City Prosecution Office, acted in an arbitrary and despotic manner, so patent or gross as to amount to an evasion or unilateral refusal to perform its legally-mandated duty. On the contrary, this Court finds the Resolutions of the DOJ, as well as that of the Makati City Prosecution Office, to be more in accordance with the evidence on record and relevant laws and jurisprudence than the assailed Decision of the Court of Appeals.

 Respondent charges petitioners with the crime of estafa because they allegedly employed deceit to induce

respondent to enter into a contract of sale with CPI by (1) falsely misrepresenting that CPI was the owner of and, thus, could assign to respondent the entire subject real properties, when in truth, CPI only acquired and could assign to respondent the limited interest of Antonia Vda. de Medina in the subject real properties; and (2) fraudulently concealing the fact that the subject real properties were covered by CARP and were actually the subject of a pending VOS with the DAR.

 It is worth stressing that it was respondent who initiated the complaint before the Makati City Prosecution Office.

Thus, upon him rests the burden of supporting his charges with affidavits and any other evidence, for it is upon these evidence thus adduced, that the investigating prosecutor determines the existence, or in this case, the absence, of probable cause to hold the petitioners for trial for the crimes charged. Respondent must have necessarily tendered evidence, independent of and in support of the allegations in his affidavit-complaint, of such quality as to engender belief in an ordinarily prudent and cautious man that the offense charged therein has been committed by the petitioners. Indeed, probable cause need not be based on clear and convincing evidence of guilt, neither on evidence establishing guilt beyond reasonable doubt and definitely, not on evidence establishing absolute certainty of guilt, but it certainly demands more than bare suspicion and can never be left to presupposition, conjecture, or even convincing logic.cxxxvi[35]

 Respondent, however, miserably failed to present sufficient evidence to establish probable cause for the filing of

an information against petitioners for estafa by means of deceit. The only evidence presented by respondent that would directly establish the deceit allegedly perpetrated by the petitioners consists of his very own affidavits and that of his alleged counsel, Atty. Villacorta. These had been sufficiently rebutted by the evidence of the petitioners. The affidavits of petitioners, Deputy Sheriff Garcia, and witnesses Attys. Libunao and Manahan, all presented a consistent, coherent, and credible version of events, adequately supported by other documentary evidence. Even respondent’s own documentary evidence was satisfactorily explained or was even consistent with the version of events as presented by petitioners and their witnesses. The sale of CPI’s interest in the subject real properties to respondent was a legitimate business transaction, done in the course of CPI’s business, and petitioners did nothing more than to carry out their respective functions as officers of CPI to perfect and execute the sale.

 Moreover, as between the mere denial constituting self-serving negative assertions of respondent that he did not

fully know of the circumstances and the current status of the subject real properties he acquired from CPI, and the positive and categorical declarations of petitioners and their witnesses that respondent was duly informed thereof, the choice is not

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hard to make, for the jurisprudence on the matter is that positive statement is stronger and attains greater evidentiary weight than negative evidence.cxxxvii[36]

 Also, this Court seriously doubts that, given the particular circumstances of this case, respondent was indeed

clueless or ignorant of the true state of affairs of the subject real properties.  First, Antonia Vda. de Medina, from whom CPI acquired its interest in the subject real properties, is the

respondent’s mother-in-law. He is married to Ma. Luisa Victoria Medina, one of the co-heirs and co-owners of the subject real properties. The Court of Appeals brushed aside the relations between Antonia Vda. de Medina and respondent as insufficient to conclude that respondent knew of the circumstances and status of the subject real properties. Although it may not constitute as conclusive evidence, the relations between Antonia Vda. de Medina and respondent casts serious doubts on respondent’s assertions. Given the close-knit relations among Filipino family members, it is almost impossible that his mother-in-law Antonia Vda. de Medina, his wife Ma. Luisa Victoria Medina, and respondent, never talked about the subject real properties; more so, if we consider that respondent is a lawyer who can freely and readily give legal advice to his mother-in-law and his wife to protect their remaining rights and interests in the subject real properties.  

Neither can this Court give credence to respondent’s contention that his wife Ma. Luisa Victoria Medina, born 30 January 1972, was only a minor when CPI instituted Civil Case No. 84-22434 against her mother Antonia Vda. de Medina, before the Manila RTC on 18 February 1984; when judgment was rendered therein against her mother on 17 September 1984; and when the subject real properties were sold in favor of CPI at the execution sale on 24 August 1989. Respondent avers that his wife then still failed to grasp the significance of the events taking place as regards CPI, her mother, and the subject real properties. Respondent seems to ignore the fact that his wife grew up, and the likelihood that she eventually came to understand the history and legal problems besetting the subject real properties. In fact, respondent does not deny that on 26 September 1996, his wife Ma. Luisa Victoria Medina, together with the other heirs of her deceased father Antonio Medina, filed a civil complaint with the RTC of Ilagan, Isabela, docketed as Civil Case No. 948, in which they questioned and, thus, admitted knowledge of the VOS made by CPI in favor of DAR.cxxxviii[37] And if Ma. Luisa Victoria Medina already knew that the subject real properties were voluntarily offered for sale by CPI to the DAR, it is highly unlikely that she would have kept such information from respondent, her husband.

 It should also be recalled that it was respondent who approached CPI first and sought the purchase of its interest

in the subject real properties. Respondent never explained how he knew of CPI’s interest in the subject real properties. Neither did respondent allege nor prove that CPI actively offered for sale to the public its interest in the subject real properties. The only logical deduction would be that respondent came to know of CPI’s interest in the subject real properties through his wife and/or mother-in-law. In fact, in consideration of respondent’s purchase of the interest of CPI in the subject real properties for P3.5 Million, respondent was able to secure the execution by CPI of the Deed of Waiver and Quitclaim, dated 22 December 1994, by virtue of which, CPI waived any further claim for sum of money and damages from respondent’s mother-in-law Antonia Vda. de Medina, and discharged the latter from any and all pending court case liabilities, whether civil or criminal, filed by CPI against her. That respondent sought the execution by CPI of the said Deed of Waiver and Quitclaim, which obviously benefited his mother-in-law, only supports the view that respondent not only knew of the current status of the subject real properties, but also the history of the legal tussle between Antonia Vda. de Medina and CPI, which resulted in the transfer of Antonia Vda. de Medina’s interest in the subject real properties to CPI.

 Respondent’s contention of his seeming disconnection and isolation from the affairs of his wife’s family is

undoubtedly contrary to the common family life experience of Filipinos. Reference is made herein to the quote of Vice-Chancellor Van Fleet, reproduced in Pacheco v. Hon Court of Appeals and People of the Philippinescxxxix[38] –

 Evidence to be believed must not only proceed from the mouth of a credible witness but must be

credible in itself - such as the common experience and observation of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony, except its conformity to our knowledge, observation and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of judicial cognizance.cxl[39]

  

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Second, there is a clear paper trail by which respondent could have traced and uncovered the true status of the subject real properties. CPI itself provided respondent with some of these documents, while the others are part of public records to which respondent had access.

 There is scant evidence on record that CPI or any of its officers, including herein petitioners, had willfully and

maliciously made false misrepresentations to respondent that CPI owned the subject real properties in its entirety. Again, only the affidavits of respondent and Atty. Villacorta directly and positively describe how the alleged false misrepresentations were made, and, even therein, they could only attribute the same to petitioner Atty. Poblador, and no other. Thus, it behooves this Court how, from respondent’s self-serving and unsubstantiated allegations, it can jump off to conclude that all the petitioners, in conspiracy and with criminal intent, made false misrepresentations on behalf of CPI to the damage of respondent.

 Instead, the documentary evidence on record establishes that CPI laid claim on and actually acquired only the

limited interest of Antonia Vda. de Medina in the subject real properties and nothing more.  The Notice of Levy on Attachmentcxli[40] issued on 7 February 1984 by Deputy Sheriff Garcia to the Register of

Deeds of Ilagan, Isabela, during the pendency of Civil Case No. 84-22434 before the Manila RTC, clearly stated that what was being levied upon was limited to “the rights, interest, title and participation” which Antonia Vda. de Medina may have in the real properties enumerated therein.

 In its letter,cxlii[41] dated 23 August 1989, addressed to Deputy Sheriff Garcia, CPI presented its bid of P4.5 Million

at the auction sale of the properties of Antonia Vda. de Medina, held to satisfy the latter’s judgment debt to CPI in Civil Case No. 84-22434. CPI’s bid was conditioned on the following –

 [2] With respect to property under the exclusive name of Antonia Caragayan Vda. de Medina,

the Certificate of Sale shall indicate that the said property together with improvements thereon, is sold to the successful bidder.

 [3] With respect to property registered in the name of Heirs of Antonio Medicna and/or Antonia

Vda. de Medina representing or as Administration [sic] of Estate of Antonio of Antonio Medina the Certificate of Sale shall refer only [to] the rights, interests, claims and participation of Antonia Vda . de Medina in the covered property and improvements since she has co-heirs, a son and a daughter. In the computation of the undivided interest of Antonia Vda . de Medina and the two heirs, since the property appear to be conjugal, two thirds [66.67%] of the property pertains to Antonia Vda. de Medina while the remaining one-third [33.34%] pertains to the heirs, son and daughter. (Emphasis supplied.)

  

Respondent himself, in his letter,cxliii[42] dated 29 November 1994, addressed to CPI, wrote in the first paragraph that, “We are pleased to inform you that we accept your offer to sell to us for P3.5 Million your interest in the foreclosed Medina properties.” CPI’s interest in the subject real properties, as referred to in respondent’s letter, could be nothing more than the same interest therein of Antonia Vda. de Medina.

 Thus, although the Deed of Assignment with Consolidation of Titlecxliv[43] executed between CPI and respondent

on 22 June 1995, provides that – 1. For and in consideration of the sum of THREE MILLION FIVE HUNDRED THOUSAND

PERSOS (P3,500,000.00), Philippine Currency, receipt of which is acknowledged, [CPI] hereby assigns, transfers and conveys unto and in favor of [respondent], his heirs, executors and assigns, the Properties aforedescribed.

  

it should not be taken to mean that what CPI was assigning to respondent was the entirety of the subject real properties, instead of merely the limited interest therein acquired by CPI from Antonia Vda. de Medina. The reference in the said paragraph, as well as in any other part of the Deed, to “Properties” without particularly limiting or qualifying the same to the undivided interest of CPI in the subject real properties, could be more of a problem of imprecise use of terms rather

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than a criminal intent to defraud and mislead respondent. Even so, the afore-quoted paragraph should be read in conjunction with the rest of the Deed, especially the succeeding paragraphs, to wit – 

3. [Respondent] acknowledges that he is fully aware of the circumstances under which these Properties were acquired by [CPI] and that he examined the title and inspected the properties and verified their location together with their boundaries. [CPI] shall therefore be no longer obliged to submit to [respondent] a location survey plan of the Properties nor pinpoint the same to [respondent].

 4. [Respondent] further acknowledges that the Properties are presently occupied by squatters

and other adverse occupants and that [CPI] makes no warranty that possession can be immediately delivered to [respondent] free and clear of these squatters and other adverse occupants. All the expenses for the eviction of these persons shall be borne by [respondent].

 5. [CPI] warrants the genuineness of its interest over said Properties and that it shall, if

necessary, execute any additional documents to complete the title of [respondent] to above-described Properties. No warranty, however, as to the Properties’ classification or primary use is hereby given.

  

Respondent, by virtue of paragraphs 3 and 4 of the Deed of Assignment with Consolidation of Title, explicitly acknowledges that he is fully aware of the circumstances by which CPI acquired its interest in the subject real properties; that he has examined the title; that he has inspected the properties; and that he acknowledges that the subject real properties are occupied by squatters and other adverse occupants. The said acknowledgments made by respondent dispute any claim on his part that he was misled to believe that when he entered into the contract of sale with CPI, he was acquiring the entirety of the subject real properties.

 Respondent had every opportunity to verify what he was actually purchasing from CPI. He already admits

knowing the circumstances by which CPI acquired its interest in the subject real properties. If this is truly so, respondent should have known that the subject real properties were inherited, intestate, by Antonia Vda. de Medina and her co-heirs, from Antonia’s deceased husband, Antonio; that Antonia Vda. de Medina is just one of the heirs of the late Antonio Medina, so she co-owns with the other heirs, in undivided shares or interests, the subject real properties; that Antonia Vda. de Medina’s undivided interest in the subject real properties was sold at an auction sale held to satisfy her judgment debt to CPI in Civil Case No. 84-22434; that CPI gave the highest bid at the auction sale and was thus awarded Antonia Vda. de Medina’s limited interest in the subject real properties; that when Antonia Vda. de Medina failed to redeem her interest in the subject real properties within a year, title was thereby consolidated in CPI; and that even before CPI acquired Antonia Vda. de Medina’s interest in the subject real properties, she, together with all the other heirs of her late husband Antonio Medina, had already voluntarily offered to sell the subject real properties to DAR. With respondent’s knowledge of the foregoing circumstances, coupled with his extensive legal knowledge as a lawyer, then respondent should have realized that what he was acquiring from CPI shall be nothing more than the same limited interest in the subject real properties acquired by CPI from Antonia Vda. de Medina.

 Even if the Deed of Assignment with Consolidation of Title was prepared entirely by CPI, respondent cannot

claim that the same was a contract of adhesion, in which he had no other participation but to adhere to. There were several meetings between CPI and respondent precisely for the purpose of negotiating the terms of their contract. Contrary to respondent’s contention that the Deed contained “so many ambiguities, subterfurge and clever craft” to allow CPI a “back-door retreat,” if necessary, this Court finds that it is actually couched in simple terms easily understandable, and capable of no other possible and reasonable interpretation than what this Court had already discussed in the preceding paragraphs. Respondent, as a lawyer, is very capable of reviewing the Deed himself. He must also know that he had a legal right to revise certain terms or provisions thereof if he found these too ambiguous. Respondent was actually given time to review and revise the Deed, and for some unexplained reason, his only revision was to change his status from “married” to “single.”

 Furthermore, assuming that respondent had absolutely no knowledge of the circumstances surrounding CPI’s

acquisition of its interest in the subject real properties from Antonia Vda. de Medina, then his examination of the transfer certificates of title (TCTs) should have revealed to him such circumstances or, at the very least, led him to ask questions about the same. The court processescxlv[44] issued by the Manila RTC in Civil Case No. 84-22434, affecting the subject real

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properties, and duly served on the Register of Deeds, were clearly annotated on the TCTs covering the subject real properties. What is more, the TCTs were all still in the name of the Heirs of Antonio Medina, not CPI. Such a fact should have been a caveat to respondent to proceed with the transaction with more prudence and to inquire into CPI’s title to or interest in the subject properties, as well as the circumstances attendant to its acquisition thereof. According to a well-established rule in our jurisdiction –

The law protects to a greater degree a purchaser who buys from the registered owner himself.

Corollarily, it requires a higher degree of prudence from one who buys from a person who is not the registered owner, although the land object of the transaction is registered. While one who buys from the registered owner does not need to look behind the certificate of title, one who buys from one who is not the registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the transferor, or in his capacity to transfer the land.cxlvi[45] (Emphasis supplied.)

  

Respondent could be reasonably assumed to be familiar with the foregoing since he is a lawyer. 

Third, respondent is a lawyer and, as such, he is presumed to know the law.cxlvii[46] Though respondent may not be actively practicing law as a profession, the legal rules and principles applicable to the present Petition are so basic and fundamental, and which respondent must have learned even while he was still studying law. Respondent is also a businessman who must possess some degree of shrewdness in his dealings so as to protect his business interests. With respondent’s qualifications as a lawyer and a businessman, while they may not protect him absolutely, make him less susceptible to deception as compared to an ordinary layperson.

The Court of Appeals, in its Decision, dated 29 January 2001, found that CPI committed a double sale of the

subject real properties when it sold the same first to the DAR, then second to the respondent. It declared that a VOS is already a consummated sale because landowners who made such an offer can no longer back out. This declaration by the Court of Appeals has no basis in law or jurisprudence.

 Respondent’s mother-in-law Antonia Vda. de Medina decided to avail of the VOS under Republic Act No. 6657,

otherwise known as the Comprehensive Agrarian Reform Law (CARL) of 1988. On 5 April 1988, she executed a Special Power of Attorney (SPA)cxlviii[47] designating a certain Carlito Balauag to represent her and her children in any and all transactions with the DAR and the Landbank of the Philippines (Landbank) and to place the subject real properties under the voluntary coverage of CARP. Worth noting is the fact that the SPA covers not just Antonia Vda. de Medina’s share but all of the subject real properties. Pursuant to his SPA, Carlito Balauag submitted on 10 March 1989 the VOS Forms covering the subject real properties to the DAR. He signed the said forms on behalf of the landowners, who he identified as the “Heirs of Antonio Medina.”

 However, just a few days earlier, on 22 February 1989, Antonia Vda. de Medina executed a Deed of Assignment

(with Special Power of Attorney Coupled with Interest),cxlix[48] in which, for and in consideration of her unpaid obligations to CPI, she assigned all of her “rights, interests, claims and participation from the proceeds of land compensation” for the property she voluntarily offered to sell and transfer under the CARP. She claimed in the same Deed that the VOS was already under process for indorsement to the Landbank. Hence, she was appointing CPI as her exclusive attorney-in-fact to follow-up the processing of the VOS papers with the DAR and the Landbank. On 13 August 1993, CPI, pursuant to the authority granted to it by Antonia Vda. de Medina under the same Deed, submitted new VOS Forms covering the subject real properties.

 By virtue of the foregoing, should the VOS covering the subject real properties already be deemed a

consummated sale? This Court rules in the negative. The CARL of 1988 encourages landowners to voluntarily offer for sale their lands by giving an additional five

percent compensation to those who avail of this option.cl[49] To implement the VOS scheme under the CARL of 1988, the DAR issued Administrative Order No. 3, series of 1989, subsequently revised by Administrative Order No. 9, series of 1990, which provided for the rules and procedure governing the acquisition by the government of land subject of a VOS. A cursory reading of these Administrative Orders would reveal that a VOS undergoes a long process. It is initiated by the

40

filing by the landowner of the VOS Form and other required documents. The VOS is reviewed, among other personalities, by the Municipal Agrarian Reform Officer (MARO), the Provincial Agrarian Reform Officer (PARO), the DAR Regional Director, the Bureau of Land Acquisition and Development (BLAD), and the Landbank, for purposes of identifying the land and the qualified tenants, the valuation of the land, and payment of just compensation to the landowner.

 In the case of Government Service Insurance Systems, Inc. v. Court of Appeals,cli[50] this Court already ruled that – 

While it is true that under DAR Administrative Order No. 3, series of 1989, it is not necessary that the voluntary offeror of the lot be the registered owner thereof, private respondent failed to show that the DAR accepted and approved his offer to sell. Without said approval and acceptance, private respondent cannot safely presume that his voluntary offer to sell was accepted by the DAR. Notably, the word “offer,” is subject to acceptance. The voluntary offer to sell is in fact reviewed and evaluated by the DAR before a corresponding notice of acceptance is sent to the landowner. The applicable rules and procedure governing voluntary offer to sell (VOS) at the time private respondent made his offer provides:

x x x xEvidently, without the notice informing the landowner of the DAR’s conformity with the offer to

sell, private respondent cannot validly presume that his offer to sell has been accepted by the DAR and that the latter will now assume the payment of the loan to the GSIS. (Emphasis supplied.)

  

Hence, a VOS, as its name implies, is a voluntary offer to sell the land to the government so that the latter can distribute the same to qualified tenants. While a landowner who voluntarily offered his land for sale is precluded from withdrawing his offer except under specified circumstances, such a condition does not make the mere offer a consummated sale. It bears to emphasize that the offer still needs to be accepted by the DAR on behalf of the government, and just compensation for the land determined and paid to the landowner. The sale is deemed consummated when the landowner has received payment or deposit by the DAR of just compensation with an accessible bank, in cash or Landbank bonds, since only then is ownership of the land finally transferred from the landowner to the government.clii[51]  

In the present case, the VOS covering the subject real properties is still being processed by the DAR. There has so far been no express acceptance by the DAR of the said VOS or payment of just compensation to CPI. There being no consummated sale of the subject real properties to DAR, CPI could not have committed a double sale of the same. It remained a co-owner of the subject real properties, together with the other heirs of Antonio Medina, and, thus, it could still legally sell its share or interest therein to another person, such as respondent. Should the DAR finally approve the VOS covering the subject real properties, then respondent, after acquiring the interest of CPI, shall be entitled to just compensation corresponding to his interest.

 After finding that petitioners did not deceive respondent into purchasing CPI’s limited interest in the subject real

properties, then it necessarily follows that there can be no conspiracy to commit such deception. This Court would still want to point out that respondent’s accusation of conspiracy was so stretched that he implicated in his complaint members of the CPI Board of Directors who did nothing more than sign a resolution authorizing the sale of CPI’s interest in the subject real properties to respondent. Yet again, the existence of conspiracy among the CPI officers rests on no other evidence but respondent’s own allegations in his affidavits. Conspiracy cannot be established by mere inferences or conjectures.cliii[52] It is incumbent upon respondent to prove that each of the petitioners performed an overt act in pursuance or furtherance of the alleged complicity, so as to convince the investigating prosecutor that there is probable cause that petitioners conspired with one another to commit the crime.cliv[53] However, respondent’s general accusations against petitioners and the other CPI officers do little to persuade.

 WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision, dated 29 January

2001, and Resolution, dated 14 November 2002, of the Court of Appeals in CA-G.R. SP No. 54862, are hereby REVERSED and SET ASIDE. Respondent’s complaint in I.S. No. 97-22188-191 is hereby ordered DISMISSED.

 SO ORDERED.  

41

6.THIRD DIVISION

 MALAYAN REALTY, INC. represented by ALBERTO C. DY.,

Petitioner,   

-versus-    

UY HAN YONG, Respondent.

G.R. No. 163763 Present:  QUISUMBING, J., Chairperson, CARPIO,CARPIO MORALES, TINGA, andVELASCO, JR., JJ. Promulgated: November 10, 2006

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

 D E C I S I O N 

CARPIO MORALES, J.:  

Malayan Realty, Inc. (Malayan), is the owner of an apartment unit known as 3013 Interior No. 90 (the property), located at Nagtahan Street, Sampaloc, Manila. 

In 1958, Malayan entered into a verbal lease contract with Uy Han Yong (Uy) over the property at a monthly rental of P262.00.clv[1] The monthly rental was increased yearlyclvi[2] starting 1989, and by 2001, the monthly rental was P4,671.65.clvii[3]

 On July 17, 2001, Malayan sent Uy a written noticeclviii[4] informing him that the lease contract would no longer be

renewed or extended upon its expiration on August 31, 2001, and asking him to vacate and turn over the possession of the property within five days from August 31, 2001, or on September 5, 2001.clix[5]  

Despite Uy’s receipt of the notice on June 18, 2001, he refused to vacate the property, prompting Malayan to file before the Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment, docketed as Civil Case No. 171256, and was raffled to Branch 3 thereof.

 In its complaint, Malayan prayed for the court to order Uy and all other persons claiming possession under him to

vacate the property, to pay P9,000 as fair and reasonable monthly compensation for its use from September 1, 2001 until its possession is turned over to it, and to pay P20,000 as attorney’s fees as well as costs of suit.clx[6]

 The trial court, noting that there was no showing that the lease contract was on a monthly basis and that it was for

a definite period, given that Uy has been occupying the leased property continuously for more than 40 years, clxi[7] held that Uy could not be ejected on the ground of termination of the contract. clxii[8] It accordingly dismissedclxiii[9] Malayan’s complaint.

 Aggrieved, Malayan appealed to the Regional Trial Court (RTC) which, by Decisionclxiv[10] dated November 22,

2002, set aside the judgment of the MeTC. On the basis of Article 1687 of the New Civil Code, clxv[11] the RTC extended the lease contract for a period of five years, taking into consideration the fact that Uy was 75 years old and had lived in the

42

leased property for more than half of his life.clxvi[12] And the RTC, finding that Malayan acted arbitrarily and with vindictiveness in instituting the complaint, ordered Malayan to pay P100,000 as moral damages, P100,000 as exemplary damages, and P30,000 as attorney’s fees.clxvii[13]

 Malayan filed a motion for reconsideration,clxviii[14] arguing that since Uy did not appeal the MeTC decision, the

RTC erred in granting him affirmative relief by extending the period of lease and awarding him damages and attorney’s fees.

 Acting on Malayan’s Motion for Reconsideration, the RTC deleted the award of damages to Uy but retained its

ruling extending the lease period for five years.clxix[15]

 Still dissatisfied, Malayan elevated the case to the Court of Appeals (CA), before which it contended that the RTC

had no legal or factual basis for extending the lease contract as the same was not pleaded by Uy in his counterclaim nor sought it as a relief. 

By Decisionclxx[16] of February 19, 2004, the CA modified the RTC decision by shortening the extension of the lease contract to one year from the finality of the decision. And the CA increased the rental rate at 10% per annum starting September 6, 2002, viz: 

x x x [P]etitioner also prayed that respondent herein be ordered to pay a rental of P9,000.00 a month. The court had authority to fix the reasonable value for such use and occupancy from the expiration of the contract of lease because it is settled that the rental stipulated in the contract of lease that has expired or terminated may no longer be the reasonable value for the use and occupation of the premises as a result or by reason of change or rise in values (T & C Development Corp. vs. Court of Appeals, 317 SCRA 476). Taking into account that on September 18, 2001, the date when petitioner filed the complaint for ejectment, the applicable law are RA Nos. 7644 and 8437, which extended the period of rent control from 1993 to 1997 and then from 1998 to 2001, respectively.

x x x x As the maximum increase allowed is 15%, we hold to grant an increase of 10% per annum, under the circumstances of this case. Hence, the increase should be as follows: 

Sept. 6, 2001- Sept. 6, 2002 P5,138.82Sept. 7, 2002 – Sept. 7, 2003 P5,652.70Sept. 8, 2003 onwards P6,217.95

 Thus, we hereby grant the same, but only to the amount herein-above stated considering that the original rate is P4,671.65. x x x (Underscoring in the original) 

 Thus the dispositive portion of the CA decision read:

 WHEREFORE, premises considered, the Decision dated November 22, 2002 and the Order dated

January 24, 2003 of the Regional Trial Court of Manila, National Capital Judicial Region, Branch 40, in Civil Case No. 02-103958, are hereby MODIFIED, by shortening the extension of lease to a period of only one (1) year from finality of this decision and fixing the rental to the rate as herein-above provided, from the date of expiration of lease (5 days after August 31, 2001) on September 6, 2001. In all other respects, the petition is denied. No pronouncement as to costs. 

 The parties’ respective motions for reconsideration were denied by the CA by Resolutionclxxi[17] of May 28, 2004.

43

Malayan (hereafter petitioner) thereupon filed the present petition for review on certiorari, arguing that the CA erred in granting a one year extension of the lease reckoned from the finality of the decision.clxxii[18]

  Petitioner asserts that an extension of the period of a lease may be sought by the tenant before, and not after the

termination of the lease; and that Uy (hereafter respondent) had sufficient time to request for extension, given that the notice of termination of the lease was served upon him more than 30 days before its effectivity, but that respondent did not so request even after the complaint was filed in court.clxxiii[19]

 Petitioner thus maintains that no “equitable reason” justifies respondent’s continued possession of the property for

more than four years from the time the complaint for ejectment was filed.clxxiv[20]  Respondent, on the other hand, faults the CA to have erred in ruling that the lease was considered to be on a

month to month basis, and that even if Article 1687 of the New Civil Code is applicable, the CA erred in shortening the extension of the lease to one year instead of five years as adjudged by the RTC.clxxv[21] And it faults the CA to have abused its discretion in increasing the rental at 10% per annum.clxxvi[22]

 Under Article 1687 of the New Civil Code which reads: Article 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. x x x,  

 if the period of a lease contract has not been specified by the parties, it is understood to be from month to month, if the rent agreed upon is monthly. The lease contract thus expires at the end of each month, unless prior thereto, the extension of said term has been sought by appropriate action and judgment is eventually rendered therein granting the relief.clxxvii[23]  

In the case at bar, the lease period was not agreed upon by the parties. Rental was paid monthly, and respondent has been occupying the premises since 1958. As earlier stated, a written notice was served upon respondent on January 17, 2001 terminating the lease effective August 31, 2001. As respondent was notified of the expiration of the lease, effectively his right to stay in the premises had come to an end on August 31, 2001.clxxviii[24]

 The 2nd paragraph of Article 1687 provides, however, that in the event that the lessee has occupied the leased

premises for over a year, the courts may fix a longer term for the lease.  The power of the courts to establish a grace period is potestative or discretionary, depending on the particular

circumstances of the case. Thus, a longer term may be granted where equities come into play, and may be denied where none appears, always with due deference to the parties’ freedom to contract.clxxix[25]

 Where a petitioner has been deprived of its possession over the leased premises for so long a time, and it is shown

that, indeed, the respondent was the recipient of substantial benefits while the petitioner was unable to have the full use and enjoyment of a considerable portion of its property, such militates against further deprivation by fixing a period of extension.clxxx[26]

 Thus, in De Vera v. Court of Appeals,clxxxi[27] this Court found that the lessee’s continued possession of the property

for more than five years from the supposed expiration of the lease sufficed as an extension of the period.  In the present case, respondent has remained in possession of the property from the time the complaint for

ejectment was filed on September 18, 2001 up to the present time. Effectively, respondent’s lease has been extended for more than five years, which time is, under the circumstances, deemed sufficient as an extension and for him to find another place to stay.

 

44

As for respondent’s assigned errors reflected above, his petition for review, which was docketed as G.R. No. 163652, having been dismissed and the reconsideration of the dismissal having been denied with finality by Resolution of November 8, 2004,clxxxii[28] the decision of the Court of Appeals was, as to him, final and executory. At all events, his contention that the CA erred in increasing the rental from September 6, 2001 onwards at 10% per annum is bereft of merit.

 In Limcay v. Court of Appeals,clxxxiii[29] which incidentally was a complaint for ejectment filed by herein petitioner

against a lessee of one of its apartments located also in the same address as that of the property subject of this case, the Court upheld the RTC’s authority to fix the reasonable value for the use and occupation of the premises from the expiration of the contract of lease.clxxxiv[30]

 That the rental stipulated in the contract of lease that has expired or terminated may no longer be the reasonable

value for the use and occupation of the premises as a result or by the reason of the changes or rise in values is settled. clxxxv

[31]

 Respondent himself admitted in his Answer to the Complaint that the rental was increased yearly since 1989. clxxxvi

[32] He admitted too in his position paper that while petitioner only collected the amount of P4,671.65 as monthly rental, other tenants were constrained to pay P8,000 to P9,000 a month,clxxxvii[33] which latter amount was the amount prayed for by petitioner in his complaint against respondent before the MeTC.

 Given the circumstances attendant to this case, this Court finds that the CA’s increase of the rental at 10% per

annum is fair and just, and is a reasonable valuation of the compensation due petitioner for the use and occupation of its property from the expiration of the contract of lease until the turn over by respondent of its possession.

 As the lease contract expired on August 30, 2001, petitioner is entitled to the 10% per annum increase in rentals

since September 1, 2001, not on September 6, 2001 as held by the CA. Hence, the monthly rental of the property in the succeeding years should be as follows:

 September 2001 to August 2002 P5,138.82September 2002 to August 2003 P5,652.70September 2003 to August 2004 P6,217.97September 2004 to August 2005 P6,839.77September 2005 to August 2006 P7,523.74September 2006 onwards P8,276.11  WHEREFORE, the petition is GRANTED. Respondent, Uy Han Yong, and all persons claiming rights under him

are ORDERED to immediately vacate and surrender possession of 3013 Interior No. 90, Nagtahan, St., Sampaloc Manila, and to pay monthly rentals in the amount of P5,138.82 from September 2001 to August 2002; P5,652.70 from September 2002 to August 2003; P6,217.97 from September 2003 to August 2004; P6,839.77 from September 2004 to August 2005; P7,523.74 from September 2005 to August 2006; and P8,276.11 from September 2006 until respondent finally vacates and surrenders possession of the property to petitioner, Malayan Realty, Inc.

 Costs against respondent.

 SO ORDERED.

   

7.

8. SECOND DIVISION 

FELICIANO ESGUERRA, CANUTO ESGUERRA, JUSTA ESGUERRA,

G.R. No. 169890  

45

ANGEL ESGUERRA, FIDELA ESGUERRA, CLARA ESGUERRA, and PEDRO ESGUERRA, Petitioners,  - versus - VIRGINIA TRINIDAD, PRIMITIVA TRINIDAD, and THE REGISTER OF DEEDS OF MEYCAUAYAN, BULACAN, Respondents.

Present: QUISUMBING, J., Chairperson,CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

 Promulgated: March 12, 2007 

x - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x  D E C I S I O N CARPIO MORALES, J.:

Involved in the present controversy are two parcels of land located in Camalig, Meycauayan, Bulacan. Felipe Esguerra and Praxedes de Vera (Esguerra spouses) were the owners of several parcels of land in

Camalig, Meycauayan, Bulacan – among them a 35,284-square meter parcel of land covered by Tax Declaration No. 10374, half of which (17,642 square meters) they sold to their grandchildren, herein petitioners Feliciano, Canuto, Justa, Angel, Fidela, Clara and Pedro, all surnamed Esguerra; and a 23,989-square meter parcel of land covered by Tax Declaration No. 12080, 23,489 square meters of which they also sold to petitioners, and the remaining 500 square meters they sold to their other grandchildren, the brothers Eulalio and Julian Trinidad (Trinidad brothers).

 Also sold to the Trinidad brothers were a 7,048-square meter parcel of land covered by Tax Declaration No. 9059,

a 4,618-square meter parcel of land covered by Tax Declaration No. 12081, and a 768-square meter parcel of land covered by Tax Declaration No. 13989.

 The Esguerra spouses executed the necessary Deed of Sale in favor of petitioners on August 11, 1937,clxxxviii[1] and

that in favor of the Trinidad brothers on August 17, 1937.clxxxix[2] Both documents were executed before notary public Maximo Abaño.

 Eulalio Trinidad later sold his share of the land to his daughters-respondents herein, via a notarized Kasulatan ng

Bilihang Tuluyan ng Lupacxc[3] dated October 13, 1965. A portion of the land consisting of 1,693 square meters was later assigned Lot No. 3593 during a cadastral survey conducted in the late 1960s.

 On respondents’ application for registration of title, the then Court of First Instance (CFI) of Bulacan, by

Decisioncxci[4] of February 20, 1967, awarded Lot No. 3593 in their favor in Land Registration Case No. N-323-V. Pursuant to the Decision, the Land Registration Commission (LRC, now the Land Registration Authority [LRA]) issued Decree No. N-114039 by virtue of which the Register of Deeds of Bulacan issued OCT No. 0-3631 cxcii[5] in the name of respondents.

Meanwhile, under a notarized Bilihan ng Lupacxciii[6] dated November 10, 1958, petitioners sold to respondents’ parents Eulalio Trinidad and Damiana Rodeadilla (Trinidad spouses) a portion of about 5,000 square meters of the 23,489-square meter of land which they previously acquired from the Esguerra spouses.cxciv[7]

 During the same cadastral survey conducted in the late 1960s, it was discovered that the about 5,000-square meter

portion of petitioners’ parcel of land sold to the Trinidad spouses which was assigned Lot No. 3591 actually measured 6,268 square meters.

46

In a subsequent application for registration of title over Lot No. 3591, docketed as Land Registration Case No. N-335-V, the CFI, by Decisioncxcv[8] of August 21, 1972, awarded Lot No. 3591 in favor of Eulalio Trinidad. Pursuant to the Decision, the LRC issued Decree No. N-149491 by virtue of which the Register of Deeds of Bulacan issued OCT No. 0-6498cxcvi[9] in the name of Trinidad.

 Upon the death of the Trinidad spouses, Lot No. 3591 covered by OCT No. 0-6498 was transmitted to

respondents by succession.  Petitioners, alleging that upon verification with the LRA they discovered the issuance of the above-stated two

OCTs, filed on August 29, 1994 before the Regional Trial Court (RTC) of Malolos, Bulacan two separate complaints for their nullification on the ground that they were procured through fraud or misrepresentation.

 In the first complaint, docketed as Civil Case No. 737-M-94, petitioners sought the cancellation of OCT No. 0-

3631. In the other complaint, docketed as Civil Case No. 738-M-94, petitioners sought the cancellation of OCT No. 0-

6498.  Both cases were consolidated and tried before Branch 79 of the RTC which, after trial, dismissed the cases by

Joint Decisioncxcvii[10] of May 15, 1997.  

Their appeal with the Court of Appeals having been dismissed by Decision of February 28, 2005, a reconsideration of which was, by Resolution of October 3, 2005,cxcviii[11] denied, petitioners filed the instant petition.

 Petitioners fault the appellate court 

1. . . . in misappreciating the fact that the act of the respondent Eulalio Trinidad in acquiring the property from Felipe Esguerra constituted fraud.

 2. . . . in the [i]nterpretation and application of the provisions of Article 1542 of the New Civil

Code. 3. . . . in ruling that there is prescription, res judicata, and violation of the non-[forum]

shopping.cxcix[12]  In their Comment, respondents assailed the petition as lacking verification and certification against forum

shopping and failing to attach to it an affidavit of service and material portions of the record in support thereof. Petitioners counter that the procedural deficiencies have been mooted by the filing of a Compliance. 

A check of the rollo shows that attached to the petition are an Affidavit of Service dated November 21, 2005 and the appellate court’s Decision of February 28, 2005 and Resolution of October 3, 2005; and that on January 16, 2006 or almost three months following the last day to file the petition, petitioners submitted, not at their own instance, cc[13] a Verification and Sworn Certification on Non-Forum Shopping signed by petitioner Pedro Esguerra who cited honest and excusable mistake behind the omission to submit the same.

 This Court has strictly enforced the requirement of verification and certification, obedience to which and to other

procedural rules is needed if fair results are to be expected therefrom. cci[14] While exceptional cases have been considered to correct patent injustice concomitant to a liberal application of the rules of procedure, there should be an effort on the part of the party invoking liberality to advance a reasonable or meritorious explanation for his failure to comply with the rules.ccii[15] In petitioners’ case, no such explanation has been advanced.

 With regard to petitioners’ failure to attach material portions of the record in support of the petition, this

requirement is not a mere technicality but an essential requisite for the determination of prima facie basis for giving due course to the petition.cciii[16] As a rule, a petition which lacks copies of essential pleadings and portions of the case record

47

may be dismissed. Much discretion is left to the reviewing court, however, to determine the necessity for such copies as the exact nature of the pleadings and portions of the case record which must accompany a petition is not specified.cciv[17]  

At all events, technicality aside, the petition must be denied.  It is settled that fraud is a question of fact and the circumstances constituting the same must be alleged and proved

in the court below.ccv[18]  In the present cases, as did the trial court, the appellate court found no fraud in respondents’ acquisition and

registration of the land, viz:  . . . Appellant Pedro Esguerra even testified that he does not know how appellees were able to secure a title over the lot in question and that they never sold Lot No. 3593 to Virginia Trinidad since it is part of the whole lot of 23,489 square meters. The said testimony is a mere conclusion on the part of appellants. On the other hand, the evidence shows that appellees acquired title over the subject property by virtue of a deed of sale executed by their father Eulalio Trinidad in their favor. x x x x

 [T]hey failed to establish that appellees’ acquisition of the certificate of title is fraudulent. In fact, in their two complaints, appellants acknowledged that appellees observed and took the initial procedural steps in the registration of the land, thus ruling out fraud in the acquisition of the certificate of title. . . .ccvi[19]  Factual findings of the trial court, when affirmed by the Court of Appeals, are final, conclusive and binding on

this Court,ccvii[20] which is not a trier of facts,ccviii[21] hence, bereft of function under Rule 45 to examine and weigh the probative value of the evidence presented,ccix[22] its jurisdiction being limited only to the review and revision of errors of law.ccx[23] Albeit there are exceptionsccxi[24] to this rule, the cases at bar do not fall thereunder, there being no showing that the trial and appellate courts overlooked matters which, if considered, would alter their outcome.

 Under the Torrens System, an OCT enjoys a presumption of validity, which correlatively carries a strong

presumption that the provisions of the law governing the registration of land which led to its issuance have been duly followed.ccxii[25] Fraud being a serious charge, it must be supported by clear and convincing proof. ccxiii[26] Petitioners failed to discharge the burden of proof, however.

 On the questioned interpretation and application by the appellate court of Article 1542 of the Civil Code reading: 

In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less areas or number than that stated in the contract.

 The same rule shall be applied when two or more immovables are sold for a single price; but if,

besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated. (Emphasis and underscoring supplied), 

 while petitioners admittedly sold Lot No. 3591 to the Trinidad spouses, they contend that what they sold were only 5,000 square meters and not 6,268 square meters, and thus claim the excess of 1,268 square meters.

 In sales involving real estate, the parties may choose between two types of pricing agreement: a unit price contract

wherein the purchase price is determined by way of reference to a stated rate per unit area (e.g., P1,000 per square meter), or a lump sum contract which states a full purchase price for an immovable the area of which may be declared based on an

48

estimate or where both the area and boundaries are stated (e.g., P1 million for 1,000 square meters, etc.). In Rudolf Lietz, Inc. v. Court of Appeals,ccxiv[27] the Court discussed the distinction:

 . . . In a unit price contract, the statement of area of immovable is not conclusive and the price may be reduced or increased depending on the area actually delivered. If the vendor delivers less than the area agreed upon, the vendee may oblige the vendor to deliver all that may be stated in the contract or demand for the proportionate reduction of the purchase price if delivery is not possible. If the vendor delivers more than the area stated in the contract, the vendee has the option to accept only the amount agreed upon or to accept the whole area, provided he pays for the additional area at the contract rate. 

x x x x In the case where the area of the immovable is stated in the contract based on an estimate, the

actual area delivered may not measure up exactly with the area stated in the contract. According to Article 1542 of the Civil Code, in the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less areas or number than that stated in the contract. . . .

 x x x x Where both the area and the boundaries of the immovable are declared, the area covered within

the boundaries of the immovable prevails over the stated area. In cases of conflict between areas and boundaries, it is the latter which should prevail. What really defines a piece of ground is not the area, calculated with more or less certainty, mentioned in its description, but the boundaries therein laid down, as enclosing the land and indicating its limits. In a contract of sale of land in a mass, it is well established that the specific boundaries stated in the contract must control over any statement with respect to the area contained within its boundaries. It is not of vital consequence that a deed or contract of sale of land should disclose the area with mathematical accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to enable one to identify it. An error as to the superficial area is immaterial. Thus, the obligation of the vendor is to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes the determinate object.ccxv[28] (Emphasis and underscoring supplied)

  The courts below correctly characterized the sale of Lot No. 3591 as one involving a lump sum contract. The

Bilihan ng Lupa shows that the parties agreed on the purchase price of P1,000.00 on a predetermined, albeit unsurveyed, area of 5,000 square meters and not on a particular rate per unit area. As noted by the Court of Appeals, the identity of the realty was sufficiently described as riceland:

 It is clear from the afore-quoted Bilihan ng Lupa that what appellants sold to Eulalio was the

“bahaging palayan.” Though measured as 5,000 square meters, more or less, such measurement is only an approximation, and not an exact measurement. Moreover, we take note of the fact that the said deed of sale mentioned the boundaries covering the whole area of 33,489 square meters, including the “bahaging palayan.” Had appellants intended to sell only a portion of the “bahaging palayan,” they could have stated the specific area in the deed of sale and not the entire “bahaging palayan” . . . .ccxvi[29]  In fine, under Article 1542, what is controlling is the entire land included within the boundaries, regardless of

whether the real area should be greater or smaller than that recited in the deed. This is particularly true since the area of the land in OCT No. 0-6498 was described in the deed as “humigit kumulang,” that is, more or less.ccxvii[30] 

A caveat is in order, however. The use of “more or less” or similar words in designating quantity covers only a reasonable excess or deficiency. A vendee of land sold in gross or with the description “more or less” with reference to its area does not thereby ipso facto take all risk of quantity in the land.ccxviii[31]

 Numerical data are not of course the sole gauge of unreasonableness of the excess or deficiency in area. Courts

must consider a host of other factors. In one case,ccxix[32] the Court found substantial discrepancy in area due to

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contemporaneous circumstances. Citing change in the physical nature of the property, it was therein established that the excess area at the southern portion was a product of reclamation, which explained why the land’s technical description in the deed of sale indicated the seashore as its southern boundary, hence, the inclusion of the reclaimed area was declared unreasonable.

 In OCT No. 0-6498, the increase by a fourth of a fraction of the area indicated in the deed of sale cannot be

considered as an unreasonable excess. Most importantly, the circumstances attendant to the inclusion of the excess area bare nothing atypical or significant to hint at unreasonableness. It must be noted that the land was not yet technically surveyed at the time of the sale. As vendors who themselves executed the Bilihan ng Lupa, petitioners may rightly be presumed to have acquired a good estimate of the value and area of the bahaging palayan.

 As for the last assigned error, the appellate court, in finding that the complaints were time-barred, noted that when

the complaints were filed in 1994, more than 27 years had elapsed from the issuance of OCT No. 0-3631 and more than 20 years from the issuance of OCT No. 0-6498. The prescriptive period of one (1) year had thus set in.

 Petitioners’ reliance on Agne v. Director of Landsccxx[33] is misplaced since the cancellation of title was

predicated not on the ground of fraud but on want of jurisdiction. Even assuming that petitioners’ actions are in the nature of a suit for quieting of title, which is imprescriptible, the actions still necessarily fail since petitioners failed to establish the existence of fraud.

 A word on Republic Act No. 7160ccxxi[34] which was raised by petitioners in their petition. It expressly requires

the parties to undergo a conciliation process under the Katarungang Pambarangay, as a precondition to filing a complaint in court,ccxxii[35] non-compliance with this condition precedent does not prevent a court of competent jurisdiction from exercising its power of adjudication over a case unless the defendants object thereto. The objection should be seasonably made before the court first taking cognizance of the complaint, and must be raised in the Answer or in such other pleading allowed under the Rules of Court.ccxxiii[36]

 While petitioners admittedly failed to comply with the requirement of barangay conciliation, they assert that

respondents waived such objection when they failed to raise it in their Answer. Contrary to petitioners’ claim, however, the records reveal that respondents raised their objection in their Amended Answersccxxiv[37] filed in both cases.

 IN FINE, it is a fundamental principle in land registration that a certificate of title serves as evidence of an

indefeasible and incontrovertible title to the property in favor of the person whose name appears therein. Such indefeasibility commences after the lapse or expiration of one year from the date of entry of the decree of registration when all persons are considered to have a constructive notice of the title to the property. After the lapse of one year, therefore, title to the property can no longer be contested. This system was so effected in order to quiet title to land. ccxxv

[38]  WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals are

AFFIRMED.  Costs against petitioners. SO ORDERED.    

9. SECOND DIVISION JERTY PASCUAL CONTRERAS G.R. No. 164819(deceased), represented by hermother, LOURDES PASCUAL,

Petitioner, Present: 

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QUISUMBING, J.,Chairperson,

- versus - CARPIO,CARPIO MORALES,TINGA, andVELASCO, JR., JJ.

THE HONORABLE COURTOF APPEALS, Former TwelfthDivision, and SPOUSES DANILO Promulgated:ALCANTARA and ISABELITAALCANTARA, March 9, 2007

Respondents. x------------------------------------------------------------------------------------x D E C I S I O N TINGA, J.:

The antecedents that have given rise to this petition for review allude to several potentially interesting questions of law borne out of a complicated factual milieu. Yet the issues actually raised by this petition are relatively trivial, and can be disposed of against petitioner with ease.  

It is established that years before the emergence of the present controversy, a house (subject house) owned by Eulalia Leis (Leis) was constructed on a parcel of land (subject land) owned by Filomena Gatchalian (Gatchalian). This segregate ownership of land and improvement, unreconciled to date, has ultimately spawned the present dispute.  

As early as 1949, Leis openly manifested her rights to the subject house which was constructed on the subject land situated on San Jose Street, Antipolo, Rizal through a Tax Declaration she had secured that year.ccxxvi[1] While the house had been initially constructed with light materials, and covering an area of 25.25 square meters, ccxxvii[2] it appears that by 1974, the house had been renovated and built out of strong materials and with an expanded floor space.ccxxviii[3] By this time, the house had been mortgaged to the Rural Bank of Teresa (Rizal), Inc. (RBTRI), which would eventually acquire ownership over the house after the mortgagor had failed to pay the loan and redeem the house. However, in 1980, respondent Isabelita Bumatay (Isabelita), the daughter of Leis, purchased the house back from the bank, as evidenced by

a deed of sale .

A different trail of ownership attaches to the subject land. It was owned by Gatchalian when the house was first constructed thereon by Leis by around 1949. Eventually, ownership of the land passed to the spouses Felipe Matawaran and Ofelia Oliveros (spouses Matawaran), though the records do not bear how they acquired such property. In 1980, the spouses Matawaran executed two real estate mortgage contracts with the Capitol City Development Bank (CCDB), covering the land, together with the house, as security for a loan of P200,000.00. Specifically, the mortgage deeds stated that the mortgaged property includes a two-storey residential building with a floor area of 220 sq. meters.ccxxix[4]

 After the spouses had failed to pay the loan, CCDB foreclosed on the mortgage and acquired the mortgaged

property in 1984.ccxxx[5] After no redemption was made, CCDB consolidated title to the property with Transfer Certificate of Title (TCT) No. 115486 issued in its name.ccxxxi[6]

 In the meantime, Isabelita, who had since married respondent Danilo Alcantara, had purchased in July of 1983,

from Florencio Oliveros, a 76 square meter lot adjacent to the house which she earlier bought from RBTRI. ccxxxii[7] It is not clear whether the spouses Alcantara had resided in the house, but beginning in 1987 they rented out the lower floors of the house to petitioner Jerty Contreras (Contreras), who resided therein.

 CCDB advertised its intention to sell the subject land, but there were no buyers from 1986 until 1990. In March

1990, CCDB and Contreras entered into a Contract to Sell involving the subject land, “together with the improvements

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existing thereon.”ccxxxiii[8] This was followed by a Deed of Absolute Sale dated 13 November 1990 wherein Contreras purchased from CCDB, for the amount of P212,400.00, the subject land “together with the improvements existing thereon.”ccxxxiv[9]

 Even before the Deed of Absolute Sale was executed, the Alcantaras wrote CCDB concerning the Contract to Sell

between it and Contreras. Therein, they informed the bank that they were the owners of the adjacent lot; that they had not been made aware of the Contract to Sell until after its execution; and that they were willing to avail of their preferential right to purchase as provided by the Civil Code.ccxxxv[10]

 In 1991, the Alcantaras filed a Complaint with the Regional Trial Court (RTC) of Antipolo, Rizal, seeking the

annulment of the Deed of Absolute Sale between Contreras and CCDB.ccxxxvi[11] Impleaded as defendants were Contreras and her husband Renato, CCDB, and the spouses Matawaran. The case was docketed as Civil Case No. 91-222 and raffled to Branch 71 of the Antipolo RTC.

 In their complaint, the Alcantaras identified the lot on which the house stood as Lot A-4 of the subdivision plan

(LRC) Psd-282785, as identified in TCT No. N-37840 in the name of the spouses Matawaran, and its replacement in TCT No. 115486, which was issued in the name of CCDB. The Alcantaras asserted their ownership over the house even as the land on which it stood belonged to a different party. As such, they argued that the Matawaran spouses had no capacity to include the house as part of the property mortgaged to CCDB, as they were not the owners of the structure. In turn, CCDB could not have acquired ownership of the house when it foreclosed on the mortgage and, consequently too, the sale between CCDB and Contreras could not have included the house either.

  Still, the Alcantaras prayed for the annulment of the Deed of Absolute Sale between CCDB and Contreras.

Reiterating their ownership of the lot adjacent to the subject land, the Alcantaras claimed that they are entitled to exercise their right of pre-emption and redemption under Article 1622 of the Civil Code, and thus specifically prayed that the trial court “[allow] the plaintiffs to exercise their right of pre-emption and redemption under Article 1622 of the Civil Code of the Philippines.” A claim for damages was also posed in the complaint.

 An attempt by Contreras to move for the dismissal of the case was initially successful but the victory proved to be

short-lived as the RTC reconsidered its earlier order of dismissal. She then filed her answer with a counterclaim for damages, wherein she asserted that the subject house was included in the sale between the CCDB and herself. This answer was filed by Atty. Melanio Zoreta in behalf not only of Contreras, but of all defendants, “save Matawaran and Oliveros.”ccxxxvii[12]

 CCDB, through a different counsel, would eventually file its own answer independent of the Contreras spouses.

An accompanying motion manifested that CCDB had not been aware that Atty. Zoreta, who had represented the bank in all of its court cases, was also acting as counsel for Contreras. ccxxxviii[13] While CCDB’s new answer also prayed for the dismissal of the complaint, it also lodged a cross-claim against the Contreras and the Matawaran spouses, seeking to hold them liable to CCDB “in the remote event that judgment is rendered against” the bank.

 The Matawaran spouses also filed their own Answer,ccxxxix[14] wherein they admitted that the Alcantaras are the

owners of the subject house, even as it was built on their former property. The Matawarans further claimed that they never misrepresented to CCDB that they had owned the subject house, and that the bank had very well known that the house was actually owned by the Alcantaras.ccxl[15]

 In the midst of the trial that ensued, Contreras died and was substituted by her parents, Francisco and Lourdes

Pascual.ccxli[16] On 15 April 1997, the RTC rendered a Decisionccxlii[17] that affirmed the Alcantaras’ ownership over the subject house; ordered the surrender of possession of the house to the Alcantaras; declared the Deed of Absolute Sale dated 13 November 1990 as null and void; and ordered the conveyance by CCDB to the Alcantaras of “the subject property described as Lot A-4 covered by TCT No. 115486 upon payment by [the Alcantaras] to [CCDB] the amount of P212,400.00, but which amount should be returned to defendant spouses Francisco and Lourdes Pascual by the defendant bank.”ccxliii[18]

 In ruling in this manner, the RTC found that the evidence clearly established the Alcantaras’ ownership of the

subject house, as evidenced by the Deed of Sale between RBTRI and Isabelita, the various tax declarations, the testimony

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of Lourdes Pascual that petitioner had rented the house from the Alcantaras beginning in 1987, and the declaration of the Matawarans that they were not the owners of the house. These facts, found by the RTC, were sufficient to “negate the general presumption that the accessory follows the principal.” From this finding, the RTC held that it was error on the part of CCDB to have included the subject house in the deed of sale it executed with Contreras when in fact the said house was never included in the mortgage executed by the spouses Matawaran, who had no capacity anyway to mortgage such house.

 The RTC further held that the Alcantaras were entitled to exercise the right of pre-emption:

  It is [a] well-settled rule that the owner of an adjoining land is given the right of pre-emption

when the said land is to be sold. 

The situation in the instant case may not be exactly the case called for under Article 1622 of the New Civil Code, but the principle laid down under the said rule may be applied in this case in the absence of a particular law. 

It is only but just and fair that the owner of the adjoining lot is given the right of pre-emption as it would be more beneficial to him. In the instant case, the Court honestly believes that the plaintiffs, who are not only the owners of the lot adjoining the property foreclosed by the defendant bank, but also owners of the house erected on a portion of the said property, be given the preferential right to buy the property.ccxliv[19]  Petitioner appealed the RTC decision to the Court of Appeals.ccxlv[20] On 30 August 2002, the Court of Appeals

rendered a decision affirming in toto the RTC.ccxlvi[21] The appellate court affirmed the findings that the Alcantaras were then, and still are, the owners of the subject house, and thus the Matawarans could not have included the same in their mortgage agreement with CCDB. The Court of Appeals also held that since the ownership by the Alcantaras of the adjacent lot was never controverted, the RTC had validly applied Articles 1621 and 1622 of the Civil Code, which allow the adjoining owner to exercise the right of pre-emption.

 The present petition raises only two issues. The first issue deserves scant consideration. Concerning the first issue, petitioner alleges that the copy they had received of the Court of Appeals decision

dated 30 August 2002 was not signed by the ponente and the members of the Twelfth Division which had rendered the decision. That said, she points to Section 1, Rule 36 of the Rules of Civil Procedure, which requires that a judgment or final order determining the merits of the case be signed by the judge who prepared the decision. Proof of this allegation is supported by the Petition’s Annex “A,” which is represented as the copy of the seven (7)-page decision received by petitioner.ccxlvii[22] A cursory look at this Annex indicates that page 6, which is supposed to contain the signatures of the ponente and the concurring justices, is unsigned.ccxlviii[23] However, the first five pages bear the initials of the ponente, Associate Justice Elvi John Asuncion,ccxlix[24] while the seventh page bears the signed Certification of the Chairperson of the Twelfth Division, Associate Justice Portia Aliño-Hormachuelos. The first page of the decision attached as Annex “A” also bears the signature of the Division Clerk of Court, Marie Claire Victoria Mabutas-Sordan.ccl[25]

 Petitioner’s contention could have been a source of worry had the decision, as filed with the official records of the

Court of Appeals, failed to bear the signatures of the members of the Twelfth Division. But that is not the case. The decision, as attached to the rollo of the Court of Appeals, does bear the signature of the ponente and the two concurring Justices from the Twelfth Division. Petitioner further admits that the certified photocopy of the decision she secured from the Court of Appeals prior to the filing of this petition reflects the complete signatures of the three members of the Twelfth Division.

 The signature requirement under Section 1 of Rule 36, which is rooted in the most common of senses, is

necessitated as indubitable proof that the judges who prepared and concurred in the decision actually did so. Such proof, in this case, is reflected in the copy of the decision that appears in the official records of the Court of Appeals. Moreover, in this case, there is no difference at all between the unsigned page 6 attached by petitioner, and the signed page 6 that

53

appears on the record. There is no alteration or intercalation in either copy that may have indicated a difference between the decision the justices were actually signing and the decision actually sent to the parties. Considering that the copy sent to petitioner does bear, in all other pages save for the sixth, the initials of the ponente, and the certifications of the clerk of court and the division chairperson, we are wont to believe that the transmission of the unsigned page six to petitioner is nothing more than a clerical error. Insofar as such clerical error may give rise to suspicions of untoward behavior, the Court of Appeals may be faulted. Yet it cannot give rise to the nullification of the decision which, as recorded in the official files of the Court of Appeals, has no such formal infirmity.

 The second issue raised by petitioner is the claim that the RTC, in ordering the bank to convey the subject land to

the Alcantaras upon payment of the amount of P212,400.00, exceeded its jurisdiction by “award[ing] reliefs not asked for by [the Alcantaras].”ccli[26] Petitioner alleges that “nowhere in the whole complaint, in the reliefs prayed for or in the evidence presented did [the Alcantaras] ever demand from [petitioner] that the house and lot containing an area of [354] square meters with a residential house erected thereon be sold to them at a measly sum of [P214,400.00].cclii[27]

 As it happens, that “measly sum” happens to be the exact amount for which CCDB had sold the subject property

to petitioner, as evidenced by the Deed of Absolute Sale which petitioner herself had attached to her Answer before the RTC.ccliii[28] It is hardly the case of the trial court pulling a rabbit out of the hat, for the precise relief granted by the RTC is drawn from the Alcantaras’ specific prayer in their complaint that sought a judgment “allowing the plaintiffs to exercise their right of pre-emption and redemption under Article 1622 of the Civil Code of the Philippines, and directing [CCDB] to instead convey Lot A-4 registered under Transfer Certificate of Title No. N-115486 of the Register of Deeds of Rizal in favor of the plaintiffs.”ccliv[29]

 Petitioner has taken the effort of reproducing the entire complaint in the text of the present petition cclv[30] to stress

that what the Alcantaras were merely claiming was “a portion of the house, but never the whole house and lot as what the Regional Trial Court illegally ruled.”cclvi[31] This is erroneous. For one, the complaint proceeded from the premise that the Alcantaras were still the owners of the whole house, and thus sought a judicial affirmation of such ownership. In paragraph 20 of the complaint the Alcantaras further explained that they are also the owners of the adjacent lot, while in paragraph 23 they manifested that they “are now actively asserting their right of ownership over the HOUSE in question and their pre-emptive right over the lot whereon it stands.” Finally, in paragraph 29 they asserted that they “should therefore be allowed to exercise their right of pre-emption and redemption under Article 1622 of the Civil Code of the Philippines.”

 Clearly, it is sufficiently alleged in the complaint that the Alcantaras are entitled to exercise their right of pre-

emption and redemption under Article 1622 of the Civil Code. They specifically prayed that judgment be rendered entitling them to exercise such right, which under Article 1622 entails the following:

  ART. 1622. Whenever a piece of urban land which is so small and so situated that a major

portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation, is about to be re-sold, the owner of the adjoining land has a right of pre-emption at a reasonable price.

 If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption,

also at a reasonable price. x x x x

  

The petition betrays a lack of understanding on petitioner’s part that the exercise of the right of redemption would entail the reconveyance to petitioner of the subject land on which the house stands. This relief stands apart from the judicial affirmation in the same RTC decision that the Alcantaras are also the owners of the house. It was not the case, as petitioner says, of the Alcantaras lodging a claim only as against the house, as they had also lodged a claim against the subject land proceeding from their right of redemption under Article 1622. In the case at bar, the trial court found that the Alcantaras were entitled to exercise their rights under Article 1622, but it would not have been sufficient nor correct for it to just make the corresponding pronouncement in the decision and then stop. The relief assailed by petitioner as

54

unwarranted is nothing more but the affordance of the right of redemption to the Alcantaras at the same reasonable price the bank had sold the property to petitioner. We see no error in granting such relief.  

We are somewhat mystified why petitioner, through this petition, has confined herself to issues that are utterly formalistic in nature, yet ultimately unmeritorious. The decision of the RTC raises a host of potential controversies, such as whether Article 1622 should apply in this case or whether the ownership of the Alcantaras of the house in question was indeed sufficiently proven considering that the main basis of such ownership appears to have been the long-standing regard that her predecessor-in-interest, Leis, was unquestionably the owner of the house. Given the unequivocal rulings of the RTC and the Court of Appeals on the points, it would be expected of petitioner to squarely argue that there was no sufficient proof establishing that the Alcantaras are the owners of the house or that the requisites for applying Article 1622 are present. That petitioner has not couched her arguments clearly to that effect can only lead to the conclusion that she agrees with the findings of the lower courts that the Alcantaras are the owners of the house and that the requisites under Article 1622 have been met. Considering that such questions are ultimately rooted in findings of fact, which the Court is not wont to review, there is no cause for us to deeply inquire into such issues. Since the arguments which are actually raised in the petition lack merit, the expedient dismissal of the petition is in order.

WHEREFORE, the petition is DISMISSED. Costs against petitioner. 

SO ORDERED. 

10. FIRST DIVISI0NSPS. JORGE NAVARRA and CARMELITA BERNARDO NAVARRA and RRRC DEVELOPMENT CORPORATION, Petitioners,   - versus -   PLANTERS DEVELOPMENT BANK and ROBERTO GATCHALIAN REALTY, INC., Respondents.

  G.R. No. 172674 Present:  PUNO, C.J., Chairperson, *SANDOVAL-GUTIERREZ, CORONA, AZCUNA and GARCIA, JJ. Promulgated: July 12, 2007

x---------------------------------------------------------------------------------------x D E C I S I O N GARCIA, J.: 

Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of Court is the decisioncclvii[1] dated September 27, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 50002, as reiterated in its resolutioncclviii[2] dated May 8, 2006, denying reconsideration thereof. The challenged decision reversed that of the Regional Trial Court (RTC) of Makati City, Branch 66, in its Civil Case No. 16917, an action for Specific Performance and Injunction thereat commenced by the herein petitioners against the respondents. The Makati RTC ruled that a perfected contract of sale existed in favor of Jorge Navarra and Carmelita Bernardo Navarra (Navarras) over the properties involved in the suit and accordingly ordered Planters Development Bank (Planters Bank) to execute the necessary deed of sale therefor. The CA reversed that ruling. Hence, this recourse by the petitioners.

 The facts: The Navarras are the owners of five (5) parcels of land located at B.F. Homes, Parañaque and covered by Transfer

Certificates of Title (TCT) Nos. S-58017, S-58011, S-51732, S-51733 and A-14574. All these five (5) parcels of land are the subject of this controversy.

55

 On July 5, 1982, the Navarras obtained a loan of P1,200,000.00 from Planters Bank and, by way of security

therefor, executed a deed of mortgage over their aforementioned five (5) parcels of land. Unfortunately, the couple failed to pay their loan obligation. Hence, Planters Bank foreclosed on the mortgage and the mortgaged assets were sold to it for P1,341,850.00, it being the highest bidder in the auction sale conducted on May 16, 1984. The one-year redemption period expired without the Navarras having redeemed the foreclosed properties.

 On the other hand, co-petitioner RRRC Development Corporation (RRRC) is a real estate company owned by the

parents of Carmelita Bernardo Navarra. RRRC itself obtained a loan from Planters Bank secured by a mortgage over another set of properties owned by RRRC. The loan having been likewise unpaid, Planters Bank similarly foreclosed the mortgaged assets of RRRC. Unlike the Navarras, however, RRRC was able to negotiate with the Bank for the redemption of its foreclosed properties by way of a concession whereby the Bank allowed RRRC to refer to it would-be buyers of the foreclosed RRRC properties who would remit their payments directly to the Bank, which payments would then be considered as redemption price for RRRC. Eventually, the foreclosed properties of RRRC were sold to third persons whose payments therefor, directly made to the Bank, were in excess by P300,000.00 for the redemption price.

 In the meantime, Jorge Navarra sent a letter to Planters Bank, proposing to repurchase the five (5) lots earlier

auctioned to the Bank, with a request that he be given until August 31, 1985 to pay the down payment of P300,000.00. Dated July 18, 1985 and addressed to then Planters Bank President Jesus Tambunting, the letter reads in full:

This will formalize my request for your kind consideration in allowing my brother and me to buy back my house and lot and my restaurant building and lot together with the adjacent road lot.

 Since my brother, who is working in Saudi Arabia, has accepted this arrangement only recently as

a result of my urgent offer to him, perhaps it will be safe for us to set August 31, 1985 as the last day for the payment of a P300,000.00 downpayment. I hope you will grant us the opportunity to raise the funds within this period, which includes an allowance for delays.

 The purchase price, I understand, will be based on the redemption value plus accrued interest at

the prevailing rate up to the date of our sales contract. Maybe you can give us a long term payment scheme on the basis of my brother’s annual savings of roughly US$30,000.00 everytime he comes home for his home leave.

 I realize that this is not a regular transaction but I am seeking your favor to give me a chance to

reserve whatever values I can still recover from the properties and to avoid any legal complications that may arise as a consequence of the total loss of the Balangay lot. I hope that you will extend to me your favorable action on this grave matter.

  

In response, Planters Bank, thru its Vice-President Ma. Flordeliza Aguenza, wrote back Navarra via a letter dated August 16, 1985, thus:

 Regarding your letter dated July 18, 1985, requesting that we give up to August 31, 1985 to buy

back your house and lot and restaurant and building subject to a P300,000.00 downpayment on the purchase price, please be advised that the Collection Committee has agreed to your request. 

Please see Mr. Rene Castillo, Head, Acquired Assets Unit, as soon as possible for the details of the transaction so that they may work on the necessary documentation.

  

Accordingly, Jorge Navarra went to the Office of Mr. Rene Castillo on August 20, 1985, bringing with him a letter requesting that the excess payment of P300,000.00 in connection with the redemption made by the RRRC be applied as down payment for the Navarras’ repurchase of their foreclosed properties.

 

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Because the amount of P300,000.00 was sourced from a different transaction between RRRC and Planters Bank and involved different debtors, the Bank required Navarra to submit a board resolution from RRRC authorizing him to negotiate for and its behalf and empowering him to apply the excess amount of P300,000.00 in RRRC’s redemption payment as down payment for the repurchase of the Navarras’ foreclosed properties.

 Meanwhile, titles to said properties were consolidated in the name of Planters Bank, and on August 27, 1985, new

certificates of title were issued in its name, to wit: TCT Nos. 97073, 97074, 97075, 97076 and 97077. Then, on January 21, 1987, Planters Bank sent a letter to Jorge Navarra informing him that it could not proceed

with the documentation of the proposed repurchase of the foreclosed properties on account of his non- compliance with the Bank’s request for the submission of the needed board resolution of RRRC.

 In his reply-letter of January 28, 1987, Navarra claimed having already delivered copies of the required board

resolution to the Bank. The Bank, however, did not receive said copies. Thus, on February 19, 1987, the Bank sent a notice to the Navarrras demanding that they surrender and vacate the properties in question for their failure to exercise their right of redemption.

 Such was the state of things when, on June 31, 1987, in the RTC of Makati City, the Navarras filed their

complaint for Specific Performance with Injunction against Planters Bank. In their complaint docketed in said court as Civil Case No. 16917 and raffled to Branch 66 thereof, the Navarras, as plaintiffs, alleged that a perfected contract of sale was made between them and Planters Bank whereby they would repurchase the subject properties for P1,800,000.00 with a down payment of P300,000.00.

 In its Answer, Planters Bank asserted that there was no perfected contract of sale because the terms and conditions

for the repurchase have not yet been agreed upon.  On September 9, 1988, a portion of the lot covered by TCT No. 97077 (formerly TCT No. A-14574) was sold by

Planters Bank to herein co-respondent Roberto Gatchalian Realty, Inc. (Gatchalian Realty). Consequently, TCT No. 97077 was cancelled and TCT No. 12692 was issued in the name of Gatchalian Realty. This prompted the Navarras to amend their complaint by impleading Gatchalian Realty as additional defendant.

 In a decision dated July 10, 1995, the trial court ruled that there was a perfected contract of sale between the

Navarras and Planters Bank, and accordingly rendered judgment as follows: 

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering: a)                  the cancellation of the Deed of Absolute Sale (Exh. “2”) over lot 4137-C between

defendant Planters Development Bank and defendant Roberto Gatchalian Realty Corporation (RGRI) with the vendor bank refunding all the payments made by the vendee RGRI “without interest less the five percent (5%) broker’s commission”:

 b)                  the defendant Planters Development Bank to execute the Deed of Absolute Sale

over the lots covered by TCT Nos. 97073, 97074, 97075, 97076, and 97077 in favor of all the plaintiffs for a consideration of ONE MILLION EIGHT HUNDRED THOUSAND (P1,800,000.00) less the downpayment of P300,000.00 plus interest at the rate of twenty five percent (25%) per year for five (5) years to be paid in full upon the execution of the contract;

 c)                  the defendant Planters Development Bank the amount of TEN THOUSAND PESOS

(P10,000.00) by way of attorney’s fees. 

d)                  No costs. 

SO ORDERED. 

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Therefrom, Planters Bank and Gatchalian Realty separately went on appeal to the CA whereat their appellate recourse were consolidated and docketed as CA-G.R. CV No. 50002.

 As stated at the threshold hereof, the appellate court, in its decision of September 27, 2004, reversed that of the

trial court and ruled that there was no perfected contract of sale between the parties. Partly says the CA in its decision:  

The Court cannot go along with the deduction of the trial court that the response of Planters Bank was favorable to Jorge Navarra’s proposal and that the P300,000.00 in its possession is a down payment and as such sufficient bases to conclude that there was a valid and perfected contract of sale. Based on the turn of events and the tenor of the communications between the offerors and the creditor bank, it appears that there was not even a perfected contract to sell, much less a perfected contract of sale. 

Article 1319 cited by the trial court provides that the acceptance to an offer must be absolute. Simply put, there must be unqualified acceptance and no condition must tag along. But Jorge Navarra in trying to convince the bank to agree, had himself laid out terms in offering (1) a downpayment of P300,000.00 and setting (2) as deadline August 31, 1985 for the payment thereof. Under these terms and conditions the bank indeed accepted his offer, and these are essentially the contents of Exhibits “J” and “K.” 

But was there compliance? According to the evidence on file the P300,000.00, if at all, was given beyond the agreed period. The court a quo missed the fact that the said amount came from the excess of the proceeds of the sale to the Peña spouses which Jorge Navarra made to appear was made before the deadline he set of August 31, 1985. But this is athwart Exhibits “M-1” and “N”, the Contract to Sell and the Deed of Sale between RRRC and the Peñas, for these were executed only on September 13, 1985 and October 7, 1985 respectively.  xxx xxx xxx 

There were two separate and independent loans secured by distinct mortgages on different lots and their only commonality is the relationship of the Navarras and Bernardo families. It is thus difficult to conceive and to conclude that such Byzantine arrangement was acquiesced to and provided for in that single and simple letter of the bank.

 With their motion for reconsideration having been denied by the CA in its resolution of May 8, 2006, petitioners

are now with this Court via this recourse on their submission that the CA erred -I 

XXX IN CONCLUDING THAT THERE WAS NO PERFECTED CONTRACT TO REPURCHASE THE FORECLOSED PROPERTIES BETWEEN THE PETITIONERS AND THE PRIVATE RESPONDENT PLANTERS DEVELOPMENT BANK, AS CORRECTLY FOUND BY THE TRIAL COURT. II 

XXX IN HOLDING THAT THE PARTIES NEVER GOT PAST THE NEGOTIATION STAGE. While the question raised is essentially one of fact, of which the Court normally eschews from, yet, given the

conflicting factual findings of the trial and appellate courts, the Court shall go by the exceptioncclix[3] to the general rule and proceed to make its own assessment of the evidence.

  We DENY. Petitioners contend that a perfected contract of sale came into being when respondent Bank, thru a letter dated

August 16, 1985, formally accepted the offer of the Navarras to repurchase the subject properties.

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 In general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth, and consummation.

Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract, i.e., consent, object and price. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.cclx[4]

 A negotiation is formally initiated by an offer which should be certain with respect to both the object and the

cause or consideration of the envisioned contract. In order to produce a contract, there must be acceptance, which may be express or implied, but it must not qualify the terms of the offer. The acceptance of an offer must be unqualified and absolute to perfect the contract. In other words, it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.cclxi[5]

 Here, the Navarras assert that the following exchange of correspondence between them and Planters Bank

constitutes the offer and acceptance, thus:  

Letter dated July 18, 1985 of Jorge Navarra: This will formalize my request for your kind consideration in allowing my brother and me to buy

back my house and lot and my restaurant building and lot together with the adjacent road lot. Since my brother, who is working in Saudi Arabia, has accepted this arrangement only recently as

a result of my urgent offer to him, perhaps it will be safe for us to set August 31, 1985 as the last day for the payment of a P300,000.00 downpayment. I hope you will grant us the opportunity to raise the funds within this period, which includes an allowance for delays.

 The purchase price, I understand, will be based on the redemption value plus accrued interest at

the prevailing rate up to the date of our sales contract. Maybe you can give us a long term payment scheme on the basis of my brother’s annual savings of roughly US$30,000.00 everytime he comes home for his home leave.

 I realize that this is not a regular transaction but I am seeking your favor to give me a chance to

reserve whatever values I can still recover from the properties and to avoid any legal complications that may arise as a consequence of the total loss of the Balangay lot. I hope that you will extend to me your favorable action on this grave matter.  

Letter dated August 16, 1985 of Planters Bank

Regarding your letter dated July 18, 1985, requesting that we give up to August 31, 1985 to buy back your house and lot and restaurant and building subject to a P300,000.00 downpayment on the purchase price, please be advised that the Collection Committee has agreed to your request. 

Please see Mr. Rene Castillo, Head, Acquired Assets Unit, as soon as possible for the details of the transaction so that they may work on the necessary documentation. (Emphasis ours)  Given the above, the basic question that comes to mind is: Was the offer certain and the acceptance absolute

enough so as to engender a meeting of the minds between the parties? Definitely not. While the foregoing letters indicate the amount of P300,000.00 as down payment, they are, however, completely

silent as to how the succeeding installment payments shall be made. At most, the letters merely acknowledge that the down payment of P300,000.00 was agreed upon by the parties. However, this fact cannot lead to the conclusion that a contract of sale had been perfected. Quite recently, this Court held that before a valid and binding contract of sale can exist, the manner of payment of the purchase price must first be established since the agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.cclxii[6]

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 Too, the Navarras’ letter/offer failed to specify a definite amount of the purchase price for the sale/repurchase of

the subject properties. It merely stated that the “purchase price will be based on the redemption value plus accrued interest at the prevailing rate up to the date of the sales contract.” The ambiguity of this statement only bolsters the uncertainty of the Navarras’ so-called “offer” for it leaves much rooms for such questions, as: what is the redemption value? what prevailing rate of interest shall be followed: is it the rate stipulated in the loan agreement or the legal rate? when will the date of the contract of sale be based, shall it be upon the time of the execution of the deed of sale or upon the time when the last installment payment shall have been made? To our mind, these questions need first to be addressed, discussed and negotiated upon by the parties before a definite purchase price can be arrived at.

 Significantly, the Navarras wrote in the same letter the following:

 Maybe you can give us a long-term payment scheme on the basis of my brother’s annual savings

of roughly US$30,000.00 every time he comes home for his home leave. Again, the offer was not clear insofar as concerned the exact number of years that will comprise the long-term

payment scheme. As we see it, the absence of a stipulated period within which the repurchase price shall be paid all the more adds to the indefiniteness of the Navarras’ offer.

 Clearly, then, the lack of a definite offer on the part of the spouses could not possibly serve as the basis of their

claim that the sale/repurchase of their foreclosed properties was perfected. The reason is obvious: one essential element of a contract of sale is wanting: the price certain. There can be no contract of sale unless the following elements concur: (a) consent or meeting of the minds; (b) determinate subject matter; and (c) price certain in money or its equivalent. Such contract is born or perfected from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.cclxiii[7] Here, what is dramatically clear is that there was no meeting of minds vis-a-vis the price, expressly or impliedly, directly or indirectly.

 Further, the tenor of Planters Bank’s letter-reply negates the contention of the Navarras that the Bank fully

accepted their offer. The letter specifically stated that there is a need to negotiate on the other details of the transactioncclxiv[8] before the sale may be formalized. Such statement in the Bank’s letter clearly manifests lack of agreement between the parties as to the terms of the purported contract of sale/repurchase, particularly the mode of payment of the purchase price and the period for its payment. The law requires acceptance to be absolute and unqualified. As it is, the Bank’s letter is not the kind which would constitute acceptance as contemplated by law for it does not evince any categorical and unequivocal undertaking on the part of the Bank to sell the subject properties to the Navarras.

 The Navarras’ attempt to prove the existence of a perfected contract of sale all the more becomes futile in the

light of the evidence that there was in the first place no acceptance of their offer. It should be noted that aside from their first letter dated July 18, 1985, the Navarras wrote another letter dated August 20, 1985, this time requesting the Bank that the down payment of P300,000.00 be instead taken from the excess payment made by the RRRC in redeeming its own foreclosed properties. The very circumstance that the Navarras had to make this new request is a clear indication that no definite agreement has yet been reached at that point. As we see it, this request constitutes a new offer on the part of the Navarras, which offer was again conditionally accepted by the Bank as in fact it even required the Navarras to submit a board resolution of RRRC before it could proceed with the proposed sale/repurchase. The eventual failure of the spouses to submit the required board resolution precludes the perfection of a contract of sale/repurchase between the parties. As earlier mentioned, contracts are perfected when there is concurrence of the parties’ wills, manifested by the acceptance by one of the offer made by the other.cclxv[9] Here, there was no concurrence of the offer and acceptance as would result in a perfected contract of sale.

 Evidently, what transpired between the parties was only a prolonged negotiation to buy and to sell, and, at the

most, an offer and a counter-offer with no definite agreement having been reached by them. With the hard reality that no perfected contract of sale/repurchase exists in this case, any independent transaction between the Planters Bank and a third-party, like the one involving the Gatchalian Realty, cannot be affected.

 WHEREFORE, the petition is DENIED and the assailed decision and resolution of the Court of Appeals are

AFFIRMED.

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 No pronouncement as to costs. SO ORDERED.

   11. SECOND DIVISION JESTRA DEVELOPMENT AND MANAGEMENT CORPORATION, Petitioner,    - versus -   DANIEL PONCE PACIFICO, represented by his attorney-in-fact Jordan M. Pizarras, Respondent.

G.R. No. 167452 Present: QUISUMBING, J., Chairperson,CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ. Promulgated:

 

January 30, 2007x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x 

D E C I S I O N CARPIO MORALES, J.:

 On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed a Reservation Applicationcclxvi[1] with Fil-Estate

Marketing Association for the purchase of a house and lot located at Lot 28, Block 3, Phase II, Jestra Villas, Barangay La Huerta, Municipality of Parañaque, Metro Manila (the property), and paid the reservation fee of P20,000.

 Under the Reservation Application, the total purchase price of the property was P2,500,000, and the down

payment equivalent to 30% of the purchase price or P750,000 was to be paid interest-free in six monthly installments due every fifth of the month starting July 1996 until December 1996. As the P20,000 reservation fee formed part of the down payment, the monthly installment on the down payment was fixed at P121,666.66.

Also under the Reservation Application, upon full payment of the 30% down payment by Pacifico, he was to sign a contract to sell with the owner and developer of the property, Joprest Development and Management Corporation (now Jestra Development and Management Corporation, hereafter Jestra). And the 70% balance on the purchase price or P1,750,000 was to be payable in 10 years, to bear interest at 21% per annum, at a monthly installment of P34,982.50. When the payment of the installments on the 70% balance should commence, the Reservation Application was silent.

 Unable to comply with the schedule of payments, Pacifico requested Jestra to allow him to make periodic

payments on the down payment “in an amount that he could afford,” to which Jestra acceded provided that late payment penalties/surchargescclxvii[2] are paid.

 With still a remaining balance of P260,000 on the down payment, Pacifico and Jestra executed on March 6, 1997,

Contract to Sell No. 83cclxviii[3] over the property. The said contract was silent on the unsettled balance on the down payment. 

Under the Contract to Sell, Pacifico should have had on November 5, 1996, or one month prior to the deadline stated under the Reservation Application, fully paid the 30% down payment, and that the 120 monthly installments for the 70% balance or P1,750 should have had commenced on December 7, 1996, viz: 

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SECTION 2. TERMS OF PAYMENT. The PURCHASER agrees to pay the aforecited purchase price [of P2,500,000.00] in the following manner, namely: 2.1 The total amount of SEVEN HUNDRED FIFTY THOUSAND PESOS ONLY (P750,000.00) Philippine Currency as down payment on or before November 5, 1996. 2.2 The balance of ONE MILLION SEVEN HUNDTED FIFTY THOUSAND PESOS ONLY (P1,750,00.00), Philippine Currency, shall be paid in One Hundred Twenty (120) equal monthly installments at THIRTY FOUR THOUSAND NINE HUNDRED EIGHT THREE PESOS ONLY (P34,983.00) Philippine Currency, to commence on December 7, 1996, with interest at the rate of Twenty One Percent (21%) per annum. The PURCHASER shall issue One Hundred Twenty (120) postdated checks in favor of the OWNER/DEVELOPER for each of the monthly installments, which checks shall be delivered to the latter upon signing of this CONTRACT. The PURCHASER shall be subject to the pre-qualification requirements of COCOLIFE for the Mortgage Redemption Insurance (MRI) and the Building Insurance on the UNIT. Interest re-pricing shall be effected on the 6 th Year, to commence on December 7, 2001.

 x x x x (Underscoring supplied)

  By lettercclxix[4] of November 12, 1997, Pacifico requested Jestra that “the balance be restructured” in light of the

“present business condition.” By November 27, 1997, Pacifico had fully paid the 30% down payment, and by December 4, 1997, he had paid a

total of P846,600, P76,600 of which Jestra applied as penalty charges for the belated settlement of the down payment. By letter of December 11, 1997, Jestra, through counsel, sent Pacifico a final demand for the payment of

P444,738.88cclxx[5] representing the total of 11 installments due on the 70% balance of the purchase price, inclusive of 21% interest per annum and add-on interest at the rate of P384.81 per day, counted from January 7, 1997. Further, Jestra demanded the payment of P73,750 representing “penalties for the [belated settlement of the] down payment.” And it reminded Pacifico that “as provided in Section 5 of the said contract, [Jestra] reserves its right to automatically cancel or rescind the same on account of [his] failure/refusal to comply with the terms thereof.”cclxxi[6]

 Pacifico later requested Jestra, by letter of November 12, 1997, for a restructuring of his unsettled obligation. His

request was granted on the condition that the interest for the period from December 1996 to November 1997 amounting to P224,396.37 would be added to the 70% balance on the purchase price; and that Pacifico issue 12 postdated checks beginning each year to cover his amortization payments. 

In light of the restructured scheme, the monthly amortization on the 70% balance was from P34,982.50 increased to P39,468, to commence on January 5, 1998.

 Pacifico thus issued to Jestra 12 postdated Security Bank checks to cover his monthly amortizations from January

to December 1998. The checks for January and February 1998 were, however, dishonored due to insufficiency of funds.cclxxii[7]  

By letter of March 24, 1998, Pacifico informed Jestra that due to sudden financial difficulties, he was suspending payment of his obligation during the 10-month period, and that he wanted to dispose of the property to recover his investment.cclxxiii[8] And he requested that the postdated checks he issued be returned to him.

 Jestra, by lettercclxxiv[9] of March 31, 1998, denied Pacifico’s request to suspend payment and for the return of the

postdated checks. It, however, gave him until April 15, 1998 to sell the property failing which it warned him that it would be constrained to re-open it for sale.

 

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Thereafter, Jestra sent Pacifico a notarial Notice of Cancellation, dated May 1, 1998, notifying him that it was, within 30 days after his receipt thereof, exercising its right to cancel the Contract to Sell. Pacifico received the notice on May 13, 1998.

 In a separate move, Jestra through its Credit and Collection Manager sent Pacifico a letter dated May 27, 1998,

demanding payment of the total amount of P209,377.75 covering monthly amortizations from January 30 to May 30, 1998 inclusive of penalties. And it gave him until June 1, 1998 to settle his account, failing which the Contract to Sell would be automatically cancelled and it would re-open the property for sale.cclxxv[10]  

On February 24, 1999, Pacifico filed a complaint before the Housing and Land Use Regulatory Board (HLURB) against Jestra, docketed as HLURB Case No. REM-122499-10378, claiming that despite his full payment of the down payment, Jestra failed to deliver to him the property within 90 days as provided in the Contract to Sell dated March 6, 1997, and Jestra instead sold the property to another buyer in October of 1998.cclxxvi[11]

 Pacifico further claimed in his complaint that upon learning of the double sale, he, through his lawyer, demanded

that Jestra deliver the property to him but it failed to do so without just and valid cause.  Pacifico thus prayed that, among others things, judgment be rendered declaring the second sale a nullity, ordering

Jestra to deliver the property to him and to pay him P11,000 a month from July 1997 until delivery. 

By Decisioncclxxvii[12] of March 15, 2000, the Housing and Land Use Arbiter held Jestra liable for failure to comply with Section 3 of Republic Act (RA) No. 6552 (REALTY INSTALLMENT BUYER PROTECTION ACT) requiring payment by the seller of the cash surrender value of the buyer’s payments and Section 17 of Presidential Decree No. 957 (REGULATING THE SALE OF SUBDIVISION LOTS AND CONDOMINIUMS, PROVIDING PENALTIES FOR VIOLATIONS THEREOF) requiring it to register the Contract to Sell in the Office of the Register of Deeds.  

The Arbiter found that while Pacifico had paid a total amount of P846,600 which is “more or less equivalent to 24 monthly installments under the contract to sell . . . wherein the monthly amortization is P34,983,”cclxxviii[13] he could no longer demand the delivery of the property, its title having already been transferred in the name of another buyer.  

Thus the Arbiter disposed: 

WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant and ordering respondent:

 1.      To pay and/or reimburse to the complainant the total payments made amounting to Eight Hundred

Forty Six Thousand Six Hundred Pesos (P846,600.00) with interest thereon at twelve percent (12%) per annum to be computed from the filing of the complaint on 24 February 1999 until fully paid; and

 2.      To pay complainant the amount of Fifty Thousand Pesos ( P 50,000.00) as damages and attorney’s

fees plus the costs of litigation.cclxxix[14] (Underscoring supplied)  

On appeal, the Board of Commissioners of the HLURB modified the decision of the Arbiter by deleting the award of P50,000 damages and ordering Jestra to pay P20,000 as attorney’s fees and P10,000 administrative fine for failure to register the Contract to Sell in the Office of the Register of Deeds. 

By Resolution of January 27, 2003, the HLURB Board of Commissioners deniedcclxxx[15] Jestra’s motion for reconsideration.

 By Ordercclxxxi[16] of December 9, 2003, the Office of the President (OP), to which the case was elevated, adopted

“by reference the findings of facts and conclusions of law” contained in the HLURB Board Resolution of January 27, 2003. And by Ordercclxxxii[17] dated March 18, 2004, it denied Jestra’s motion for reconsideration.

 

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On Jestra’s petition for review under Rule 43 of the Rules of Court, the Court of Appeals (CA), by Decisioncclxxxiii[18] dated January 31, 2005, affirmed the Orders of the OP.

 Its motion for reconsideration having been denied by CA Resolutioncclxxxiv[19] of March 16, 2005, Jestra (hereafter

petitioner) comes before this Court on a petition for review, faulting the appellate court for: I. . . . adopting the OP’s conclusion that penalty payments should be included in computing the total number

of installment payments made by a buyer (in relation to the payment of a cash surrender value upon cancellation of a contract to sell) in spite of its exclusion from the items to be included in computing the two (2) years installment payments as provided in RA 6552

 II. . . . adopting the OP’s conclusion that petitioner failed to deliver possession of the subject property to

respondent upon his full payment of the downpayment [sic] and that petitioner’s act of canceling the contract to sell was unconscionable despite being allowed under RA 6552.

  RA No. 6552 was enacted to protect buyers of real estate on installment against onerous and oppressive

conditions. While the seller has under the Act the option to cancel the contract due to non-payment of installments, he must afford the buyer a grace period to pay them and, if at least two years installments have already been paid, to refund the cash surrender value of the payments. Thus Section of the Act provides:

 SECTION 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:  (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made.   As the records indicate, the total payments made by Pacifico (hereafter respondent) amounted to P846,600. The

appellate court, in concluding that respondent paid at least two years of installments, adopted the formula used by the HLURB by dividing the amount of P846,600 by the monthly amortization of P34,983 to thus result to a quotient of 24.2 months.

 Petitioner contests the computation, however. It claims that the amount of P76,600 represents penalty payment

and is a separate item to answer for its lost income as a seller due to the delay in the payment cclxxxv[20] of the 30% down payment. It thus submits that the amount of P76,600 does not form part of the purchase price and should thus be excluded in determining the total number of installments made.

 Petitioner likewise claims that the proper divisor is not P34,983 but P39,468 since the parties agreed to restructure

the amortizations owing to respondent’s inability to comply with the schedule of payments previously agreed upon in the

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Contract to Sell, and that if respondent’s total payments less the penalty is to be divided by P39,468, the total installments paid would only cover 19.5 months, hence, it was not obliged under RA No. 6552 to pay the cash surrender value of such total payments.

 This Court finds that neither of the parties’ computations is in order. The total purchase price of the property is P2,500,000. As provided in the Reservation Application, the 30%

down payment on the purchase price or P750,000 was to be paid in six monthly installments of P121,666.66. Under the Contract to Sell, the 70% balance of P1,750,000.00 on the purchase price was to be paid in 10 years through monthly installments of P34,983, which was later increased to P39,468 in accordance with the agreement to restructure the same.

 While, under the above-quoted Section 3 of RA No. 6552, the down payment is included in computing the total

number of installment payments made, the proper divisor is neither P34,983 nor P39,468, but P121,666.66, the monthly installment on the down payment.

 The P750,000 down payment was to be paid in six monthly installments. If the down payment of P750,000 is to

be deducted from the total payment of P846,600, the remainder is only P96,600. Since respondent was able to pay the down payment in full eleven (11) months after the last monthly installment was due, and the sum of P76,600 representing penalty for delay of payment is deducted from the remaining P96,600, only a balance of P20,000 remains.

 As respondent failed to pay at least two years of installments, he is not, under above-quoted Section 3 of RA No.

6552, entitled to a refund of the cash surrender value of his payments. What applies to the case instead is Section 4 of the same law, viz:

 SECTION 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. (Underscoring supplied)  In Fabrigas v. San Francisco del Monte, Inc.,cclxxxvi[21] this Court described the cancellation of the contract under

Section 4 as a two-step process. First, the seller should extend the buyer a grace period of at least sixty (60) days from the due date of the installment. Second, at the end of the grace period, the seller shall furnish the buyer with a notice of cancellation or demand for rescission through a notarial act, effective thirty (30) days from the buyer's receipt thereof.

 Respondent admits that under the restructured scheme, the first installment on the 70% balance of the purchase

price was due on January 5, 1998. While he issued checks to cover the same, the first two were dishonored due to insufficiency of funds.

 While respondent was notified of the dishonor of the checks, he took no action thereon, hence, the 60 days grace

period lapsed. Respondent made no further payments thereafter. Instead, he requested for suspension of payment and for time to dispose of the property to recover his investment.

 Respondent admits that petitioner was justified in canceling the contract to sell via the notarial Notice of

Cancellation which he received on May 13, 1998. The contract was deemed cancelled cclxxxvii[22] 30 days from May 13, 1998 or on June 12, 1998.

 WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution dated January 31, 2005 and

March 16, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE. The complaint of respondent, Daniel Ponce Pacifico, is DISMISSED. 

SO ORDERED.  

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12. THIRD DIVISION

 SPOUSES CESAR R. ROMULO G.R. No. 151217and NENITA S. ROMULO,

Petitioners, Present: 

QUISUMBING, J., Chairperson,

- versus - CARPIO, CARPIO MORALES, TINGA, and

SPOUSES MOISES P. LAYUG, JR., VELASCO, JR., JJ.and FELISARIN LAYUG,

Respondents.Promulgated:

September 8, 2006 x---------------------------------------------------------------------------x  D E C I S I O N  TINGA, J.:  

This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Court of Appeals’ Decisioncclxxxviii[1] and Resolutioncclxxxix[2] in CA-G.R. CV No. 63965. Said Decision reversed and set aside the Decision ccxc[3]

of the Regional Trial Court (RTC), Branch 258, Parañaque City, which nullified the Deed of Absolute Sale and Contract of Lease executed between herein petitioners and respondents. 

The following factual antecedents are matters of record.

On April 11, 1996, petitioners Spouses Cesar and Nenita Romulo filed a verified Complaint for Cancellation of Title, Annulment of Deed of Absolute Sale and Contract of Lease with Damages against respondents Spouses Moises and Felisarin Layug. The complaint was docketed as Civil Case No. 96-0172 and raffled to Branch 258 of the RTC of Parañaque.ccxci[4]   Petitioners averred in their complaint that sometime in 1986, they obtained from respondents a loan in the amount of P50,000.00 with a monthly interest of 10%, which subsequently ballooned to P580,292.00. To secure the payment of the loan, respondents allegedly duped petitioners into signing a Contract of Lease and a Deed of Absolute Sale covering petitioners’ house and lot located at Phase II, BF Homes, Sucat, Parañaque and covered by Transfer Certificate of Title (TCT) No. S-71528. The Deed of Absolute Sale purportedly facilitated the cancellation of petitioners’ title on the house and lot and the issuance of TCT No. 20489 in the name of respondents. Thus, petitioners prayed for the nullification of the Deed of Absolute Sale, the contract of lease and TCT No. 20489, and the award of moral and exemplary damages.ccxcii[5]

 Respondents denied petitioners’ allegations. In their Answer,ccxciii[6] they vouched for the validity of the Deed of

Absolute Sale, particularly as having been voluntarily executed by the parties for the purpose of extinguishing petitioners’ indebtedness to respondents. As consideration of the sale, respondents allegedly paid the amount of P200,000.00 in addition to the writing off of petitioners’ obligation to them. That they allowed petitioners to occupy the house and lot as lessees thereof was founded on the trust they reposed on petitioners, claimed respondents.ccxciv[7]  

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Prior to the filing of Civil Case No. 96-0172, respondent Moises Layug, Jr. (“Moises”) filed Civil Case No. 9422, an action for ejectment, against petitioners to compel the latter to vacate the house and lot allegedly sold by petitioners to Moises and subsequently rented out by him to petitioners. Moises alleged that petitioners violated the terms of the Contract of Lease when the latter failed to pay any rental or exercise their option to repurchase the house and lot and refused to vacate the property despite demand. The Metropolitan Trial Court (MeTC), Branch 77, Parañaque dismissed the complaint for lack of cause of action.ccxcv[8] The RTC, Branch 257, Parañaque, likewise dismissed Moises’ appeal based on its finding that the parties did not intend to enter into a lease agreement.ccxcvi[9] The Court of Appeals denied Moises’ petition for review on the ground of late filing.ccxcvii[10] Upon elevation to this Court, Moises’ petition for review on certiorari was denied with finality by this Court.ccxcviii[11]  

On June 21, 1999, the trial court rendered judgment in favor of petitioners in Civil Case No. 96-0172. The dispositive portion of the decision reads: 

WHEREFORE, the plaintiffs having been able to prove their claim by preponderance of evidence, judgment is hereby rendered in their favor and against spouses Moises P. Layug and Felisarin Layug whereby the Contract of Lease as well as the Deed of Sale allegedly executed by the herein parties are hereby declared NULL and VOID and of no force and effect and the Register of Deeds of the City of Parañaque is hereby ordered to cancel Transfer Certificate of Title No. 20489 registered in the names of MOISES P. LAYUG married to FELISARIN LAYUG and to issue a new one in the name of Spouses Cesar R. Romulo and Nenita S. Romulo, upon the payment of the required fees by the plaintiffs. 

Likewise, defendants Spouses Moises P. Layug and Felisarin Layug are hereby ordered to pay jointly and severally Spouses Cesar R. Romulo and Nenita S. Romulo the following, to wit: 

1.      The amount of P100,000.00 as and by way of moral damages;2.      The amount of P80,000.00 as exemplary damages;3.      The amount of P50,000.00 as and by way of attorney’s fees; and4.      The costs of suit. SO ORDERED.ccxcix[12]   Respondents elevated the matter to the Court of Appeals, questioning, among others, the trial

court’s finding that the contract between petitioners and respondents was an equitable mortgage.ccc[13] The Court of Appeals reversed and set aside the RTC Decision, mainly on the ground that petitioners failed to present sufficient evidence to prove their allegation that their signatures to the Deed of Absolute Sale were obtained fraudulently. Their motion for reconsideration rebuffed,ccci[14] petitioners filed the instant petition raising the lone issue of whether or not the transaction between the parties constitutes an equitable mortgage. 

On this issue, the RTC and the Court of Appeals differ in opinion. The trial court based its declaration that an equitable mortgage was intended by the parties on the finding that petitioners remained in possession of the house and lot even after the property was supposedly sold to respondents. The trial court also gave evidentiary weight to the decisions of the MeTC and RTC dismissing the action for ejectment in Civil Case No. 9422, where both courts found that petitioners neither vacated the property nor paid any rental even after the execution of the Deed of Absolute Sale. The Court of Appeals disagreed and declared that an absolute sale was contemplated by the parties based on the express stipulations in the Deed of Absolute Sale and on the acts of ownership by respondents subsequent to its execution. 

 Whether or not the parties intended an equitable mortgage is a factual issue. As a general rule, factual review is

beyond the province of this Court. One of the exceptions to the rule is exemplified by the instant case where the factual findings of the RTC and Court of Appeals are contradictory.  

That petitioners obtained loans from respondents between 1985 and 1987, which remained unpaid up to the time of the execution of the assailed Deed of Absolute Sale, is established.cccii[15] That petitioners signed the assailed instrument is also not disputed. Indeed, they admitted having signed said document qualifying, however, that they were forced by

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respondents to execute the same for the purpose of securing their indebtedness to respondents. ccciii[16] Respondents, on the other hand, insisted that the parties executed the Deed of Absolute Sale as an honest-to-goodness sales transaction.

 Respondents, however, admitted further that in addition to the amount of P200,000.00 stipulated in the Deed of

Absolute Sale, the parties agreed to write off petitioners’ loan as consideration of the sale, although this clause was not expressed in the instrument.ccciv[17] From respondents’ admission, it can be gathered that the assailed Deed of Absolute Sale does not reflect the true arrangement of the parties. Now, is petitioners’ submission that the parties actually agreed to subject the house and lot as security for their unpaid obligation supported by the evidence? Did the parties execute the assailed Deed of Absolute Sale with the intention of subjecting petitioners’ house and lot covered by the deed as a mere security for the payment of their debt?

 The form of the instrument cannot prevail over the true intent of the parties as established by the evidence. We

have also decreed that in determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and immediately after execution of the agreement.cccv[18] In order to ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered. Once the intention of the parties has been ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms. cccvi[19] As such, documentary and parol evidence may be submitted and admitted to prove such intention. And, in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.cccvii[20]

 Between 1985 and 1987, petitioner Nenita Romulo (“Nenita”) obtained from respondent Felisarin Layug (“Felisarin”) loans in various amounts totaling around P500,000.00. Being close friends at that time, Felisarin did not require any written instrument to secure payment, other than the title to the house and lot, which Nenita handed to Felisarin sometime in 1988.cccviii[21] When respondents demanded payment of the loan, petitioners defaulted. Nevertheless, as admitted by Layug, despite her repeated demands, she allowed petitioners some more time within which to pay their debts.cccix[22] Felisarin claimed that eventually petitioners offered their house and lot as payment for their debt because petitioners no longer had any money.cccx[23] However, even after the execution of the assailed Deed of Absolute Sale, respondents continued to grant petitioners loan accommodations as evidenced by the three promissory notes executed by petitioner Cesar Romulo.cccxi[24]

 Respondents’ continuing to lend money to petitioners does not make sense if the intention of the parties was

really to extinguish petitioners’ outstanding obligation. The logical and inevitable conclusion is that respondents deemed it wise to formalize a security instrument on petitioners’ house and lot by executing the Deed of Absolute Sale after realizing that petitioners could no longer fully satisfy their obligation to respondents. At that time, as petitioners were hard-pressed to come up with funds to pay their loan, they were hardly in a position to bargain. The preponderance of evidence shows that they signed knowing that said documents did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. “Necessitous men are not, truly speaking, free men; but to answer a present emergency will submit to any terms that the crafty may impose upon them.” cccxii[25] The circumstances surrounding the execution of the Deed of Absolute Sale, particularly the fact that respondents continued to extend some loans to petitioners after its execution, precludes the Court from declaring that the parties intended the transfer of the property from one to the other by way of sale.

 Consistent with the foregoing state of the evidence, Articles 1604 and 1602 of the Civil Code come into play. The

articles provide that when the parties to a contract of sale actually intended such contract to secure the payment of an obligation, it shall be presumed to be an equitable mortgage:

 Art. 1602. The contract shall be presumed to be an equitable mortgage in any of the following

cases:1) When the price of a sale with right to repurchase is unusually inadequate; 2) When the vendor remains in possession as lessee or otherwise; 3) When upon or after the expiration of the right to repurchase, another instrument extending

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

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4) When the vendor binds himself to pay the taxes on the thing sold; 5) When the purchaser retains for himself a part of the purchase price; 6) In any other case where it may be fairly inferred that the real intention of the parties is that

the transaction shall secure the payment of a debt or the performance of any other obligation. (Emphasis supplied.)

 Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an

absolute sale. 

For the presumption of equitable mortgage to arise, two requisites must be satisfied, namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Article 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Article 1602 be present.cccxiii[26] To stress, the existence of any one of the conditions under Article 1602, not a concurrence, or an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage.cccxiv[27] It must be emphasized too, however, that there is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage.  In fact, it is often a question difficult to resolve and is frequently made to depend on the surrounding circumstances of each case.  When in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in controversy. cccxv

[28]

 The Court has not hesitated to declare a purported contract of sale as an equitable mortgage even when only one

of the enumerated circumstances under Article 1602 is proved.cccxvi[29] In the case at bar, petitioners remained in possession of the house and lot even after the execution of the Deed of Absolute Sale. Moreover, they remained in possession of the property for more than the reasonable time that would suggest that petitioners were mere lessees thereof. For one, it took respondents more than five years from the time of the execution of the Deed of Absolute Sale and the Contract of Lease to file the action for ejectment. Within this period, petitioners neither paid any rental nor exercised the option to buy purportedly the leased property from respondents. Incidentally, in the decisions of the MeTC and the RTC in the separate action for ejectment, both lower courts observed that when petitioners were made to sign a blank document, which turned out to be a Contract of Lease of their house and lot, they were of the belief that the blank document would serve only as guaranty for the payment of their obligation to respondents.

 The claim that petitioners’ possession of the house and lot was by sheer tolerance of respondents is specious.

Respondents could not explain why they allowed petitioners more than five years to look for another place to transfer. These circumstances only support the conclusion that the parties never really intended to transfer title to the property. Under paragraph 2 of Article 1602, where the purported vendor remains in possession of the property subject of the sale and it can be inferred that the true intention of the parties was to secure an existing debt, the transaction shall be deemed an equitable mortgage.

 Under paragraph 1 of Article 1602, where the purchase price is inadequate, a contract of sale is also presumed to

be an equitable mortgage. Based on respondents’ evidence, petitioners’ property was valued at P700,000.00 but the assailed Deed of Absolute Sale stated a consideration of only P200,000.00. Contrary to the appellate court’s declaration that the inadequacy of the purchase price is not sufficient to set aside the sale, the Court finds the same as clearly indicative of the parties’ intention to make the property only a collateral security of petitioners’ debt. The Court is not convinced that petitioners would allow the sale of their residential property for even less than half of its market value.

 The appellate court ruled that petitioners failed to rebut the presumption of the genuineness and due execution of

the questioned Deed of Absolute Sale. Based on the examination of the assailed instrument and the Contract of Lease and the testimonies of the parties, the Court cannot sustain respondents’ claim that petitioners offered to sell their house and lot in satisfaction of their indebtedness. As observed by the trial court, the Contract of Lease appears to have been signed sometime in November 1988 or before the execution of the Deed of Sale. Respondents were unable to explain why they had leased the property to petitioners before its supposed purchase by respondents. Furthermore, the records disclose that it was only after the institution of the ejectment case did petitioners learn about the cancellation of their title to the

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property although under the assailed Deed of Absolute Sale, petitioners were obliged to bear the expenses of its execution and registration. These circumstances lend credence to petitioners’ claim of the surreptitious manner by which respondents made them sign certain documents without completely disclosing the real import thereof.

      The Supreme Court is clothed with ample authority to review matters, even if they are not assigned as errors on

appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. cccxvii[30] Though petitioners did not raise in issue the appellate court’s reversal of the award of damages in their favor, the Court has the discretion to pass upon this matter and determine whether or not there is sufficient justification for the award of damages.

The trial court described respondents’ acts as “malevolent,” necessitating the award for moral and exemplary

damages. An award of moral damages would require certain conditions to be met, to wit: (1) first, there must be an injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) second, there must be a culpable act or omission factually established; (3) third, the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) fourth, the award of damages is predicated on any of the cases stated in Article 2219.cccxviii[31]

 However, petitioners are not completely without fault. Had they exercised ordinary diligence in their affairs,

petitioners could have avoided executing documents in blank. Respondents’ wrongful act, although the proximate cause of the injury suffered by petitioners, was mitigated by petitioners’ own contributory negligence. Hence, the award of moral and exemplary damages must be reduced to one-half of the amounts awarded by the trial court.cccxix[32]

 WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV

63965 are REVERSED and SET ASIDE and the Decision of the Regional Trial Court, Branch 258, Parañaque City in Civil Case No. 96-0172 is REINSTATED with a MODIFICATION that the award of moral and exemplary damages is REDUCED to P50,000.00 and P40,000.00, respectively. Costs against respondents.

 SO ORDERED.  

13.

14. SPECIAL FIRST DIVISION  PHILIPPINE NATIONAL BANK, G.R. No. 164801

Petitioner,Present:

Quisumbing (Chairman),

- versus - Ynares-Santiago, Carpio, and Azcuna, JJ.

HEIRS OF ESTANISLAO MILITAR AND DEOGRACIAS MILITAR, represented by TRANQUILINA MILITAR,

Respondents. 

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x ----------------------------------------------- x SPOUSES JOHNNY LUCERO G.R. No. 165165 AND NONA ARIETE,

Petitioners, 

- versus - HEIRS OF ESTANISLAO MILITAR, DEOGRACIAS MILITAR, and TRANQUILINA MILITAR (deceased), now represented by AZUCENA MILITAR, FREDDIE MILITAR, EDUARDO MILITAR, ROMEO L. MILITAR, NELLY LY BOLANIO, Promulgated:LETICIA LY and DELIA LY SI ASOYCO,

Respondents. June 30, 2006 x ---------------------------------------------------------------------------------------- x  RESOLUTION  YNARES-SANTIAGO, J.:  

Before us are the motions for reconsideration filed by petitioners Philippine National Bank (PNB) in G.R. No. 164801 and Spouses Johnny Lucero and Nona Ariete (Lucero Spouses) in G.R. No. 165165 seeking a reconsideration of our August 18, 2005 Decision in these consolidated cases which affirmed in toto the June 4, 2004 Decision and August 4, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 54831 holding that both petitioners PNB and the Lucero Spouses were not mortgagee and buyers in good faith, respectively. 

In their separate motions for reconsideration, both petitioners PNB and the Lucero Spouses in the main assert that they were mortgagee and buyers for value in good faith, respectively. Thus, the Lucero Spouses pray that we “take a second hard look at the facts and circumstances of the case.” Respondents however argue that PNB cannot be considered a mortgagee in good faith as it failed to inspect the disputed property when offered to it as security for the loan, which could have led it to discover the forged instruments of sale. Similarly, the Lucero Spouses cannot be regarded as innocent purchasers for value, respondents’ claim, as they failed to inquire from the occupants of the disputed property the status of the property. Before revisiting the facts and circumstances of the instant case, a review of existing jurisprudence may be expedient in resolving the twin motions for reconsideration. 

In Cabuhat v. Court of Appeals, we said that “it is well-settled that even if the procurement of a certificate of title was tainted with fraud and misrepresentation, such defective title may be the source of a completely legal and valid title in the hands of an innocent purchaser for value. Thus – 

Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property the court cannot disregard such rights and order the total cancellation of the certificate. The effect of such an outright cancellation would be to impair public confidence in the certificate of title, for everyone dealing with property registered under the Torrens system would have to inquire in every instance whether the title has been regularly or irregularly issued. This is contrary to the evident purpose of the law. Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property.cccxx[1]

 

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Cabuhat was later invoked by Clemente v. Razocccxxi[2] and Velasquez, Jr. v. Court of Appeals.cccxxii[3] Accordingly, in Lim v. Chuatoco we said that “it is a familiar doctrine that a forged or fraudulent document may become the root of a valid title, if the property has already been transferred from the name of the owner to that of the forger. This doctrine serves to emphasize that a person who deals with registered property in good faith will acquire good title from a forger and be absolutely protected by a Torrens title. In the final analysis, the resolution of this case depends on whether the petitioners are purchasers in good faith.”cccxxiii[4] 

In a litany of cases, we have defined a purchaser in good faith as one who buys property of another without notice that some other person has a right to, or interest in, such property and pays 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.cccxxiv[5]  

Thus, as a general rule, where the land sold is in the possession of a person other than the vendor, the purchaser must go beyond the certificate of title and make inquiries concerning the actual possessor. A buyer of real property which is in possession of another must be wary and investigate the rights of the latter. Otherwise, without such inquiry, the buyer cannot be said to be in good faith and cannot have any right over the property.cccxxv[6] We explained this principle in Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of Appeals and also held therein that this rule likewise applies to mortgagees of real propertycccxxvi[7] –

 As this Court explained in the case of Spouses Mathay v. Court of Appeals: Although it is a recognized principle that a person dealing on a registered land need not go

beyond its certificate of title, it is also a firmly settled rule that where there are circumstances which would put a party on guard and prompt him to investigate or inspect the property being sold to him, such as the presence of occupants/tenants thereon, it is of course, expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in the concept of the owner. As is the common practice in the real estate industry, an ocular inspection of the premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he find out that the land he intends to buy is occupied by anybody else other than the seller who, as in this case, is not in actual possession, it would then be incumbent upon the purchaser to verify the extent of the occupant’s possessory rights. The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a “purchaser in good faith.”

 This Rule equally applies to mortgagees of real property. In the case of Crisostomo v. Court of

Appeals the Court held – It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should

put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of his vendor or mortgagor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor’s or mortgagor’s title, will not make him an innocent purchaser or mortgagee for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defects as would have led to its discovery had he acted with the measure of a prudent man in like situation. Accordingly, for a purchaser of a property in the possession of another to be in good faith, he must exercise due

diligence, conduct an investigation, and weigh the surrounding facts and circumstances like what any prudent man in a similar situation would do. In Domalanta v. Commission on Electionscccxxvii[8] we noted the use in other jurisdictions of the terms “man of reasonable caution”cccxxviii[9] and “ordinarily prudent and cautious man.”cccxxix[10] These terms, we said, are legally synonymous and their reference is not to a person with training in law such as a prosecutor or a judge but to the average man on the street. It ought to be emphasized that the average man weighs facts and circumstances without resorting to the calibration of our technical rules of evidence of which his knowledge is nil. Rather, he relies on the calculus of common sense of which all reasonable men have an abundance. And, “[b]y law and jurisprudence, a mistake upon a doubtful or difficult question of law may properly be the basis of good faith.”cccxxx[11] 

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On the other hand, a mortgagee, particularly a bank or financial institution whose business is impressed with public interest, is expected to exercise more care and prudence than a private individual in its dealings, even those involving registered lands.cccxxxi[12] In Sunshine Finance and Investment Corp. v. Intermediate Appellate Court we presumed that an investment and financing corporation “is experienced in its business. Ascertainment of the status and condition of properties offered to it as security for loans it extends must be a standard and indispensable part of its operations. Surely, it cannot simply rely on an examination of a Torrens certificate to determine what the subject property looks like as its condition is not apparent in the document. The land might be in a depressed area. There might be squatters on it. It might be easily inundated. It might be an interior lot, without convenient access. These and other similar factors determine the value of the property and so should be of practical concern to the (investment and financing corporation).”cccxxxii[13]  

In fine, the diligence with which the law requires the individual or a corporation at all times to govern a particular conduct varies with the nature of the situation in which one is placed, and the importance of the act which is to be performed.cccxxxiii[14] 

Similarly, in ascertaining good faith, or the lack of it, which is a question of intention, courts are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined. Good faith, or want of it, is capable of being ascertained only from the acts of one claiming its presence, for it is a condition of the mind which can be judged by actual or fancied token or signs.cccxxxiv[15] Good faith, or want of it, is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged by actual or fancied token or signs.cccxxxv[16] Good faith connotes an honest intention to abstain from taking unconscientious advantage of another.cccxxxvi[17] Accordingly, in University of the East v. Jader we said that “[g]ood faith connotes an honest intention to abstain from taking undue advantage of another, even though the forms and technicalities of law, together with the absence of all information or belief of facts, would render the transaction unconscientious.”cccxxxvii[18]

 Withal, in Sigaya v. Mayuga the Court said that “good faith consists in the possessor’s belief that the person from

whom he received the thing was the owner of the same and could convey his title. Good faith, while it is always to be presumed in the absence of proof to the contrary, requires a well founded belief that the person from whom title was received was himself the owner of the land, with the right to convey it. There is good faith where there is an honest intention to abstain from taking any unconscientious advantage of another. Otherwise stated, good faith is the opposite of fraud and it refers to the state of mind which is manifested by the acts of the individual concerned.”cccxxxviii[19]

 Contrastingly, in Magat, Jr. v. Court of Appeals the Court explained that “[b]ad faith does not simply connote bad

judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud.”cccxxxix[20] In Arenas v. Court of Appeals the Court held that the determination of whether one acted in bad faith is evidentiary in nature.cccxl[21] Thus “[s]uch acts (of bad faith) must be substantiated by evidence.”cccxli[22] Indeed, the unbroken jurisprudence is that “[b]ad faith under the law cannot be presumed; it must be established by clear and convincing evidence.cccxlii[23]

 All told, the ascertainment of good faith, or lack of it, and the determination of whether due diligence and

prudence were exercised or not, are questions of fact. And while settled is the principle that this Court is not a trier of factscccxliii[24] and the general rule is that the determination of whether or not a buyer or mortgagee is in good faith is generally outside the province of this Court to determine in a petition for review,cccxliv[25] in Gabriel v. Spouses Mabanta we said that “[t]his rule, however, is not an iron-clad rule. In Floro v. Llenado we enumerated the various exceptions and one which finds application to the present case is when the findings of the Court of Appeals are contrary to those of the trial court.”cccxlv[26] Thus, in Clemente v. Razo we held that “the issue of whether or not one is an innocent purchaser for value is a question of fact which, as a rule, is not for this Court to determine. In the same breath, however, there are recognized exceptions to such rule, not the least of which is when, as in this case, the findings of the Court of Appeals are contrary to that of the trial court.”cccxlvi[27]

 In the instant case, the trial court which had the sole opportunity to observe first hand the demeanor of witnesses

and consider the relative weight of the evidence presented, concluded that “Philippine National Bank and Spouses Johnny Lucero and Nona Ariete are purchasers in good faith.” Respondent appellate court however found that neither the PNB

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nor the Lucero Spouses can be regarded as buyers in good faith as they failed to inquire from the possessors the status of the disputed property. We thus go back to the records of the case and the substantiated allegations.

 We begin with petitioner PNB. While it may be true that the bank could not have known the forgery committed

by the Jalbuna Spouses at the time the disputed property was mortgaged to it, still it could not be completely exonerated from any liability arising from its apparent omission, if not negligence, to further investigate the nature of the possession or the title of the respondents who were the alleged occupants of the property. PNB did not present any witness before the trial court who had personal knowledge of whether or not the bank had conducted the requisite ocular inspection or investigation before accepting the property as security for the loan of the Jalbuna Spouses.

 Perhaps PNB inordinately relied on the presumption of regularity in its compliance with the requirements for the

Extrajudicial Foreclosure of Mortgage, such as the publication of the notice of auction sale, and assumed that the burden of proof was on the respondents to prove that the bank was remiss in its obligation. Perhaps too, the bank assumed that its presumed compliance with the foregoing requirements was sufficient to operate as a constructive notice to all those claiming ownership of or a right to possess the mortgaged property, or those who would be adversely affected by the impending foreclosure sale. It does not however alter the fact that the only witness presented by PNB merely inherited from his predecessor the records relating to the account of the Jalbuna Spouses, and hence had no personal knowledge of whether or not an ocular inspection was in fact conducted on the property. Thus –

 Atty. Bañares: Q Did you not know whether there was an inspector who made the inspection of the property? A I do not know.cccxlvii[28] 

x x x x Q So, is it safe to conclude now that you do not know whether Philippine National Bank sent some

inspectors to Lot 3017-B before the loan… Court: 

Answered, he did not know. How will he know? Atty. Bañares: 

That will be all, Your Honor.cccxlviii[29] Indeed, had petitioner PNB conducted an ocular inspection as it claims, it would have found out that the

mortgagors, Spouses Jalbuna, were not in actual possession of the property but herein respondents and their predecessors-in-interest, which information should have put it on inquiry as to the real status of the property. Consequently, petitioner PNB should have inquired into the circumstances of the possession by herein respondents and their predecessors in interest.

 In fine, there is no showing that petitioner PNB, a banking institution, which is expected to exercise more care

and prudence in its dealings involving registered land, ascertained the status and condition of the property being offered to it as a security for the loan before it approved the loan. Hence, we therefore find that there is no reversible error committed by the Court of Appeals in finding that PNB could not be considered a mortgagee in good faith.  

We now go to petitioners Lucero Spouses. The Lucero Spouses knew from the very beginning that the disputed property was occupied by third parties. They resided in the adjoining property. Thus, they went beyond the title of petitioner PNB, and upon inquiry, were made to believe that the partial occupation by private respondents of the disputed property was merely being tolerated by the rightful owner. Accordingly, before the trial court, petitioner Nona A. Lucero testified that –

 

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Atty. Posecion: Q Did your mother not tell you that the Militar family has been residing in the land so that it would

be difficult if you buy the land? A No, because I will make (the) transaction (with) the Philippine National Bank, not (with) the

Militars. Q So that you disregarded whatever right the Militars have over the land, right? A No, because the vendee/buyer has the authority to make expenses for all the squatters.cccxlix[30] The Lucero Spouses also knew that petitioner PNB had already acquired the property in a foreclosure sale and

that petitioner PNB had in fact transferred the title to its name for almost five years already. Their belief that petitioner PNB thereafter had the right to transfer title over the disputed property was strengthened by the fact that they similarly consolidated their ownership over the adjoining property after buying it from respondent Romeo Militar and assuming his loan with petitioner PNB.cccl[31]

 The reliance of the Lucero Spouses, who never participated in the auction sale, on the right of petitioner PNB

which had the title in its name for almost five years already is not totally misplaced. On June 5, 1975 the disputed property was mortgaged to petitioner PNB. Some three years later, on September 5, 1978, the mortgaged property was extrajudicially foreclosed when the mortgagors defaulted in the payment of their loan obligation, with petitioner PNB as the sole and highest bidder for P119,961.36. Some four years thereafter, or on November 11, 1982, a deed of sale was executed in favor of petitioner PNB after the mortgagors failed to redeem the disputed property. On December 6, 1982, title over the disputed property was issued to petitioner PNB. Thus, presented during trial were, among others, the Affidavit of Publication of Sheriff’s Notice of Sale at Public Auction showing that petitioner PNB complied with the law on extrajudicial foreclosure of mortgage;cccli[32] the Certificate of Sale at Public Auction of September 5, 1978 issued in favor of petitioner PNB as the highest bidder in the auction sale of the lot covering the disputed property; ccclii[33] and the Certification of September 27, 1994 issued by the Register of Deeds of Iloilo stating that title to the lot covering the disputed property was issued in favor of PNB.cccliii[34] All told, it took almost eight years for petitioner PNB to consolidate its title over the disputed property from the time it was mortgaged to it. 

The Lucero Spouses purchased the disputed property from petitioner PNB as an acquired asset for P229,000.00 and only on November 9, 1987, or some nine years after it extrajudicially foreclosed the property, and some five years after title was transferred to it. Hence, we cannot really say that they acquired the property in bad faith; on the other hand, we are more convinced, if not for fairness, equity and justice, that they acquired the disputed property in good faith and for a valuable consideration on the basis of the clean title of the bank.

 And between the bank whose proof of ownership is the title acquired after years of foreclosure proceedings and

sale, and the supposed tolerated occupation of herein respondents whose rights are dubious, and at best vague, petitioners Lucero Spouses cannot be faulted for considering petitioner PNB as having a better right over herein respondents and could very well rely on the title of the bank. After all, even this Court has “take(n) judicial notice of the uniform practice of financing institutions to investigate, examine and assess the real property offered as security for any loan application.”cccliv[35] It must be remembered that the prudence required of the Lucero Spouses is not that of a person with training in law, but rather that of an average man who “weighs facts and circumstances without resorting to the calibration of our technical rules of evidence of which his knowledge is nil.” ccclv[36] Hence, petitioners Lucero Spouses bought the disputed property with the honest belief that petitioner PNB was its rightful owner and could convey title to the property. They can therefore be considered as buyers in good faith as they have exercised due diligence required under the circumstances. 

Also, nowhere in the records does it show that the Lucero Spouses were in bad faith. Neither were private respondents able to prove it, much less were they able to establish it by clear and convincing evidence as required by the rules. On the contrary, the trial court found that the Lucero Spouses acted in good faith “since they bought the lot in question from defendant, Philippine National Bank.”ccclvi[37] They could rely on what appears on the face of the Certificate of Title in light of the attendant circumstances, especially after considering that the requirements for the

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extrajudicial foreclosure of mortgage such as publication and notice appear to have been religiously complied with by PNB.

 In contrast, we find, after a meticulous scrutiny of the records, that the respondents are not entirely blameless.

They have not established their right or interest in the property aside from their belated and unsubstantiated allegation that they were the successors-in-interest of Deogracias, Glicerio, Tomas and Caridad, all surnamed Militar. Deogracias died on March 17, 1964, Glicerio on March 22, 1939, Tomas on August 20, 1959, and Caridad on April 29, 1957. Since the deaths of their alleged predecessors-in-interest, respondents have not shown that they have taken even the initial steps to have the property registered in their names. Nor have they even alleged that they paid any real property tax on the disputed property like any real owner should do. For this would have put them on notice that the said property has been registered in the name of a third party.

 Thus, to reiterate for emphasis, the Deed of Sale which transferred the property to the Spouses Jalbuna was

executed on April 24, 1975. Clearly, respondents had more than enough time and opportunity from the death of their ascendants to institute proceedings to have the property adjudicated to them, if indeed it was true that they were the lawful heirs of Deogracias, Glicerio, Tomas and Caridad, and were the new owners of the property by succession. This, they did not do. If they did, the forgery allegedly committed by the Jalbuna Spouses which resulted in the Deed of Absolute Sale of April 24, 1975 could not have been committed or pushed through and the Lucero Spouses, as a consequence, would not have been induced to buy the property.

 The Jalbuna Spouses acquired title to the property on April 29, 1975. From that time on the doctrine of

“constructive notice” was already in effect against all persons claiming any title or interests in the property adverse to the registered owners.ccclvii[38]

 On June 5, 1975, the Spouses Jalbuna mortgaged the property to PNB. On the same date, the mortgage was

registered with the Register of Deeds of Iloilo City. Again, from that date, the respondents were deemed to have “constructive notice” of the registration.

 Philippine National Bank foreclosed the mortgage on September 5, 1978. The Notice of Extrajudicial Foreclosure

of Mortgage was published in a newspaper of general circulation. The publication likewise operated as “constructive notice” to all persons who would be adversely affected by the impending foreclosure of the property. A Certificate of Sale over the property was issued in favor of PNB as the highest bidder in the auction sale. The Certificate of Sale was again registered and annotated in the title of the property. Again, the respondents had “constructive notice” of the registration.

 On November 11, 1982, PNB consolidated its title to the property and a Deed of Sale was issued in its favor. On

December 6, 1982, a Transfer Certificate of Title was issued in favor of PNB. Respondents should likewise be charged with notice of such fact. Since that time up to November 9, 1987 when the property was sold to the Lucero Spouses, or for five (5) long years, the property was an acquired asset of the bank. During this time it can be deduced that it was the bank who paid the real estate taxes and who appeared as owner in the tax declarations and other documents pertaining to the property.

 It would appear that it was PNB who exercised acts of ownership over the property during the five-year period,

not the respondents who are now claiming to be the owners. There is no evidence of any act of ownership exercised by the respondents, such as payment of taxes and introduction of improvements which would have shown, by preponderance of evidence, the right of ownership to or interest in the property, aside form their occupation thereof by mere tolerance. Since the death of their predecessors, there has not even been a showing that respondents verified, inquired or investigated with the Register of Deeds or the Assessor’s Office as to the status of the property. If only respondents have been more vigilant in the enforcement of their alleged rights and interests, the property would not have been sold to third persons who paid valuable consideration thereto. Far from being vigilant, however, respondents have shown sheer disinterest in their claim to the property, thus leading to the well-founded conclusion that their claimed ownership rights are not anchored in reality. Vigilantibus sed non dormientibus jura subveniunt. The law aids the vigilant, not those who slumber on their rights.

 

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More. On November 9, 1987, the property was sold by PNB to the petitioners Lucero Spouses and a Transfer Certificate of Title was issued in their name on November 11, 1987. The respondents however filed their Complaint for reconveyance and damages only on October 2, 1989, or nearly two (2) years after title to the property was issued in favor of the Lucero Spouses. Respondents in fact amended their complaint three (3) times, the last one on December 26, 1994. Clearly, the actuations of respondents were not normal for those claiming in good faith legitimate ownership over a parcel of land sufficient to make third persons conclude that their claim is well-founded as against the registered owner, in this case, PNB. Indeed, respondents were frozen in the shackles of inactivity for too long. They bestirred themselves for their long slumber after the Lucero Spouses started to recover possession of the property which is a mere incident to the ownership that they have already gained. In essence, the respondents slept on their rights, and hence, must suffer the consequences of their passivity and inaction.

WHEREFORE, the August 18, 2005 Decision of this Court is hereby MODIFIED. The Motion for Reconsideration of the Philippine National Bank is DENIED WITH FINALITY. However, the Motion for Reconsideration of the Spouses Johnny Lucero and Nona Ariete is GRANTED, and the October 18, 1995 Decision of the Regional Trial Court of Iloilo, Br. 38, in Civil Case No. 18836 insofar as it holds Spouses Johnny Lucero and Nona Ariete as innocent purchasers for value in good faith is REINSTATED and their title to Lot 3017-B under TCT No. 76938 issued on November 11, 1987 is declared and so confirmed as VALID.

 SO ORDERED. 

 

16. SECOND DIVISION[G.R. No. 132161.  January 17, 2005]CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC., petitioner, vs. THE HONORABLE COURT OF APPEALS and HEIRS OF TEODORO DELA CRUZ, respondents.D E C I S I O N TINGA, J.:Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the instant Petition for Certiorari[1] under Rule 45 of the Revised Rules of Court, seeking the review of the Decision[2] of the Court of Appeals Twelfth Division in CA-G.R. CV No. 33662, promulgated on 27 May 1997, which reversed the judgment[3] of the lower court in favor of petitioner; and the Resolution[4] of the Court of Appeals, promulgated on 5 January 1998, which reiterated its Decision insofar as respondents Heirs of Teodoro dela Cruz (the Heirs) are concerned.From the record, the following are the established facts:Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (hereafter the Madrid brothers), were the registered owners of Lot No. 7036-A of plan Psd-10188, Cadastral Survey 211, situated in San Mateo, Isabela per Transfer Certificate of Title (TCT) No. T-8121 issued by the Register of Deeds of Isabela in September 1956.[5]On 23 and 24 October 1956, Lot No. 7036-A was subdivided into several lots under subdivision plan Psd- 50390.  One of the resulting subdivision lots was Lot No. 7036-A-7 with an area of Five Thousand Nine Hundred Fifty-Eight (5,958) square meters.[6]On 15 August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-7, to Aleja Gamiao (hereafter Gamiao) and Felisa Dayag (hereafter, Dayag) by virtue of a Deed of Sale,[7] to which his brothers Anselmo, Gregorio, Filomeno and Domingo offered no objection as evidenced by their Joint Affidavit dated 14 August 1957.[8] The deed of sale was not registered with the Office of the Register of Deeds of Isabela.  However, Gamiao and Dayag declared the property for taxation purposes in their names on March 1964 under Tax Declaration No. 7981.[9]On 28 May 1964, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7, denominated as Lot No. 7036-A-7-B, to Teodoro dela Cruz,[10] and the northern half, identified as Lot No. 7036-A-7-A,[11] to Restituto Hernandez.[12] Thereupon, Teodoro dela Cruz and Restituto Hernandez took possession of and cultivated the portions of the property respectively sold to them.[13]Later, on 28 December 1986, Restituto Hernandez donated the northern half to his daughter, Evangeline Hernandez-del Rosario.[14]  The children of Teodoro dela Cruz continued possession of the southern half after their father’s death on 7 June 1970.In a Deed of Sale[15] dated 15 June 1976, the Madrid brothers conveyed all their rights and interests over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez), which the former confirmed[16] on 28 February 1983.[17] The deed of sale was registered with the Office of the Register of Deeds of Isabela on 2 March 1982.[18]

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Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot Nos. 7036-A-7-A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued to him on 29 March 1984.[19] On the same date, Marquez and his spouse, Mercedita Mariana, mortgaged Lots Nos. 7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank, Inc. of Cagayan Valley (hereafter, CRB) to secure a loan of One Hundred Thousand Pesos (P100,000.00).[20] These deeds of real estate mortgage were registered with the Office of the Register of Deeds on 2 April 1984.On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank of Cauayan (RBC) to secure a loan of Ten Thousand Pesos (P10,000.00).[21]As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the mortgages in its favor and the lots were sold to it as the highest bidder on 25 April 1986.[22]On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto).[23]Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the foreclosure sale of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and the sale to Calixto, the Heirs-now respondents herein-represented by Edronel dela Cruz, filed a case[24] for reconveyance and damages the southern portion of Lot No. 7036-A (hereafter, the subject property) against Marquez, Calixto, RBC and CRB in December 1986. Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with leave of court a Complaint in Intervention[25] wherein she claimed the northern portion of Lot No. 7036-A-7.In the Answer to the Amended Complaint,[26] Marquez, as defendant, alleged that apart from being the first registrant, he was a buyer in good faith and for value.  He also argued that the sale executed by Rizal Madrid to Gamiao and Dayag was not binding upon him, it being unregistered.  For his part, Calixto manifested that he had no interest in the subject property as he ceased to be the owner thereof, the same having been reacquired by defendant Marquez.[27]CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in good faith and that they had the right to rely on the titles of Marquez which were free from any lien or encumbrance.[28]

After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC) handed down a decision in favor of the defendants, disposing as follows:WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:1.       Dismissing the amended complaint and the complaint in intervention;2.       Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots 7036-A-7-A to 7036-A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382, inclusive;3.       Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-A-7-E in favor of defendant Rural Bank of Cauayan by Pacifico V. Marquez valid;4.       Dismissing the counterclaim of Pacifico V. Marquez; and 5.       Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots covered by TCT Nos. T-33119, T-33220 and T-7583.No pronouncement as to costs.SO ORDERED.[29]In support of its decision, the RTC made the following findings:With respect to issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-A-7 made by Rizal Madrid to Aleja Gamiao and Felisa Dayag and the subsequent conveyances to the plaintiffs and intervenors are all valid and the Madrid brothers are bound by said contracts by virtue of the confirmation made by them on August 14, 1957 (Exh. B).Are the defendants Pacifico V. Marquez and Romeo B. Calixto buyers in good faith and for value of Lot 7036-A-7?It must be borne in mind that good faith is always presumed and he who imputes bad faith has the burden of proving the same (Art. 527, Civil Code). The Court has carefully scrutinized the evidence presented but finds nothing to show that Marquez was aware of the plaintiffs’ and intervenors’ claim of ownership over this lot.  TCT No. T-8121 covering said property, before the issuance of Marquez’ title, reveals nothing about the plaintiffs’ and intervenors’ right thereto for it is an admitted fact that the conveyances in their favor are not registered.The Court is therefore confronted with two sales over the same property. Article 1544 of the Civil Code provides:“ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. x x x ” (Underscoring supplied).From the foregoing provisions and in the absence of proof that Marquez has actual or constructive knowledge of plaintiffs’ and intervenors’ claim, the Court has to rule that as the vendee who first registered his sale, Marquez’ ownership over Lot 7036-A-7 must be upheld.[30]

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The Heirs interposed an appeal with the Court of Appeals.  In their Appellant’s Brief,[31] they ascribed the following errors to the RTC: (1) it erred in finding that Marquez was a buyer in good faith; (2) it erred in validating the mortgage of the properties to RBC and CRB; and (3) it erred in not reconveying Lot No. 7036-A-7-B to them.[32]Intervenor Evangeline del Rosario filed a separate appeal with the Court of Appeals.   It was, however, dismissed in a Resolution dated 20 September 1993 for her failure to pay docket fees. Thus, she lost her standing as an appellant.[33]On 27 May 1997, the Court of Appeals rendered its assailed Decision[34] reversing the RTC’s judgment. The dispositive portion reads: WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered as follows:1.       Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half portion and Evangeline Hernandez-del Rosario the northern half portion of Lot No. 7036-A-7, now covered by TCT Nos. T-149375 to T-149382, inclusive;2.       Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez and the Madrid brothers covering said Lot 7036-A-7;3.       Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot Nos. 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant Consolidated Rural Bank and of Lot 7036-A-7-E in favor of defendant Rural Bank of Cauayan; and4.       Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela Cruz and Evangeline Hernandez-del Rosario.No pronouncement as to costs.SO ORDERED.[35]In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed to prove that he was a purchaser in good faith and for value.  It noted that while Marquez was the first registrant, there was no showing that the registration of the deed of sale in his favor was coupled with good faith. Marquez admitted having knowledge that the subject property was “being taken” by the Heirs at the time of the sale.[36] The Heirs were also in possession of the land at the time.  According to the Decision, these circumstances along with the subject property’s attractive location—it was situated along the National Highway and was across a gasoline station—should have put Marquez on inquiry as to its status. Instead, Marquez closed his eyes to these matters and failed to exercise the ordinary care expected of a buyer of real estate.[37]Anent the mortgagees RBC and CRB, the Court of Appeals found that they merely relied on the certificates of title of the mortgaged properties. They did not ascertain the status and condition thereof according to standard banking practice.  For failure to observe the ordinary banking procedure, the Court of Appeals considered them to have acted in bad faith and on that basis declared null and void the mortgages made by Marquez in their favor.[38]Dissatisfied, CRB filed a Motion for Reconsideration[39] pointing out, among others, that the Decision promulgated on 27 May 1997 failed to establish good faith on the part of the Heirs. Absent proof of possession in good faith, CRB avers, the Heirs cannot claim ownership over the subject property.In a Resolution[40] dated 5 January 1998, the Court of Appeals stressed its disbelief in CRB’s allegation that it did not merely rely on the certificates of title of the properties and that it conducted credit investigation and standard ocular inspection.  But recalling that intervenor Evangeline del Rosario had lost her standing as an appellant, the Court of Appeals accordingly modified its previous Decision, as follows:WHEREFORE, the decision dated May 27, 1997, is hereby MODIFIED to read as follows:WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE insofar as plaintiffs-appellants are concerned. Accordingly, judgment is hereby rendered as follows:1.       Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half portion of Lot No. 7036-A-7;2.       Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez and the Madrid brothers insofar as the southern half portion of Lot NO. (sic) 7036-A-7 is concerned;3.       Declaring the mortgage made by defendant Pacifico V. Marquez in favor of defendant Consolidated Rural Bank (Cagayan Valley) and defendant Rural Bank of Cauayan as null and void insofar as the southern half portion of Lot No. 7036-A-7 is concerned; 4.       Ordering defendant Pacifico V. Marquez to reconvey the southern portion of Lot No. 7036-A-7 to the Heirs of Teodoro dela Cruz.No pronouncement as to costs.SO ORDERED.[41]Hence, the instant CRB petition. However, both Marquez and RBC elected not to challenge the Decision of the appellate court. Petitioner CRB, in essence, alleges that the Court of Appeals committed serious error of law in upholding the Heirs’ ownership claim over the subject property considering that there was no finding that they acted in good faith in taking

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possession thereof nor was there proof that the first buyers, Gamiao and Dayag, ever took possession of the subject property.  CRB also makes issue of the fact that the sale to Gamiao and Dayag was confirmed a day ahead of the actual sale, clearly evincing bad faith, it adds. Further, CRB asserts Marquez’s right over the property being its registered owner.The petition is devoid of merit.  However, the dismissal of the petition is justified by reasons different from those employed by the Court of Appeals.Like the lower court, the appellate court resolved the present controversy by applying the rule on double sale provided in Article 1544 of the Civil Code.  They, however, arrived at different conclusions.  The RTC made CRB and the other defendants win, while the Court of Appeals decided the case in favor of the Heirs.Article 1544 of the Civil Code reads, thus:ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be  movable property.Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.The provision is not applicable in the present case.  It contemplates a case of double or multiple sales by a single vendor.  More specifically, it covers a situation where a single vendor sold one and the same immovable property to two or more buyers.[42] According to a noted civil law author, it is necessary that the conveyance must have been made by a party who has an existing right in the thing and the power to dispose of it. [43] It cannot be invoked where the two different contracts of sale are made by two different persons, one of them not being the owner of the property sold.[44] And even if the sale was made by the same person, if the second sale was made when such person was no longer the owner of the property, because it had been acquired by the first purchaser in full dominion, the second purchaser cannot acquire any right.[45]In the case at bar, the subject property was not transferred to several purchasers by a single vendor. In the first deed of sale, the vendors were Gamiao and Dayag whose right to the subject property originated from their acquisition thereof from Rizal Madrid with the conformity of all the other Madrid brothers in 1957, followed by their declaration of the property in its entirety for taxation purposes in their names.  On the other hand, the vendors in the other or later deed were the Madrid brothers but at that time they were no longer the owners since they had long before disposed of the property in favor of Gamiao and Dayag.Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper application of Article 1473 of the Old Civil Code (now Article 1544 of the New Civil Code) in the case of Carpio v. Exevea, [46] thus:In order that tradition may be considered performed, it is necessary that the requisites which it implies must have been fulfilled, and one of the indispensable requisites, according to the most exact Roman concept, is that the conveyor had the right and the will to convey the thing. The intention to transfer is not sufficient; it only constitutes the will. It is, furthermore, necessary that the conveyor could juridically perform that act; that he had the right to do so, since a right which he did not possess could not be vested by him in the transferee.This is what Article 1473 has failed to express: the necessity for the preexistence of the right on the part of the conveyor. But even if the article does not express it, it would be understood, in our opinion, that that circumstance constitutes one of the assumptions upon which the article is based.This construction is not repugnant to the text of Article 1473, and not only is it not contrary to it, but it explains and justifies the same. (Vol. 10, 4th ed., p. 159)[47]In that case, the property was transferred to the first purchaser in 1908 by its original owner, Juan Millante.   Thereafter, it was sold to plaintiff Carpio in June 1929.  Both conveyances were unregistered.  On the same date that the property was sold to the plaintiff, Juan Millante sold the same to defendant Exevea. This time, the sale was registered in the Registry of Deeds. But despite the fact of registration in defendant’s favor, the Court of Appeals found for the plaintiff and refused to apply the provisions of Art. 1473 of the Old Civil Code, reasoning that “on the date of the execution of the document, Exhibit 1, Juan Millante did not and could not have any right whatsoever to the parcel of land in question.”[48]Citing a portion of a judgment dated 24 November 1894 of the Supreme Court of Spain, the Court of Appeals elucidated further:Article 1473 of the Civil Code presupposes the right of the vendor to dispose of the thing sold, and does not limit or alter in this respect the provisions of the Mortgage Law in force, which upholds the principle that registration does not validate acts or contracts which are void, and that although acts and contracts executed by persons who, in the Registry, appear to be entitled to do so are not invalidated once recorded, even if afterwards the right of such vendor is annulled or resolved by virtue of a previous unrecorded title, nevertheless this refers only to third parties.[49]

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In a situation where not all the requisites are present which would warrant the application of Art. 1544, the principle of prior tempore, potior jure or simply “he who is first in time is preferred in right,”[50] should apply.[51] The only essential requisite of this rule is priority in time; in other words, the only one who can invoke this is the first vendee.   Undisputedly, he is a purchaser in good faith because at the time he bought the real property, there was still no sale to a second vendee.[52] In the instant case, the sale to the Heirs by Gamiao and Dayag, who first bought it from Rizal Madrid, was anterior to the sale by the Madrid brothers to Marquez.  The Heirs also had possessed the subject property first in time.  Thus, applying the principle, the Heirs, without a scintilla of doubt, have a superior right to the subject property.Moreover, it is an established principle that no one can give what one does not have¾nemo dat quod non habet.  Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally.[53]  In this case, since the Madrid brothers were no longer the owners of the subject property at the time of the sale to Marquez, the latter did not acquire any right to it.In any event, assuming arguendo that Article 1544 applies to the present case, the claim of Marquez still cannot prevail over the right of the Heirs since according to the evidence he was not a purchaser and registrant in good faith.Following Article 1544, in the double sale of an immovable, the rules of preference are:(a) the first registrant in good faith;(b) should there be no entry, the first in possession in good faith; and(c) in the absence thereof, the buyer who presents the oldest title in good faith. [54]Prior registration of the subject property does not by itself confer ownership or a better right over the property.  Article 1544 requires that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e., in ignorance of the first sale and of the first buyer’s rights)¾from the time of acquisition until the title is transferred to him by registration or failing registration, by delivery of possession.[55]In the instant case, the actions of Marquez have not satisfied the requirement of good faith from the time of the purchase of the subject property to the time of registration. Found by the Court of Appeals, Marquez knew at the time of the sale that the subject property was being claimed or “taken” by the Heirs.  This was a detail which could indicate a defect in the vendor’s title which he failed to inquire into.  Marquez also admitted that he did not take possession of the property and at the time he testified he did not even know who was in possession. Thus, he testified on direct examination in the RTC as follows:ATTY. CALIXTO –

Q       Can you tell us the circumstances to your buying the land in question?A       In 1976 the Madrid brothers confessed to me their problems about their lots in San Mateo that they were

being taken by Teodoro dela Cruz and Atty. Teofilo A. Leonin; that they have to pay the lawyer’s fee of P10,000.00 otherwise Atty. Leonin will confiscate the land. So they begged me to buy their properties, some of it. So that on June 3, 1976, they came to Cabagan where I was and gave them P14,000.00, I think. We have talked that they will execute the deed of sale.

Q       Why is it, doctor, that you have already this deed of sale, Exh. 14, why did you find it necessary to have this Deed of Confirmation of a Prior Sale, Exh. 15?

A       Because as I said a while ago that the first deed of sale was submitted to the Register of Deeds by Romeo Badua so that I said that because when I became a Municipal Health Officer in San Mateo, Isabela, I heard so many rumors, so many things about the land and so I requested them to execute a deed of confirmation.[56]

. . . ATTY. CALIXTO-

Q       At present, who is in possession on the Riceland portion of the lot in question?A       I can not say because the people working on that are changing from time to time.Q       Why, have you not taken over the cultivation of the land in question?A       Well, the Dela Cruzes are prohibiting that we will occupy the place.

Q       So, you do not have any possession?A       None, sir.[57]One who purchases real property which is in actual possession of others should, at least, make some inquiry concerning the rights of those in possession.  The actual possession by people other than the vendor should, at least, put the purchaser upon inquiry.  He can scarcely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such possessions.[58] The rule of caveat emptor requires the purchaser to be aware of the supposed title of the vendor and one who buys without checking the vendor’s title takes all the risks and losses consequent to such failure.[59]It is further perplexing that Marquez did not fight for the possession of the property if it were true that he had a better right to it. In our opinion, there were circumstances at the time of the sale, and even at the time of registration, which would

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reasonably require a purchaser of real property to investigate to determine whether defects existed in his vendor’s title. Instead, Marquez willfully closed his eyes to the possibility of the existence  of these flaws. For failure to exercise the measure of precaution which may be required of a prudent man in a like situation, he cannot be called a purchaser in good faith.[60]As this Court explained in the case of Spouses Mathay v. Court of Appeals:[61] Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of title, it is also a firmly settled rule that where there are circumstances which would put a party on guard and prompt him to investigate or inspect the property being sold to him, such as the presence of occupants/tenants thereon, it is, of course, expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in concept of owner. As is the common practice in the real estate industry, an ocular inspection of the premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he find out that the land he intends to buy is occupied by anybody else other than the seller who, as in this case, is not in actual possession, it would then be incumbent upon the purchaser to verify the extent of the occupant’s possessory rights. The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a “purchaser in good faith.”[62] This rule equally applies to mortgagees of real property.  In the case of Crisostomo v. Court of Appeals,[63] the Court held:It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor’s or mortgagor’s title, will not make him an innocent purchaser or mortgagee for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defects as would have led to its discovery had he acted with the measure of a prudent man in a like situation.[64]Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands.  Hence, for merely relying on the certificates of title and for its failure to ascertain the status of the mortgaged properties as is the standard procedure in its operations, we agree with the Court of Appeals that CRB is a mortgagee in bad faith.In this connection, Marquez’s obstention of title to the property and the subsequent transfer thereof to CRB cannot help the latter’s cause.  In a situation where a party has actual knowledge of the claimant’s actual, open and notorious possession of the disputed property at the time of registration, as in this case, the actual notice and knowledge are equivalent to registration, because to hold otherwise would be to tolerate fraud and the Torrens system cannot be used to shield fraud. [65]While certificates of title are indefeasible, unassailable and binding against the whole world, they merely confirm or record title already existing and vested. They cannot be used to protect a usurper from the true owner, nor can they be used for the perpetration of fraud; neither do they permit one to enrich himself at the expense of others.[66]We also find that the Court of Appeals did not err in awarding the subject property to the Heirs absent proof of good faith in their possession of the subject property and without any showing of possession thereof by Gamiao and Dayag. As correctly argued by the Heirs in their Comment,[67] the requirement of good faith in the possession of the property finds no application in cases where there is no second sale.[68] In the case at bar, Teodoro dela Cruz took possession of the property in 1964 long before the sale to Marquez transpired in 1976 and a considerable length of time—eighteen (18) years in fact¾before the Heirs had knowledge of the registration of said sale in 1982.   As Article 526 of the Civil Code aptly provides, “(H)e is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.”  Thus, there was no need for the appellate court to consider the issue of good faith or bad faith with regard to Teodoro dela Cruz’s possession of the subject property.Likewise, we are of the opinion that it is not necessary that there should be any finding of possession by Gamiao and Dayag of the subject property. It should be recalled that the regularity of the sale to Gamiao and Dayag was never contested by Marquez.[69] In fact the RTC upheld the validity of this sale, holding that the Madrid brothers are bound by the sale by virtue of their confirmation thereof in the Joint Affidavit dated 14 August 1957.  That this was executed a day ahead of the actual sale on 15 August 1957 does not diminish its integrity as it was made before there was even any shadow of controversy regarding the ownership of the subject property.Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v. Heirs of Mariano E. Santiago,[70] tax declarations “are good indicia of possession in the concept of an owner, for no one in his right mind would be paying taxes for a property that is not in his actual or constructive possession.”[71]

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WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of Appeals’ Decision, as modified by its Resolution dated 5 January 1998, is AFFIRMED.  Costs against petitioner.SO ORDERED.Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

17. FIRST DIVISION  JMA HOUSE INCORPORATED, G.R. No. 154156

Petitioner, Present:

PANGANIBAN, C.J., Chairperson,

- versus - YNARES-SANTIAGO,AUSTRIA-MARTINEZ,CALLEJO, SR., and

CHICO-NAZARIO, JJ. STA. MONICA INDUSTRIAL and DEVELOPMENT CORPORATION and A. Promulgated:GUERRERO DEVELOPMENTCORPORATION,

Respondents. August 31, 2006 

x-----------------------------------------------------------------------------------------x  D E C I S I O N CALLEJO, SR., J.:  

Before the Court is a Petition for Review on Certiorari of the Decisionccclviii[1] of the Court of Appeals (CA) in CA-G.R. CV No. 60085 affirming on appeal the Decisionccclix[2] of the Regional Trial Court (RTC), Quezon City, Branch 105, in Civil Case No. Q-91-10576.

 JMA House Incorporated (JMA) applied for a P1,500,000.00 loan from the Pioneer Savings and Loan Association, Inc. (Pioneer). To secure payment thereof, JMA executed a real estate mortgage over a parcel of land identified as Lot No. 4, Block No. 13, Subdivision Plan No. Psd-35337 covered by Transfer Certificate of Title (TCT) No. 268126. The lot, which was located in Quezon City across Gate 1 of the Maryknoll College, had an area of 1,611.6 square meters.ccclx[3] There was likewise a three-storey commercial and residential building which was occupied by tenants. ccclxi[4]

Upon the failure of JMA to pay its loan, the real estate mortgage was foreclosed extrajudicially. Pioneer was the winning bidder at P2,000,000.00 during the sale at public auction held on August 26, 1985. The Sheriff executed a Certificate of Sale over the property in favor of Pioneer which was annotated at the dorsal portion of TCT No. 268126 on October 11, 1985.ccclxii[5] JMA had one year or until October 11, 1986 to redeem the property.

  JMA decided to redeem the property from Pioneer sometime in June 1986. It offered to borrow from Sta. Monica

Industrial and Development Corporation (Sta. Monica) the amount of P2,300,000.00. During the negotiations between Rosita Alberto, the General Manager of JMA, and Sta. Monica’s president Eugenio Trinidad, the parties agreed that the latter would purchase the property for P3,021,000.00.ccclxiii[6] Trinidad insisted that JMA execute a deed of absolute sale

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over the property for the price of P4,100,000.00. Rosita Alberto suggested that instead of a deed of absolute sale, a real estate mortgage be executed considering that the property was worth much more than P4,100,000.00. Trinidad refused. By way of a compromise, Alberto suggested that a supplement deed giving JMA the option to repurchase the property within a period of two years be executed.ccclxiv[7] Trinidad agreed to this proposal. Thus, the lawyers of JMA and Sta. Monica prepared two deeds.ccclxv[8] From the P3,021,000.00 it received from Sta. Monica, JMA remitted P2,300,000.00 to Pioneer.

 On June 23, 1986, Pioneer and JMA executed a Deed of Legal Redemption and Absolute Sale in which Pioneer,

for and consideration of P2,300,000.00, transferred to JMA all the rights over the property, including the improvements thereon, which Pioneer acquired under the Certificate of Sale.ccclxvi[9] The parties, likewise, declared therein that it was their intention that, with the execution of said deed, the loan of JMA amounting to P1,250,000.00, including all interests, penalties and charges thereon, were considered fully paid and legally extinguished.ccclxvii[10]

 On June 30, 1986 JMA, represented by its General Manager Rosita Alberto, executed a Deed of Absolute Sale

over the lot, including the buildings thereon, in favor of Sta. Monica, represented by Eugenio Trinidad. The receipt for P4,100,000.00 as purchase price was acknowledged by JMA from Sta. Monica.ccclxviii[11] As agreed upon by the parties, the parties likewise executed a contract denominated as Option to Buy, in which Sta. Monica gave JMA the option to buy the property for P4,100,000.00 within one (1) year from the execution of the Deed Of Absolute Sale on or before July 1, 1987, with a “grace period” of one year immediately upon the expiration thereof (until July 1, 1988). The parties agreed that, in case JMA availed of such extension, JMA would be obligated to pay an additional amount equivalent to 3.5% a month as liquidated damages, until the whole amount is fully paid and/or the option is finally exercised.ccclxix[12]

 Alberto turned over to Trinidad the owner’s duplicate of TCT No. 26812.6 The Register of Deeds thereafter

issued TCT No. 347638 in the name of Sta. Monica;ccclxx[13] however, the Option to Buy was not annotated at the dorsal portion of the title.

 As agreed upon between JMA and Sta. Monica, the latter thenceforth paid the realty taxes on the property. ccclxxi[14]

JMA continued collecting the rentals from the tenants of the buildings with the knowledge and conformity of Sta. Monica. On November 17, 1986, Sta. Monica mortgaged the property to the PCI Capital Corporation as security for a P3,600,000.00 loan.ccclxxii[15]

 In a letter dated January 26, 1988, Sta. Monica, through Eugenio Trinidad, informed Rosita Alberto and the

tenants of the buildings in the property that due to the failure of JMA to “repurchase” the property, it had been sold to A. Guerrero Development Corporation (AGCOR) effective February 1, 1988, and, as the new owner, AGCOR would be collecting the rentals.ccclxxiii[16] Rosita Alberto protested to Trinidad, insisting that the period given to JMA to buy back the property had not yet elapsed. Nevertheless, on February 2, 1988, Sta. Monica and AGCOR executed a Deed of Absolute Sale over the property for P5,700,000.00, receipt of which was acknowledged by Sta. Monica.ccclxxiv[17] Part of the amount was used by Sta. Monica to redeem the property from PCI Capital Corporation which executed a Release of Real Estate Mortgage on February 16, 1988.ccclxxv[18] On February 17, 1988, the Register of Deeds issued TCT No. 376746 in the name of AGCOR.ccclxxvi[19] It paid the realty taxes on the property starting 1988.ccclxxvii[20]

 Despite the sale of the property to AGCOR, Trinidad received, on June 30, 1988, five checks from Rosita Alberto

drawn against the account of JMA in the total amount of P3,000,000.00. He likewise received P57,000.00 from Atty. Rosalie Alberto, Rosita’s sister and amember of the JMA Board of Directors “as partial payment of the account of JMA for the property located at No. 335, Katipunan Street, Quezon City.”ccclxxviii[21] However, the checks were dishonored by the drawee Bank.ccclxxix[22] Trinidad failed to return the cash amount of P57,000.00 to JMA.

 On October 30, 1989, AGCOR mortgaged the property to Planter’s Development Bank as security for a

P7,000,000.00 loan.ccclxxx[23]

 Almost two years thereafter, or on November 11, 1991, JMA filed a complaint against Sta. Monica and AGCOR,

as defendants, in the RTC of Quezon City for specific performance, reconveyance and damages. It alleged that it mortgaged its property to Sta. Monica as security for a P3,021,000.00 loan and P1,079,000.00 as interest; however, upon the insistence of Trinidad, in lieu of a real estate mortgage, a deed of absolute sale was executed over the property for the price of P4,100,000.00; an Option to Buy was also executed in its favor, giving it the option to buy the property for

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P4,100,000.00 within a period of one (1) year from execution thereof, and in the meantime, it retained dominion over the property; on January 26, 1988, it received notice that beginning February 1, 1988, the tenants will pay their rentals to the new owner of the property, defendant AGCOR, to which it protested; defendant Sta. Monica assured the plaintiff that defendant AGCOR was aware of its option to buy the property.

 JMA further alleged that it informed defendant Sta. Monica on June 30, 1988 that it was ready to repurchase the

property for P5,822,000.00 with an initial payment of P3,057,000.00 to be immediately tendered on said date, and the remaining balance of P2,765,000.00 after one month. Sta. Monica assured JMA that the property would be delivered to it with AGCOR’s conformity. JMA paid P3,057,000.00 on June 30, 1988, per redemption receipt issued by Trinidad, who however refused to receive the balance. Despite representations to defendant AGCOR to abide by the Option to Buy, AGCOR maintained its right to possess and own the property and even filed ejectment cases against it; worse, Sta. Monica never returned the downpayment given on June 30, 1988 and continues to benefit therefrom.

 JMA averred that it had a right to repurchase the property under the terms of the Option to Buy Agreement dated

June 30, 1986, considering that the transaction actually entered into is one of equitable mortgage and not a deed of sale with option to buy. Defendant Sta. Monica is mandated by law to abide by the said agreement and could not have sold the questioned property to defendant AGCOR, taking into account that it has accepted the amount of P3,057,000.00 as downpayment for the purchase price. Having sold the property to AGCOR, defendant Sta. Monica must be made to pay the plaintiff the amount of P15,000,000.00 which is the actual market value of the property, as well as the rental payments which it failed to collect.ccclxxxi[24] The plaintiff prayed that judgment be rendered in its favor, thus:

 WHEREFORE, it is most respectfully prayed of this Honorable Court that judgment be rendered

in favor of the plaintiff ordering: 1) Defendants Sta. Monica and AGCOR to respect and acknowledge the right of JMA to

repurchase and consequently own and possess the property free from liens and all encumbrances; 2) Defendants to solidarily pay the plaintiff the accrued rentals of P2,362,500.00 as of October

1991, with an additional P52,500.00 every month thereafter until defendant AGCOR ceases to collect the mentioned rentals from the tenants of the premises;

 3) Ordering defendants to pay exemplary damages in the amount of P100,000.00, nominal

damages in the amount of P100,000.00, attorney’s fees in the sum of P200,000.00 and the costs of suit; Just and equitable reliefs are, likewise, prayed for under the premises.ccclxxxii[25]

For its part, Sta. Monica alleged in its Answer to the complaint the following special and affirmative defenses: (1)

JMA has no cause of action against it; (2) the complaint is unfounded and malicious; (3) it acted in good faith; (4) the supposed “Option to Buy” is not supported by valuable consideration and, therefore, is unenforceable; (5) assuming arguendo that there was an extension to exercise the said “Option to Buy,” it was not in writing, without consideration and, therefore, unenforceable; (6) the amount/s which JMA had given to it had been offset by the value of the property and the resulting damages sustained by it (Sta. Monica). Defendant claimed P1,000,000.00, P500,000.00, P200,000.00 and P100,000.00 compulsory counterclaim representing actual, moral and exemplary damages, including attorney’s fees and the litigation expenses, respectively.

 Defendant AGCOR alleged in its Answer with Cross-claim and Counterclaims that the physical possession of the

subject property was voluntarily surrendered by Sta. Monica to it upon execution of the Deed of Absolute Sale. It came to know of the alleged “Option to Buy” only on September 30, 1988 when Trinidad made an offer to repurchase the subject property with an initial downpayment of P3,000,000.00, the balance to be paid on the following day. However, Trinidad never showed up or called as promised.

 As special and affirmative defenses, it claimed that there was no cause of action against it, since even assuming

that an option to buy was duly executed, it was not a party thereto. It pointed out that the option was not registered nor annotated in the title with the Register of Deeds for the purpose of giving notice to the whole world; JMA was estopped from claiming that its contractccclxxxiii[26] with Sta. Monica was a sale with right to repurchase, considering that there was no

85

pre-existing condition or limitation whatsoever to serve as notice to third persons dealing with the said property; it was a purchaser in good faith without knowledge of any agreement between JMA and Sta. Monica or any fact that would vitiate consent in the acquisition of the property; it acquired legal title thru sale and in fact, TCT No. 376746 was issued in its name; and JMA is guilty of laches and it had not completely exercised its option to repurchase by paying the total amount and there is no proof that the option was extended by Sta. Monica for another year.

 By way of cross-claim, AGCOR alleged that JMA and Sta. Monica should be the only parties in this case, since

they executed the “Option to Buy,” to its exclusion. Because of its inclusion as defendant, its goodwill was damaged and it was deprived of its right of full ownership; thus, cross-defendant Sta. Monica should be held liable for actual or compensatory damages in the amount of P1,000,000.00. It likewise asserted compulsory counterclaims in the amount of P500,000.00 as moral damages, P300,000.00 as exemplary damages, and P200,000.00 as attorney’s fees.ccclxxxiv[27]

 On January 10, 1992, Eugenio Trinidad died.ccclxxxv[28] Victor Trinidad became the President of Sta. Monica.

 During trial, JMA presented Rosita Alberto and her sister, Atty. Rosalie Alberto as witnesses. Rosita testified that

she graduated from the University of the Philippines with a Bachelor of Arts degree in Economics. ccclxxxvi[29] It was Eugenio Trinidad who insisted that JMA execute a deed of absolute sale instead of a real estate mortgage to secure the P4,100,000.00 loan.ccclxxxvii[30] She, in turn, requested that an option to buy be executed by the plaintiff to supplement the deed of absolute sale to which Trinidad agreed.ccclxxxviii[31] JMA retained possession of the property and continued collecting rentals from the tenants since the transaction between the parties was precisely a contract of mortgage. ccclxxxix[32] When she protested to Trinidad’s letter dated January 26, 1988 informing her and the tenants that the property had not been repurchased by JMA, Trinidad verbally assured her that JMA could repurchase the property and pay the price thereof within a reasonable time. Trinidad agreed to the repurchasing of the property for P5,822,000.00 payable in two installments, to wit: (a) P3,057,000.00 on June 30, 1988; and (b) the balance of P2,768,000.00 within a reasonable time. On June 30, 1988, P3,000,000.00 in checks and P57,000.00 cash was paid by JMA, through Atty. Rosalie Alberto and Atty. Rellosa to Trinidad, and for which the latter issued a redemption receipt. JMA was ready to pay the balance of the repurchase price (P2,768,000.00) but Trinidad could not be located, and worse, failed to return the initial amount paid. cccxc

[33]

 On cross-examination, Rosita Alberto admitted that her agreement with Trinidad, that JMA can repurchase the

property by paying the price within a reasonable time, was merely verbal because she trusted Trinidad.cccxci[34] JMA did not file any complaint for consignation of the amount for its repurchase of the property. cccxcii[35] She admitted that the checks delivered to Trinidad had been dishonored.cccxciii[36] The respective lawyers of Sta. Monica and JMA typed the deed of absolute sale and option to buy.cccxciv[37]

 Atty. Rosalie Alberto testified that JMA is a family corporation. She learned of the deed of absolute sale and

option to buy only in February 1988.cccxcv[38] She represented JMA in the negotiations with Trinidad for the repurchase of the property. Trinidad informed her that he had already informed defendant AGCOR of plaintiff’s tender of P3,057,000.00. He, however, suggested that she personally inform AGCOR of said tender. When she did so, Guerrero informed her that AGCOR could no longer accept the offer.cccxcvi[39] She wanted to tell Trinidad about what Guerrero had said, but she could no longer locate him.cccxcvii[40]

 Franco Marquez, President of the Philippine Appraisal Co., Inc., testified that the property was appraised on May

15, 1986, and its value was pegged at P11,080,000.00.cccxcviii[41] Defendant Sta. Monica presented its president, Victor Trinidad, who testified on the damages sustained by it. On

cross-examination, he admitted that, despite the deed of absolute sale, it never took possession of the property. cccxcix[42]

Neither did defendant collect rentals from the tenants of the building because of the option to buy.cd[43]

Alberto Guerrero, a doctor of medicine and a lawyer, testified that he was the president of AGCOR, also a family

corporation. When the property was offered for sale by Sta. Monica, he examined the title in the Register of Deeds and discovered that it was mortgaged to PCI Capital Corporation.cdi[44] He agreed to buy the property and paid Sta. Monica’s loan on February 3 and 16, 1988, upon which a Release of Real Estate Mortgage was issued. cdii[45] In due course, defendants AGCOR and Sta. Monica executed a Deed of Absolute Sale covering the property.cdiii[46] He further declared that AGCOR secured a P2,500,000.00 loan from Planter’s Bank and used the money to pay Sta. Monica. On October 30, 1989, Sta. Monica executed a real estate mortgage over the property in favor of Planter’s Bank as security for a

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P7,000,000.00 loan. The deed was annotated at the dorsal portion of TCT No. 376746 on November 15, 1980. cdiv[47] The property was declared for taxation purposes after the property had been purchased.cdv[48]

 On January 26, 1996, JMA filed an Omnibus Motion to Admit Newly-Discovered Evidence, which included the

Appraisal Report of the Philippine Appraisal Co., Inc.cdvi[49] to prove the fair market value of the property as of February 1, 1988. The RTC granted the motion and allowed Franco M. Marquez to testify on the Appraisal Report. cdvii[50] The plaintiff offered the Report as part of the motion and to prove that the appraisal value of the property in May 1986 was P11,080,000.00. The report was admitted as part of the testimony of Marquez.cdviii[51]  

On December 8, 1997, the trial court rendered judgment in favor of the defendants. It ordered the dismissal of the complaint and ordered the plaintiff to pay P50,000.00 to each of the defendants. The fallo of the decision reads: 

WHEREFORE, in light of the foregoing, the Court renders judgment as follows: 1. Plaintiff’s complaint is dismissed and it is ordered on the counterclaim, to pay the amount of

P50,000.00 each to defendant Sta. Monica Industrial & Development Corporation and defendant A. Guerrero Development Corporation as attorney’s fees; and to pay the costs of suit;

 2. The cross-claim of A. Guerrero Development Corporation against Sta. Monica Industrial and

Development Corporation is dismissed.  SO ORDERED.cdix[52]

  

The trial court disbelieved the testimony of Atty. Alberto, holding that to declare the transaction between the plaintiff and defendant Sta. Monica as an equitable mortgage would be unjust to the latter. cdx[53] The trial court noted that the plaintiff agreed to the execution of the deed of absolute sale and the option to buy; Rosita Alberto was an Economics graduate and was assisted by a lawyer. When the deed of absolute sale over the property was executed, JMA even offered to repurchase/buy the property instead of redeeming it, and waited up to June 30, 1988 to tender the repurchase price. The RTC concluded that the true intention of the parties was the property to be sold to Sta. Monica for profit, with JMA retaining the option to buy it back for P4,100,000.00 within a specific period of time. Moreover, considering that JMA failed to file an action for reformation of deed, it was estopped from claiming that the deed of absolute sale and option to buy failed to reflect the true intention of the parties.

The RTC ruled that the Appraisal Report had no probative weight because the property subject thereof was covered by TCT No. 20416, not the property covered by TCT No. 268216 which was the subject of the contract between the plaintiff and defendant Sta. Monica. Further, the remittances made to Trinidad by way of checks did not buttress the case for JMA because they were so remitted after the stipulated one-year period and was short of the agreed amount of P4,100,000.00. It was further pointed out that the checks bounced.

 The RTC also declared that before AGCOR bought the property, it had no knowledge of the option to buy

executed by JMA and Sta. Monica; and even if it had, JMA had failed to exercise its option and pay the purchase price of the property within the stipulated period. It was further stated that there is no evidence to prove the supposed obligation of Sta. Monica to return the amount of P57,000.00 received by Trinidad on June 30, 1988; there is no evidence that he was authorized by Sta. Monica to do so and that he received the amount for and in its behalf.cdxi[54]  

JMA appealed the decision to the CA. On January 28, 2002, the appellate court dismissed the appeal and affirmed the decision of the RTC, holding that the contracts entered into by the parties are what they purport to be: a Deed of Absolute Sale and Option to Buy; the deeds were notarized, hence, are public documents, and have the presumption of regularity. Furthermore, there were no ambiguities in the deeds. It was further held that JMA was barred by laches to enforce its claim that the deed of absolute sale was in fact an equitable mortgage. It pointed out that the property was not repurchased within the timeline fixed in the Option to Buy.cdxii[55]  

JMA filed a motion for the reconsideration of the decision which the CA denied on July 1, 2002.cdxiii[56]  

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JMA, now petitioner, filed the instant petition for review on certiorari, seeking to reverse the ruling of the CA on the following grounds: 

 I THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING ARTICLE 1602 OF THE CIVIL CODE AND NOT HOLDING THAT THE CONTRACT SUBJECT MATTER OF THE INSTANT PETITION IS THAT OF AN EQUITABLE MORTGAGE. II THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PETITIONER IS GUILTY OF LACHES IN ASSERTING ITS RIGHT OVER ITS PROPERTY. III THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE FINDING OF THE LOWER COURT THAT RESPONDENT AGCOR HAS NO KNOWLEDGE OF THE OPTION TO BUY.cdxiv[57]

  It maintains that the trial court and the CA failed to consider the testimony of its General Manager Rosita Alberto,

to prove that the contract entered into between it and respondent Sta. Monica is, in reality, a real estate mortgage. Petitioner maintains that the trial court and the appellate court ignored the facts based on the following evidence: (1) petitioner was in dire need of money when it executed the Deed of Absolute Sale and Option to Buy on June 30, 1985; (2) it continued to possess the property after the execution of the Deed of Sale and Option to Buy, and even collected the rentals from the tenants of the commercial and residential buildings; (3) the purchase price of P4,100,000.00 is grossly inadequate as purchase price of the property compared to its market value (P11,080,000.00) as found by the Philippine Appraisal Company.

 On the other hand, respondents aver that the issues raised by the petitioner are factual, which the Court is

proscribed from reviewing. Moreover, the findings of facts of the trial court were affirmed by the CA; hence, such findings are conclusive on this Court. They insist that the CA decision is in accord with the law and the evidence on record. Article 1602 of the New Civil Code does not apply in this case because petitioner failed to exercise its option and pay the agreed upon repurchase price; hence, the CA correctly ruled that it was barred by laches when it filed its complaint below only on November 11, 1991.

 The threshold issues are the following: (1) whether the Court is proscribed from reviewing the factual issues

raised by petitioner; (2) whether the transaction between the parties is an equitable mortgage; (3) whether the petitioner is barred by laches from filing the action against the respondent; and (4) whether respondent AGCOR was in good faith when it purchased the property from respondent Sta. Monica for P5,700,000.00.

 The petition is denied for lack of merit. Section 1, Rule 45 of the Rules of Court provides that only questions of law may be raised in this Court. Th e

rationale for the rule is that the Court is not a trier of facts; it is not to re-examine and calibrate the evidence on record, as such task is assigned to the trial court. The trial court’s findings, as affirmed by the CA, are conclusive on this Court unless there is preponderant evidence that the lower court ignored, misconstrued or misinterpreted cogent and substantial facts and circumstances which, if considered, would modify or reverse the outcome of the case. cdxv[58] The Court may look into and resolve factual issues in exceptional cases such as when the findings and conclusions of the trial court are contrary to evidence on record or tainted with grave abuse of discretion amounting to excess of jurisdiction.

On the second issue, the law is 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 stipulations shall control.cdxvi[59] When the language of the contract is explicit,

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leaving no doubt as to the intention of the drafters, the courts may not read into it any other intention that would contradict its plain import.cdxvii[60] The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract or obligation not assumed simply or merely to avoid seeming hardships.cdxviii[61] Their true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects.cdxix[62] If the parties execute two or more separate writings covering a common transaction and subject matter, the writings should be read and interpreted together to render the parties’ intention effective. cdxx[63] On the other hand, if the contract is ambiguous or the contracting parties offer conflicting claims on their intent, the trial court, at the first instance, has to ascertain the true intent of the parties, taking into account the contemporaneous and subsequent conduct, actions and words of the parties material to the case,cdxxi[64] and pertinent facts having a tendency to fix and determine the real intent of the parties and undertaking shall be considered. It is the parties’ intention which shall be accorded primordial consideration. The reasonableness of the result obtained, after analysis and construction of the contract/contracts, must also be carefully considered.cdxxii[65] The ascertained intention of the parties is deemed an integral part of the contract, as though it had been originally expressed in unequivocal terms. The Court will enforce the true agreement of the parties even if the property in question has already been registered and a new transfer certificate of title is issued in the name of the transferee.cdxxiii[66]

 The rule is that he who alleges that a contract does not reflect the true intention of the parties thereto may prove

the same by documentary or parol evidence.cdxxiv[67] In this case, petitioner alleges that the Deed of Absolute Sale and Option to Buy do not reflect the true intention of the parties, which according to it is a loan with mortgage or an equitable mortgage. The petitioner is burdened to prove, by clear and convincing evidence, the terms of the writings. cdxxv[68] In the language of State Supreme Court of North Carolina in O’briant v. Lee,cdxxvi[69] “the intention must be established, not by simple declarations of the parties, but by proof of facts and circumstances, inconsistent with the rule of absolute purchase, otherwise, the solemnity of deeds would always be exposed to the slippery memory of witnesses.” The presumption is that the contract is what it purports to be; and, to establish its character as a mortgage, the evidence must be clear, unequivocal and convincing which reasons tending to show that the transaction was intended as a security for debt; and thus to be a mortgage must be sufficient to satisfy every reasonable mind without hesitation. cdxxvii[70] A less rigorous rule would mean that no man is safe in taking a deed of property. It would be only necessary for the grantor to bring witnesses to an agreement that the deed was regarded as an equitable mortgage, to enable him, on payment of the purchase price and interest, to redeem, particularly if the value of the property had doubled or trebled in ratio. cdxxviii[71] Unless the testimony is entirely plain and convincing beyond reasonable controversy, the writing will be held to express correctly the intention of the parties.cdxxix[72] If there is a doubt as to the fact whether the transaction is in the nature of a mortgage, the presumption, in order to avoid a forfeiture is always in favor of a position to redeem, to subserve abstract justice and avert injurious consequences.cdxxx[73]

An equitable mortgage is one which, although lacking in some formality, or form or words or other requisites

deemed required by statutes nevertheless reveals the intention of the parties to charge a real property as security for a debt and contains nothing impossible or contrary to law. An equitable mortgage may be constituted by any writing from which the intention to create such a lien may be patterned.

 Under Article 1602 of the New Civil Code, a contract shall be presumed to be an equitable mortgage in any of the

following cases: 

(1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the

period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price;(5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the

transaction shall secure the payment of a debt or the performance of any other obligation.

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For the presumptions under the article to apply, two requisites must concur: (1) that the parties entered into a contract denominated as a sale; and (2) that their intention was to secure an existing debt by way of mortgage. cdxxxi[74] In order for a deed to be declared a mortgage, the relation of debtor and creditor must exist between the grantor in such a deed and one who seeks to have it declared a mortgage.cdxxxii[75] There must be a continuing binding debt; a debt in its fullest sense. Where there is no debt, there can be no mortgage; for if there is nothing to secure, there can be no security.cdxxxiii[76] If there is an indebtedness or liability between the parties, either a debt existing prior tothe conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other cause, and this debt is still left subsistent, not being discharged or satisfied by the conveyance, but the grantor is regarded as still owing and bound to pay at some future time, so that the payment stipulated for in the agreement to re-convey is in reality the payment of this existing debt, then the whole transaction amounts to a mortgage, whatever stipulation they may have inserted in the instruments. If there is no relation of debtor-creditor, but by the terms of the contract one is merely given an option to buy real property for a fixed amount and for a fixed price, there is no equitable mortgage; the optionee is not bound to buy and to pay for said real property.cdxxxiv[77]

 In the present case, the trial and appellate courts declared that based on the evidence on record, petitioner sold the

property to respondent Sta. Monica for P3,021,000.00; as stated in the Option to Buy, petitioner may opt to repurchase the property for P4,100,000.00. Respondent Sta. Monica agrees with the findings of the trial court and the appellate court.cdxxxv

[78]

 The trial court failed to make any finding why petitioner sold the property to respondent Sta. Monica for

P3,021,000.00, which is contrary to what appears on the face of the deed of absolute sale - P4,100,000.00-which amount petitioner acknowledged to have received from said respondent. Although petitioner claimed in its complaint that the true purchase price of the property was P3,021,000.00 and that it borrowed from respondent Sta. Monica P1,079,000.00 as mortgage for one year (from June 30, 1986 to June 30, 1987), no testimonial and documentary evidence was adduced to prove the same. Petitioner was burdened to prove its claim in its complaint that it borrowed P3,021,000.00 from respondent Sta. Monica,cdxxxvi[79] failing which its claim will be defeated even if respondents failed to present any evidence to prove their side.cdxxxvii[80]

 To reiterate, there is no evidence on record that petitioner borrowed P3,021,000.00 from respondent Sta. Monica

in 1986 as alleged in its complaint. The only evidence on record is that petitioner decided in June 1986 to redeem the property from Pioneer much earlier than the one-year-period therefor and needed P2,300,000.00 for the purpose. Petitioner received the amount from respondent Sta. Monica and was able to redeem the property from Pioneer. The only evidence of petitioner that it received money from respondent Sta. Monica is the Deed of Absolute Sale, in which the petitioner acknowledged to have received P4,100,000.00.

 The “Redemption Receipt” signed by Trinidad on June 30, 1988 for P3,000,000.00 in the form of checks and

P57,000.00 in cash “as partial payment of the account of JMA for the property x x x” does not constitute evidence that petitioner secured a loan of P3,021,000.00 from respondent Sta. Monica in June 1986. The said amount was part of the P5,822,000.00 which petitioner was obliged to pay to respondent Sta. Monica, in case it opted to buy the property under the Option to Buy, representing the repurchase price, inclusive of liquidated damages. In fact, Rosita Alberto testified that petitioner expected respondent Sta. Monica to execute a deed of sale over the property upon its payment of P4,100,000.00. This is gleaned from the testimony of Atty. Alberto:

 Atty. Balbastro:Q Let me put it this way, under these documents, Exhibits B and C, more particularly Exhibit C, the

Option to Buy, JMA House Incorporated was given up to June 30, 1988 within which to exercise her option to buy, is that correct?

A Yes, Sir. Q And as of June 30, 1988, how much money did you tender to Sta. Monica Industrial Corporation?A I tendered a total amount of three million fifty-seven thousand pesos, Sir. Q And how much is the redemption price, if you know? If you know the repurchase price?

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A Based on the papers that can be found on the deed of absolute sale, if JMA House Incorporated was to redeem the property during the first year, we were supposed to repurchase on time.

  COURT:Q You are a lawyer, right?A Yes, Your Honor. WITNESS:A To repurchase the property within the first year, a total amount of four million one hundred

thousand pesos, inclusive of interest, was supposed to be paid. If the repurchase was to be made on the second year, interests of 3.5 per cent per month was to be added on the face value which is one million one hundred thousand pesos.

 x x x x  Atty. Balbastro:Q Aside from Exhibit G, you do not have any other document concerning the payment you made to

Sta. Monica Industrial Corporation?A No other. Q Now, subsequent to the payments (sic) of Exhibits B and C, no other written document was

executed between JMA House Incorporated and Sta. Monica Industrial and Development Corporation, is that correct?

A No other because we were expecting that the next document to be executed was a deed of absolute sale of Sta. Monica Industrial Corporation back to JMA House Incorporated covering the property.cdxxxviii[81]

  If, as claimed by petitioner, the transaction between it and respondent Sta. Monica was an equitable mortgage, the

latter would be obliged to execute a Cancellation of Real Estate Mortgage or Release of Mortgage over the property in favor of the petitioner. But, as admitted by Rosita Alberto, petitioner did not expect respondent Sta. Monica to execute any of these; petitioner expected that a deed of sale would be executed in its favor.

 It bears stressing that petitioner and respondent Sta. Monica were assisted by their respective lawyers during the

negotiations held between Rosita Alberto and Trinidad. While Trinidad insisted on a deed of absolute sale, Rosita Alberto suggested that a real estate mortgage be executed by the parties instead. Trinidad rejected this, upon which Rosita proposed that an option to buy be executed as a supplement to the deed of absolute sale, to which Trinidad readily agreed. Obviously, the parties had arrived at acompromise to execute two deeds: a deed of absolute sale for P4,100,000.00, and a deed of option to enable petitioner to buy the property for the same price. Rosita Alberto testified, thus:

 Q Now, you also made mention that you had mortgaged the property to Sta. Monica Industrial

Corporation. Did you execute any document to prove that mortgage?A Yes. Through the negotiation we were talking about a real estate mortgage but Mr. Trinidad

insisted on a deed of sale in their favor. However, I requested for another document an option to buy/option to repurchase which is supplement to the deed of sale which would give us two years from the date of signing, to repurchase the property. 

ATTY. LAZARO:Q Madam Witness, do you still recall the exact date when this deed of absolute sale was executed?A It was June 30th 1986.

 Q And how about the option to buy agreement that you are mentioning? When was it executed?

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A It was executed [simultaneously] on the same day, June 30, 1986. Q I am going to show you now a deed of absolute sale between JMA House Incorporated and Sta.

Monica Industrial and Development Corporation which has been previously marked as Exhibit B and Exhibit B-1. What is the relation of this deed of absolute sale to the one that you are referring to?

A This is the same deed of absolute sale that we signed. Q And I am calling your attention to Exhibit B-1 wherein the signature over and above the name

Rosita Alberto [appears], whose signature is that?A My signature, Sir. Q And I am also calling your attention to the signature over and above the name Eugenio E.

Trinidad, President and General Manager. Whose signature is that?A Mr. Trinidad[’s].cdxxxix[82]   The respective lawyers of petitioner and respondent Sta. Monica thereafter prepared the deeds which were

executed on June 30, 1986 before the same Notary Public, Atilano H. Lim. According to Rosita Alberto, the Option to Buy supplemented the Deed of Absolute Sale. The testimony of Rosita Alberto on the matter follows:

 Q Alright, I will read to you your Exh. “C,” under the second WHEREAS, and I quote: Whereas,

the parties in the aforementioned Deed mutually agreed that the VENDOR JMA HOUSE INCORPORATED is given an option to buy back the properties subject thereto…” Do you recall this provision?

A Yes. This is the document. Q And, in this second WHEREAS, the aforementioned Deed referred to here is the Deed referred to

in the first WHEREAS, that is the Deed of Absolute Sale, marked as Exhibit “B”, is that correct?A Yes. Q I am going back to my first question. In other words, the basis of the option to buy is the

supposed mutual agreement between JMA House Incorporated and Sta. Monica Industrial and Development Corporation to give JMA House Incorporated the [option] to buy back the property as provided in the Deed of Absolute Sale marked here as Exhibit “B,” is that correct?

A They were supplementing each other, the option to buy and the deed of absolute sale.cdxl[83]   The fact that petitioner sold the property to respondent Sta. Monica is evidenced by Rosita Alberto’s admission

that she delivered to respondent Sta. Monica the owner’s duplicate of TCT No. 268126, after which the latter had the property registered in its name, conformably with their “pre-arrangement.” This can be gleaned from her testimony, in answer to the questions of counsel of respondent AGCOR:

 ATTY. LUCAS:Q After June 30, 1986, Your Honor.

 WITNESS:A After June 30, 1986, the taxes were paid by STA. MONICA. That was the pre-arrangement,

Your Honor, with STA. MONICA. And it would be absurd for JMA to pay the taxes when the title was with STA. MONICA. And we believe that they would be using it for their purposes, the title; for STA. MONICA’s purposes. So, they are more than willing to take up the taxes.cdxli[84]

 Although Rosita Alberto did not specify the particulars of her “pre-arrangement” with Trinidad outside of the

Deed of Absolute Sale and Option to Buy, it can safely be presumed that they agreed that petitioner would continue collecting rentals from the tenants, and respondent may mortgage

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the property as security for its P3,600,000.00 loan from the PCI Capital Corporation. Petitioner would then be able to generate funds for the purchase of the property on or before June 30, 1987 or 1988, partly from the rentals. On the other hand, respondent Sta. Monica was able to generate funds from its loan, with the property as collateral, for its business. Both parties benefited under the arrangement.

 While it is true that per Appraisal Report of the Philippine Appraisal Corporation, the property of the petitioner

had a value, as of 1986, of P11,080,000.00, despite which, Alberto agreed to sell the property for P4,100,000.00 under the Deed of Absolute Sale, nevertheless, Alberto cannot be faulted. After all, under the Option to Buy, petitioner was obliged to pay only P4,100,000.00.

 It must be stressed that an option is a continuing offer or contract by which an owner stipulates with another that

the latter shall have the right to buy the property at a fixed price with a certain time, or under, or in compliance with, certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale. cdxlii[85] It is, in fine, an unaccepted offer, governed by the second paragraph of Article 1479 of the New Civil Code which states that “ a promise to buy and sell a determinate thing for a price certain is reciprocally demandable .” An option is not of itself a purchase, but merely secures the privilege to buy. An option is a privilege given by the owner of the property to another to buy the property at his election, and the owner does not sell the property but gives another the right to buy at his election.cdxliii[86] It imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Without acceptance, it is not, properly speaking, treated as a contract, and does not vest, transfer or agree to transfer, any title to, or any interest or right in the subject property, but is merely a contract by which the owner of the property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms.cdxliv[87]

 Thus, an option contract involves two distinct elements, that is: (1) the offer to sell, which does not become a

contract until accepted; (2) the completed contract to lease the offer for a specified time. cdxlv[88] It is a separate and distinct contract from that which the parties may enter into, upon the consummation of the option.  

It bears stressing that an option must be supported by a consideration distinct and separate from the price. A consideration for an optional contract is just as important as the consideration for any other kind of contract. cdxlvi[89] If there is no consideration for the optional contract, then it cannot be enforced anymore than any other contract where no consideration exists.cdxlvii[90] However, case law is that although an option is not binding as a contract for want of consideration, yet if the offer contained therein is not withdrawn, its acceptance within the time limited gives rise to a contract of sale, binding on the vendor, which cannot be affected by any subsequent attempt to withdraw the offer.cdxlviii[91]

 The optionee or promisee is burdened to prove such consideration for the option. The consideration for the option

is not presumed. In Villamor v. Court of Appeals,cdxlix[92] the Court ruled that consideration is “the why of the contract, the essential reason which moves the contracting parties to enter into the contract.” cdl[93] The consideration for a contract, including an option, need not be money or anything of monetary value but may consist of either a benefit or a detriment to the promisor.cdli[94] There is sufficient consideration fora promise if there is any benefit to the promisee or any detriment to the promisor. A benefit should not necessarily accrue to the promisee if a detriment to the promisor is present; and there is consideration if the promisee does anything legal which he is not bound to do or refrain from doing anything which he has a right to do, whether or not there is any actual loan or detriment to him or actual benefit to the promisor.cdlii[95] It is sufficient that something valuable flows from the person to whom it is made, or that he suffers some prejudice or inconvenience, and that the promise is the inducement to the transaction. Indeed, there is a consideration if the promisee, in return for the promise, does anything legal which he is not bound to do, or refrains from doing anything which he has a right to do, whether there is any actual loss or detriment to him or actual benefit to the promisor or not.cdliii[96]

 We agree with the rulings of the trial court and the CA that the option granted to the petitioner has a consideration

distinct from the purchase price of the property for P4,100,000.00. As gleaned from the Option to Buy itself, the agreement was executed by the parties because of the Deed of

Absolute Sale they had executed on the same occasion. Instead of the parties executing a Real Estate Mortgage as suggested by petitioner, the parties, by way of compromise, agreed to execute a Deed of Absolute Sale, on the condition that they execute an Option to Buy, giving petitioner the privilege to repurchase the property within a period of one year, with a grace period of one year immediately upon the expiration of the original one year period. As admitted by Rosita

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Alberto, the two deeds complemented each other, the Option to Buy being a supplement to the Deed of Absolute Sale. In fine, petitioner would not have agreed to sell the property to respondent Sta. Monica unless petitioner was given the option to repurchase the property for the same amount.

However, we agree with the ruling of the CA that petitioner failed to exercise its option and notify respondent Sta.

Monica of its acceptance of the latter’s offer within the timeline under the Option to Buy. Under the said deed, petitioner had one year from June 30, 1986 or up to June 30, 1987 to exercise its option, and in case of failure to do so, it had a one year grace period (from July 1, 1987 to June 30, 1988), provided that, in the latter case, it would pay equitable damages of 3.5% a month from July 1, 1987 to June 30, 1988 until full payment of the purchase price or until the option is finally exercised. The pertinent portion of the contract reads:

 NOW, THEREFORE, for and in consideration of the foregoing premises, stipulations and

conditions, the JMA HOUSE INCORPORATED is hereby given an option to buy back the subject properties mentioned in the aforesaid Deed of Absolute Sale, and in like manner the STA. MONICA INDUSTRIAL AND DEVELOPMENT CORPORATION hereby undertakes and binds itself to resell the same unto the said JMA HOUSE INCORPORATED within a period of One (1) year from and after date of execution of the said Deed for a fixed consideration of FOUR MILLION ONE HUNDRED THOUSAND PESOS (P4,100,000.00) Philippine Currency; PROVIDED, HOWEVER, should the said JMA HOUSE INCORPORATED failed (sic) to exercise the herein option to buy back within the above-stated period, the JMA HOUSE INCORPORATED be (sic) given a grace period of another One (1) year immediately thereafter. In case of such extension the JMA HOUSE INCORPORATED hereby undertakes and binds itself to pay an amount equivalent to Three and one-half percent (sic) month for and as liquidated damages until the whole amount is fully paid and/or the option is finally exercised. It is clear that petitioner failed to exercise its option on or before June 30, 1987. Neither did petitioner exercise its

option and pay the liquidated damages to respondent Sta. Monica from July 1, 1987 up to June 1988. This impelled respondent Sta. Monica to inform petitioner that because of its failure to exercise its option to purchase the property, it had to discontinue collecting the rentals from the tenants of the buildings. On February 2, 1988, respondent Sta. Monica sold the property to respondent AGCOR, which secured TCT No. 376746 on February 17, 1988.

 The Option to Buy provides that acceptance must be accompanied by payment of liquidated damages; such

payment is a condition precedent to the exercise of the right to buy, and the money must be tendered or offered. A mere notice of an intention to accept, or of an acceptance without such payment or tender, does not constitute a valid compliance.cdliv[97] Respondent Sta. Monica’s acceptance of the five checks in the total amount of P3,000,000.00 and the cash amount of P57,000.00 on June 30, 1988, as partial payment of petitioner’s account did not resuscitate the right which petitioner had by then already lost, particularly since the property had already been sold and titled to AGCOR. The said partial payment was an exercise in futility, made worse by the fact that the five checks were dishonored by the drawee bank.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. Costs against the petitioner. SO ORDERED.

 

18. Republic of the PhilippinesSupreme CourtManila THIRD DIVISION  PEDRO T. BERCERO,   G.R. No. 154765 Petitioner,        Present:

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         YNARES-SANTIAGO, J.,    Chairperson, - versus -   AUSTRIA-MARTINEZ,    CALLEJO, SR.,     CHICO-NAZARIO, and     NACHURA, JJ.CAPITOL DEVELOPMENT    CORPORATION,cdlv[1]   Promulgated: Respondent.   March 29, 2007x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x   D E C I S I O N  AUSTRIA-MARTINEZ, J.: 

 Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court assailing the

Decisioncdlvi[2] dated February 11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 56484 which set aside the Decisioncdlvii[3] dated May 27, 1996 of the Regional Trial Court, Branch 88, Quezon City (RTC-Branch 88) in Civil Case No. Q-92-11732, and the CA Resolutioncdlviii[4] dated August 29, 2002 which denied petitioner’s Motion for Reconsideration.

 The factual background of the case is as follows: On January 31, 1983, Capitol Development Corporation (respondent) leased its commercial building and lot

located at 1194 EDSA, Quezon City to R.C. Nicolas Merchandising, Inc., (R.C. Nicolas) for a 10-year period or until January 31, 1993 with the option for the latter to make additional improvements in the property to suit its business and to sublease portions thereof to third parties.cdlix[5]

 R.C. Nicolas converted the space into a bowling and billiards center and subleased separate portions thereof to

Midland Commercial Corporation, Jerry Yu, Romeo Tolentino, Julio Acuin, Nicanor Bas, and Pedro T. Bercero (petitioner). Petitioner’s sublease contract with R.C. Nicolas was for a three-year period or until August 16, 1988.cdlx[6]

 Meanwhile, for failure to pay rent, respondent filed an ejectment case against R.C. Nicolas before the

Metropolitan Trial Court, Branch 41, Quezon City (MeTC-Branch 41), docketed as Civil Case No. 52933. Respondent also impleaded the sub-lessees of R.C. Nicolas as parties-defendants.

 During the pendency of Civil Case No. 52933, several sub-lessees including petitioner, entered into a compromise

settlement with respondent.cdlxi[7] In the compromise settlement, the sub-lessees recognized respondent as the lawful and absolute owner of the property and that the contract between respondent and R.C. Nicolas had been lawfully terminated because of the latter’s non-payment of rent; and that the sub-lessees voluntarily surrendered possession of the premises to respondent; that the sub-lessees directly executed lease contracts with respondent considering the termination of leasehold rights of R.C. Nicolas.

 Petitioner entered into a lease contract with respondent for a three-year period, from August 16, 1988 to August

31, 1991.cdlxii[8]  On October 21, 1988, respondent and petitioner, as well as several other sub-lessees of R.C. Nicolas, filed a Joint

Manifestation and Motion in Civil Case No. 52933, manifesting to the MeTC-Branch 41 that they entered into a compromise settlement and moved that the names of the sub-lessees as parties-defendants be dropped and excluded.cdlxiii[9]

 

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On November 14, 1988, R.C. Nicolas filed a complaint for ejectment and collection of unpaid rentals against petitioner before the Metropolitan Trial Court, Branch 39, Quezon City (MeTC-Branch 39), docketed as Civil Case No. 0668.cdlxiv[10] On April 18, 1989, MeTC-Branch 39 rendered a Decision in favor of R.C. Nicolas and ordered the eviction of petitioner from the leased premises.cdlxv[11]

 Dissatisfied, petitioner filed an appeal before the Regional Trial Court, Branch 78, Quezon City (RTC-Branch

78). R.C. Nicolas filed a Motion for Execution Pending Appeal which was opposed by petitioner.  In an Order dated October 4, 1990, RTC-Branch 78 directed the issuance of a writ of execution pending appeal

since petitioner failed to file a supersedeas bond and periodically deposit the rentals due during the pendency of the appeal. cdlxvi[12] Accordingly, on October 22, 1990 a writ of execution was issued.cdlxvii[13] Sometime in November 1990, petitioner was evicted from the leased premises.cdlxviii[14]

 Petitioner assailed the Order dated October 4, 1990 in a petition for certiorari with the CA, docketed as CA-G.R.

SP No. 23275, but the petition was denied due course and dismissed by the CA in a Decision dated December 28, 1990.cdlxix[15]

 On September 3, 1991, respondent filed a Manifestation in Civil Case No. 52933 urging MeTC-Branch 41 to

order R.C. Nicolas to desist from harassing respondent and petitioner, and to confirm respondent’s right of possession to the premises in the light of the ejectment case filed by R.C. Nicolas against petitioner.cdlxx[16]

 Two months later, or on November 13, 1991, MeTC-Branch 41 rendered a Decision in Civil Case No. 52933 in

favor of respondent and ordered R.C. Nicolas to pay its unpaid rentals from September 1986 until October 1988.cdlxxi[17]

 Meanwhile, since his eviction in November 1990, petitioner made repeated demands on respondent for the

restoration of his possession of the commercial space leased to him to no avail. cdlxxii[18]  Thus, on March 24, 1992, petitioner filed a complaint for sum of money with attachment and mandatory

injunction with damages against the respondent before the RTC-Branch 88, docketed as Civil Case No. Q-92-11732.cdlxxiii

[19]  On May 27, 1996, RTC-Branch 88 rendered its Decisioncdlxxiv[20] in favor of petitioner, the dispositive portion of

which reads: WHEREFORE, premises rendered, this Court finds for the plaintiff and orders the defendant: 1) to restore plaintiff’s possession of the rented building located at 1194 EDSA, Quezon City for

the next three years effective from receipt of the copy of this decision; 2) to pay the plaintiff the following:

a. P480,000.00 – actual damagesb. P 50,000.00 – moral damagesc. P 50,000.00 – exemplary damagesd. P 50,000.00 – attorney’s fees

 3) to pay the costs. Accordingly, the counterclaim filed by the defendant Capitol Development Corporation is hereby

DISMISSED. SO ORDERED.cdlxxv[21]

 The RTC held that respondent miserably failed to comply with its obligation under Article 1654 of the New Civil

Code due to its apathy and failure to extend any assistance to the petitioner and was, therefore, liable for the restoration of

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petitioner’s possession and the payment of actual damages corresponding to lost profit, cash, generator, and other items petitioner lost due to the eviction, as well as moral and exemplary damages and attorney’s fees.

 Dissatisfied, respondent filed an appeal with the CA, docketed as CA-G.R. CV No. 56484.  On February 11, 2002, the CA rendered its Decisioncdlxxvi[22] setting aside the Decision of RTC-Branch 88, to wit:

 WHEREFORE, premises considered, the Decision dated May 27, 1996 of the Regional Trial

Court of Quezon City, Branch 88, in Civil Case No. Q-92-11732, is hereby REVERSED and SET ASIDE. No pronouncement as to costs.

 Applying the equitable principle of estoppel, the CA held that although respondent as lessor failed to ensure the peaceful possession of petitioner as its lessee in the subject premises, the latter is not entitled to damages since he was aware of the facts which led to his ouster from the subject premises; and that petitioner was well aware that respondent had a 10-year lease contract with R.C. Nicolas which was subject of an ejectment suit that was still pending litigation when petitioner executed a lease contract with respondent.

 On March 5, 2002, petitioner filed his Motion for Reconsideration.cdlxxvii[23] On August 29, 2002, the CA issued its

Resolution denying petitioner’s Motion for Reconsideration.cdlxxviii[24]  Hence, the present Petition anchored on the following grounds: I. THE HONORABLE COURT OF APPEALS CLEARLY COMMITTED GRAVE ERROR AND ABUSE OF DISCRETION IN APPLYING THE PRINCIPLE OF ESTOPPEL TO PETITIONER II. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR BY DISREGARDING THE LAW, JURISPRUDENCE AND EVIDENCE IN DELETING THE AWARD MADE BY THE LOWER COURT OF DAMAGES AND REVERSING THE THREE (3) YEAR POSSESSION OF THE SUBJECT PROPERTY GIVEN TO THE PETITIONERcdlxxix[25]

 Petitioner argues that the principle of estoppel is inapplicable because he dealt with respondent in good faith and

relied upon the latter’s representations that the lease of R.C. Nicolas was already terminated at the time he contracted with the latter; that respondent assured him that it had a valid and legal right to enter into a new lease contract with him; that he is entitled to damages since respondent did not even lift a finger to protect him when R.C. Nicolas filed an ejectment case against him; and that respondent acted in utter bad faith when it still refused to restore his possession after he was evicted in November 1990, notwithstanding that his lease contract with respondent was valid until August 31, 1991.

 Respondent, on the other hand, counters that the CA correctly applied the principle of estoppel since petitioner

voluntarily entered into a lease agreement with respondent despite full knowledge that the latter’s lease with R.C. Nicolas over the subject premise had yet to be judicially terminated; and that petitioner knew that at the time he contracted with respondent, he still had existing obligations to R.C. Nicolas relating to their sub-lease agreement.

 Under Article 1654 (3) of the New Civil Code, to wit: 

Art. 1654. The lessor is obliged: x x x x  (3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire

duration of the contract.

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 it is the duty of the lessor to place the lessee in the legal possession of the premises and to maintain the peaceful possession thereof during the entire term of the lease.cdlxxx[26] To fully appreciate the importance of this provision, the comment of Manresa on said article is worth mentioning:

 The lessor must see that the enjoyment is not interrupted or disturbed, either by others’ acts x x x

or by his own. By his own acts, because, being the person principally obligated by the contract, he would openly violate it if, in going back on his agreement, he should attempt to render ineffective in practice the right in the thing he had granted to the lessee; and by others’ acts, because he must guarantee the right he created, for he is obligated to give warranty in the manner we have set forth in our commentary on article 1553, and, in this sense, it is incumbent upon him to protect the lessee in the latter’s peaceful enjoyment.cdlxxxi[27]

 The obligation of the lessor arises only when acts, termed as legal trespass (perturbacion de derecho), disturb,

dispute, object to, or place difficulties in the way of the lessee’s peaceful enjoyment of the premises that in some manner or other cast doubt upon the right of the lessor by virtue of which the lessor himself executed the lease, in which case the lessor is obligated to answer for said act of trespass.cdlxxxii[28] The lessee has the right to be respected in his possession and should he be disturbed therein, he shall be restored to said possession by the means established by the law or by the Rules of Court.cdlxxxiii[29] Possession is not protection against a right but against the exercise of a right by one’s own authority.cdlxxxiv[30]

 Petitioner claims that respondent as lessor was obliged to restore his possession following his eviction from the

premises. The Court disagrees.  Void are all contracts in which the cause or object does not exist at the time of the transaction. cdlxxxv[31] In the

present case, the lease contract between petitioner and respondent is void for having an inexistent cause - respondent did not have the right to lease the property to petitioner considering that its lease contract with R.C. Nicolas was still valid and subsisting, albeit pending litigation. Having granted to R.C. Nicolas the right to use and enjoy its property from 1983 to 1993, respondent could not grant that same right to petitioner in 1988. When petitioner entered into a lease contract with respondent, the latter was still obliged to maintain R.C. Nicolas’s peaceful and adequate possession and enjoyment of its lease for the 10-year duration of the contract.

 Respondent’s unilateral rescission of its lease contract with R.C. Nicolas, without waiting for the final outcome of

the ejectment case it filed against the latter, is unlawful. A lease is a reciprocal contract and its continuance, effectivity or fulfillment cannot be made to depend exclusively upon the free and uncontrolled choice of just one party to a lease contract.cdlxxxvi[32] Thus, the lease contract entered into between petitioner and respondent, during the pendency of the lease contract with R.C. Nicolas, is void.

 There is no merit to petitioner’s claim of good faith in dealing with respondent. Good faith is ordinarily used to

describe that state of mind denoting “honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry;cdlxxxvii[33] an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render the transaction unconscientious.”cdlxxxviii[34] Being privy to the pendency of the ejectment case involving the leasehold rights of R.C. Nicolas since he was impleaded as a party-defendant in said ejectment case, petitioner cannot feign innocence of the existence thereof. Petitioner was fully aware that R.C. Nicolas had a lease contract with respondent which was subject of a pending litigation.

 It is well-settled that parties to a void agreement cannot expect the aid of the law; the courts leave them as they

are, because they are deemed in pari delicto or “in equal fault”.cdlxxxix[35] No suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation, and no affirmative relief of any kind will be given to one against the other. cdxc[36] Each must bear the consequences of his own acts.cdxci[37] They will be left where they have placed themselves since they did not come into court with clean hands.

 

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In sum, the underlying case for sum of money filed by petitioner against respondent cannot prosper, his right of action being anchored on a contract which, for all intents and purposes, has no legal existence and effect from the start. A void or inexistent contract is equivalent to nothing; it is absolutely wanting in civil effects; it cannot be the basis of actions to enforce compliance.cdxcii[38]

 WHEREFORE, the present petition is DENIED for lack of merit. The assailed Decision and Resolution of the

Court of Appeals in CA-G.R. CV No. 56484 are AFFIRMED. Petitioner’s Complaint and respondent’s Counterclaim in Civil Case No. Q-92-11732 are DISMISSED. Costs against petitioner.

 SO ORDERED.   

21. SECOND DIVISION BPI-FAMILY SAVINGS BANK, INC., Petitioner,    - versus -   SPS. ZENAIDA DOMINGO & ABUNDIO S. DOMINGO, BENJAMIN VILLAcdxciii[1] and SPS. JULIAN CRUZ, Respondents.

  G.R. No. 158676 Present:  PUNO, Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA, GARCIA, JJ.    Promulgated:  November 27, 2006

x-----------------------------------------------------------------------------------------x D E C I S I O N GARCIA, J.: 

In this petition for review under Rule 45 of the Rules of Court, petitioner BPI-Family Savings Bank, Inc. assails and seeks to set aside the following issuances of the Court of Appeals (CA) in CA-G.R. CV No. 60994, to wit:

 1.                 Decisioncdxciv[2] dated May 30, 2002, affirming in toto an earlier decisioncdxcv[3] of the Regional

Trial Court (RTC) of Quezon City, Branch 81, in its Civil Case No. Q-90-6402, which adjudged petitioner solidarily liable with Benjamin Villa to the spouses Zenaida Domingo and Abundio S. Domingo for actual, moral and exemplary damages and attorney's fees, subject to reimbursement by the spouses Julian Cruz; and

2.                 Resolutioncdxcvi[4] dated June 10, 2003, denying the separate motions for reconsideration filed by the petitioner, Benjamin Villa and the Cruz spouses.

  

The facts: 

Respondent Julian Cruz is the owner of a commercial lot and building located at No. 977 E. Quirino Ave., Novaliches, Quezon City. Sometime in April 1976, he leased out the premises to the Family Savings Bank (FSB). In April 1989, after the Bank of the Philippine Islands (BPI) acquired FSB but before the expiration of the original lease contract between Cruz and FSB, a new lease agreement over the same property was executed, this time between BPI-FSB and Cruz. 

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Both the original and the new lease contracts contained the following stipulation: 

Assignment and Sublease – The lessee has the right to sublease the premises or any portion thereof to a third party. The lessee may not, however, assign or transfer its right or interest under this lease without the written consent of the lessor.

 On February 23, 1989, while the original lease agreement between FSB and Cruz was still subsisting, BPI-FSB

subleased the same premises to respondent Benjamin Villa (now deceased), a former Vice President of BPI-FSB. While BPI-FSB apparently did not secure the written consent of Julian Cruz, it appears that the latter was aware of the sublease and acceded to it because he made neither an objection nor a protest thereto. 

The aforementioned sublease contract between BPI-FSB and Benjamin Villa embodied the following clause: 

The sublessee shall not assign this contract of sublease or sublease any part of the premises to any person or entity.

 Benjamin Villa occupied and used the premises as a restaurant, operating thereat the “Carousel Food House.” His

restaurant business, however, failed to prosper. Hence, after only about a year of operation, Villa decided to close it down. 

On or about June 4, 1990, while still operating the “Carousel Food House” at the premises, Villa learned that Mrs. Zenaida Domingo was interested in taking over his restaurant business thereat. Negotiations pushed through and the price of P650,000.00 was agreed upon between the two. Villa, however, informed Mrs. Domingo that as a mere sublessee under his sublease contract with BPI-FSB, he was prohibited from assigning his rights as a sublessee. It was, therefore, necessary to rescind his sublease contract with BPI-FSB so that the latter could directly execute a sublease contract with the Domingo spouses. Villa informed the principal lessee BPI-FSB about the arrangement and the latter acceded. 

On June 15, 1990, Villa received from the Domingos the amount of P300,000.00 as partial payment for his rights over the premises. The receipt Villa issued therefor reads: 

Received from Mrs. Zenaida Domingo the amount of three hundred thousand pesos (P300,000.00) as partial payment for my giving up my rights on the premises presently occupied by Carousel Food House and certain equipments and improvements in the same premises. On June 18, 1990, BPI-FSB executed a sublease contract in favor of the Domingos. Three days later, or on June

21, 1990, a Deed of Rescission of the sublease agreement between BPI-FSB and Villa was executed and signed by BPI-FSB and Villa. 

On June 26, 1990, Villa received from the Domingos the amount of P350,000.00, representing the full payment of the amount due under their agreement. As before, Villa issued the corresponding receipt, to wit:

For and in consideration of the sum of Three Hundred Fifty Thousand Pesos (P350,000.00), Philippine Currency, receipt of which in full is hereby acknowledged, the undersigned hereby assigns, cedes and transfers and sets over to Ms. Zenaida G. Domingo the goodwill, all rights and interest over the premises located at 977 Quirino Avenue, Novaliches, Quezon City, the permanent improvements and certain equipments thereon, free on any lien or encumbrance except the legal rights of the owner of the building thereon...

 On the very same day, Villa vacated the subject premises and turned over the key thereof to the Domingos.

 The following day - June 27, 1990 - the Domingos went to clean and fix the premises but could not enter because

the door was padlocked. Moreover, there was posted at the glass window of the commercial building a sign to the effect that the place was not for lease or sublease. Apparently, Julian Cruz, the owner-lessor, preempted the Domingos' visit in order to padlock the premises and post said notice the day previous. 

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The Domingos thus demanded of Villa either compliance with their contract of sublease or the return of their payment of P650,000.00. Efforts exerted by Villa and BPI-FSB to place the Domingos in possession of the subject premises proved futile due to the refusal of Cruz to open the same.  

On account of Villa’s failure to return their total payment of P650,000.00 for the place, the Domingos filed suit in the RTC of Quezon City for a sum of money with damages against both Villa and BPI-FSB. In turn, Villa and BPI-FSB filed their respective third-party complaints against Cruz.

In their complaint, docketed as Civil Case No. Q-90-6402 and raffled to Branch 81 of the trial court, the Domingos maintained that both Villa and BPI-FSB assured them that they would be placed in possession of the subject premises as a sublessee. Hence, the failure of both to comply with said undertaking makes them jointly and severally liable to them for the return of the P650,000.00 they paid to Villa, plus damages. 

For their part, Villa and BPI-FSB laid the blame on Cruz. They posited that they failed to comply with their promise to the plaintiffs-spouses because of Cruz's illegal, unreasonable and unjustified action in padlocking the premises. Hence, they argued that should they be made to return the amount of P650,000.00 which the spouses Domingo paid to Villa, Cruz should be simultaneously ordered to reimburse them for the same amount. Additionally, BPI-FSB contended that under its lease contract with Cruz, it had the right to sublease the subject premises to a third person even without the consent of the latter. 

On the other hand, Cruz, as third-party defendant in this case, claimed that he had every right to close down the premises and to refuse the entry thereto of the Domingos because under his lease agreement with BPI-FSB, the latter cannot sublease the premises without his written consent. Purportedly, BPI-FSB violated this condition when it subleased the premises to the Domingos without his written consent. 

In a decisioncdxcvii[5] dated June 8, 1998, the trial court found for the Domingos, and accordingly rendered judgment, to wit: 

WHEREFORE, premises considered, judgment is hereby rendered as follows: 

1.                 Ordering defendants BPI-Family Savings Bank and Benjamin Villa to pay the plaintiffs, jointly and severally, the following amounts: 

1.1            P650,000.00 as actual damages, representing the amount paid by plaintiffs to defendant Villa, with interest at the legal rate from the filing of the complaint until fully paid;

 1.2            P100,000.00 as moral damages; 1.3            P50,000.00 as exemplary damages; 1.4            P25,000.00 as attorney's fees.

 2.      Ordering third-party defendant Julian Cruz to reimburse third-party plaintiffs BPI-FSB and

Villa for whatever amounts said defendants/third-party plaintiffs will pay the plaintiffs by virtue of this judgment;

 3.      Ordering third-party defendant Cruz to pay third-party plaintiff BPI-FSB the amount of

P25,000.00 as attorney's fees; 4.      Ordering third-party defendant Cruz to pay third-party plaintiff Villa the amounts of

P50,000.00 as moral damages and P25,000.00 as attorney's fees; 5.      Dismissing for lack of merit the counterclaims and cross-claims of defendants BPI-FSB and

Villa, and the counterclaims of third-party defendant Cruz. 

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Costs against third-party defendant Cruz. IT IS SO ORDERED.

 From the foregoing decision, a common appeal was interposed by BPI-FSB and Villa to the CA. Separate appeal

was also taken by the spouses Cruz, all of which appeals were consolidated and docketed in the CA as CA-G.R. CV No. 60994.  

As stated at the threshold hereof, the CA, in its decisioncdxcviii[6] of May 30, 2002, affirmed in toto that of the trial court, and denied in its resolution of June 10, 2003, the appellants’ respective motions for reconsideration. 

Of the parties below, only petitioner BPI-FSB elevated the case to this Court via the instant petition for review on the following grounds:

 A. The CA gravely abused its discretion and committed a reversible error in NOT applying the

provisions of Articles 1207 and 1311 of the Civil Code under which, contrary to its decision, BPI-FSB could not be held solidarily liable with VILLA for the return to the DOMINGOS of the amount of P650,000.00.

 B. The action of the DOMINGOS being as it is indisputably an action for recovery of a sum of

money and not an action for specific performance and there being no dispute that the amount of P650,000.00 was received by VILLA and VILLA alone, the Court of Appeals gravely abused its discretion and committed a reversible error in holding NOT only VILLA liable for the return of the money but also BPI-FSB as well.

 C. The Court of Appeals gravely abused its discretion and committed a reversible error in affirming

the decision of the trial court holding that BPI-FSB is solidarily liable with VILLA for other damages.cdxcix[7]

  

We AFFIRM but minus the award of moral and exemplary damages. 

In a nutshell, petitioner BPI-FSB denies knowledge of, let alone having anything to do with, the transaction between Villa and the Domingos. It points to the express admission of both the Domingos and Villa that BPI-FSB did not receive any portion of the amount of P650,000.00 as it was Villa alone who received the same from the Domingos. As petitioner further claims, it came to know of such payment only when the case at bar was filed. Not being a privy to the agreement between the Domingos and Villa, petitioner contends that it cannot be found solidarily liable with Villa for the latter’s breach of his sublease agreement with the Domingos. In support thereof, petitioner invokes the following provisions of the Civil Code: 

Article 1311. Contracts take effect only between the parties, their assigns and heirs x x x. xxx xxx xxx 

Article 1207. x x x There is solidary liability only when the obligation expressly so states or when the law or the nature of the obligation requires solidarity.

Hence, it is petitioner's submission that it should not be held solidarily liable with Villa for “a transaction that was entered exclusively between Zenaida Domingo and VILLA,” allegedly “without the knowledge, consent or participation of BPI-FSB.”d[8]

 Ironically, Villa, in his memorandumdi[9] before the Court, uses the same logic in arguing that he should not be held solidarily liable with BPI-FSB. Villa points out that, not being a party to the

second sublease contract between BPI-FSB and the Domingos, he cannot be held responsible for the Domingos' failure to occupy the premises. He also alleged having informed the Domingos beforehand that he

had no right to sublease the premises under his sublease agreement with BPI-FSB, hence the need for the deed of rescission of said sublease contract, which deed was in fact executed. To Villa, the second sublease contract was solely between BPI-FSB and the Domingos.

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 We rule and so hold, as did the CA, that neither BPI-FSB nor Villa can escape liability by disclaiming privity to

an agreement with the Domingos. There are more than one, indeed several, relevant agreements involved in this case. To waylay any possibility of confusion, we shall enumerate them to distinguish one from the other: 

1. The original lease agreement between Julian Cruz and BPI-FSB; 2. The first sublease contract between BPI-FSB and Villa; 3. The sale of goodwill of the Carousel Food House, and the assignment and transfer of all of

Villa's rights and interests to the premises and improvements thereon, between Villa and the Domingos;

 4. The second sublease contract between BPI-FSB and the Domingos; and 5. The Deed of Rescission of the first sublease contract between Villa and BPI-FSB.   The CA found no cogent reason to disturb the trial court's finding that both BPI-FSB and Villa assured the

Domingos that they would eventually be placed in possession of the premises in question as sublessee. Nor do we. Not only is there evidence to corroborate this finding; it is likewise the version more consistent with common human experience. Finding no reversible error in the trial court’s appraisal and appreciation of the facts and evidence on record, it was not amiss for the CA to adhere to the well-entrenched precept that factual findings of trial courts are entitled to great weight and respect, even finality in certain cases.dii[10] This Court can do no less. 

Both BPI-FSB and Villa each had their own respective agreements with the Domingos, albeit for a single purpose. Villa sold to the Domingos the goodwill of his restaurant business, as well as all his rights and interests in the premises and its improvements. BPI-FSB, on the other hand, subleased the same premises to the Domingos. These two contracts are intertwined. Indeed, the Domingos' enjoyment of the goodwill and business of Villa would be an impossibility without the BPI-FSB – Domingos sublease contract.  

The Court cannot give credence to BPI-FSB's posture that it had nothing to do with, nor even had knowledge of, the agreement between Villa and the Domingos. This scenario is far-fetched, what with the fact that BPI-FSB is a party to the sublease contract with the Domingos, and, in pursuance thereof, even executed a deed of rescission of its earlier sublease agreement with Villa. It had also exerted efforts, along with Villa, towards putting the Domingos in possession of the premises by seeking out Cruz. With such a factual backdrop, it is difficult to grasp how BPI-FSB could not have taken part and assured the Domingos of possession of the premises, as found by the two (2) courts below. Indeed, it insults one’s credulity for the petitioner to feign ignorance of the sublease agreement between Villa and the Domingos. In any event, it is clear that BPI-FSB’s failure to put the Domingos in possession of the premises as its sublessees, in breach of its own contract with them, makes the petitioner solidarily liable with Villa for the amount the Domingos had paid to enjoy the premises. 

Villa, on the other hand, though not a privy to the second (BPI-FSB – Domingos) sublease contract, had his own contract with the Domingos which he had breached. We refer to the sale by Villa for P650,000.00, of the goodwill of his restaurant business in the premises and the assignment of all his rights and interests thereon, including the equipment and improvements made thereat. To cap it all, Villa cannot possibly escape liability for said amount as it was he who had received the same and even issued a receipt therefor. 

Clearly, then, the two (2) courts below had not erred in holding that both BPI-FSB’s and Villa's failure to comply with their respective undertakings to place the Domingos in possession of the subject premises renders them accountable for breach of contract. As decreed by statute, those who in any manner contravenes the tenor of their obligations are liable for damages.diii[11]

 The Court agrees, however, with petitioner BPI-FSB that it was due to Cruz's actions of padlocking the premises

and posting notices thereat that prevented the Domingos from taking possession of the place. It is precisely for this reason why the two (2) courts below correctly adjudged Cruz to be ultimately liable for what is due the Domingos and thus directed him to reimburse what Villa and BPI-FSB must pay the spouses.

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 As found by the trial court, Cruz himself was guilty of breach with respect to his basic lease agreement with BPI-

FSB. Concededly, said agreement contained the following stipulation: Assignment and Sublease – The lessee has the right to sublease the premises or any portion

thereof to a third party. The lessee may not, however, assign or transfer its right or interest under this lease without the written consent of the lessor. (Emphasis supplied.)

 On surface, the foregoing stipulation seemingly insulates Cruz from any liability in this case. However, basic is

the rule that in the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all.div[12] The trial court was quick to point out, and rightly so, that the first sentence of the aforequoted covenant speaks of what the lessee can do, while the second sentence refers to what it cannot do without the consent of the lessor. This is evident from the phrase “may not however” found in the second sentence, which means that the act of sub-leasing in the first sentence may be done by the lessee without the consent of the lessor but the act of assignment or transfer of rights in the second sentence cannot be done by the lessee without the consent of the lessor. Clearly, the parties intended a distinction between a sublease and an assignment of rights. 

Under the aforequoted contractual stipulation, BPI-FSB, as lessee, is possessed of the authority to sublease the subject premises. No mention is made of obtaining

any written consent of the lessor (Cruz) as a condition sine qua non for the validity of a sublease agreement. What necessitates the prior written consent of lessor Cruz is the assignment or

transfer by BPI-FSB as lessee of its right or interest under the lease agreement.

 To our mind, the CA was correct in affirming the trial court's distinguishing between a sublease and an

assignment of rights. In a sublease situation, the lessee (BPI-FSB, in this case) continues to be liable to the lessor (Cruz) for the payment of rent. The sublessee (the Domingos in this case) pays rent not to the lessor (Cruz) but to the lessee/sub-lessor (BPI-FSB). On the other hand, in an assignment of rights, the assignee steps into the shoes of the lessee who is thereupon freed from his obligations under the lease because from then on it is the assignee who is liable to the lessor for rental payment. In other words, in an assignment of rights, there is a change of lessor, which is not so in a sublease situation. It is thus understandable why it is not necessary for the lessor to give his consent to a sublease, while in an assignment of rights, it is a necessity for the lessor to require his prior consent. This is for the lessor's own protection. 

For sure, in the very memorandumdv[13] he filed with the Court, Cruz in fact admits that the trial court was correct in making a distinction between a sublease and an assignment of rights. In Cruz’s own words:

The Honorable Trial Court correctly ruled on page 25 of its assailed decision that, “It is clear that the parties made a distinction between “sublease” and an “assignment of rights.” Is there a difference between the two? BPI-FSB believes so and this Court (i.e., trial court) agrees.”dvi[14]

 It is Cruz’s contention, however, that the sublease agreement between BPI-FSB and the Domingos was in fact an

assignment of rights, and not a sublease, as held by the two (2) courts below. In support thereof, Cruz utilizes the following distinctions between a sublease and an assignment of rights: SUBLEASE ASSIGNMENT

(a) the lessee retains an interest in the lease; he remains a party to the contract;

(a) the lessee makes an absolute transfer of his interest as lessee; thus, he disassociates himself from the original contract of lease;

(b) the sublessee does not have any direct action against the lessor;

(b) the assignee has a direct action against the lessor;

(c) can be done without the permission of the lessor (unless there be an express prohibition).

(c) cannot be done unless the lessor consents.dvii[15]

To respondent Cruz, all the foregoing three elements of an assignment of rights are present in this case. Anent the first element, Cruz points to BPI-FSB allegedly having no “knowledge, consent or participation” dviii[16] in the contract between Villa and the spouses Domingo. Hence, BPI-FSB must have made an absolute transfer of its interest,

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disassociating itself from the original contract of lease. Said denial of knowledge or participation by BPI-FSB upon which Cruz relies cannot, however, be given credence and has, in fact, already been struck down in the instant decision. Besides, as already pointed out, more than one contract is involved herein. Evidently, the contract alluded to by Cruz is the assignment of goodwill of Villa's restaurant business executed between Villa and the Domingos. Separate therefrom is the contract of sublease between the Domingos and BPI-FSB for which the rescission of the first sublease contract between BPI-FSB and Villa was necessary. Clearly, BPI-FSB made no absolute transfer of interest as the lessee of Cruz. 

Cruz goes on to argue that the case filed by the Domingos only proves that the latter have direct action against him, thereby a showing that the sublease agreement between BPI-FSB and the Domingos was one of assignment of rights. Again, this argument is faulty. The Domingos had no direct cause of action against Cruz. That is precisely why they filed their action against Villa and BPI-FSB, having privity of contract only with the latter two. It was BPI-FSB that filed a third-party complaint against Cruz, which is only proper, because BPI-FSB is a party to the lease contract with Cruz. Indeed, if the Domingos had a direct action against Cruz, the two courts below would have simply ordered Cruz to pay the Domingos directly instead of choosing the more circuitous route of ordering BPI-FSB and Villa to pay the Domingos and for Cruz to reimburse them for the amount they were adjudged to pay. 

Cruz ends his line of reasoning by saying that the final element is present: that such assignment could not be done without his written consent. Clearly, this final stab at the dark is a round-about argument unworthy of appreciation. It has already been shown that the subject agreement was not an assignment. Had it been one, then a written consent of Cruz would have been required; but it was a mere sublease, as correctly ruled by the two (2) courts below. 

To us, however, the imposition by the trial court, as affirmed by the CA, of moral and exemplary damages against petitioner BPI-FSB is rather harsh. As borne by the facts on record, the failure of BPI-FSB and Villa to comply with their obligations under their respective contracts with the Domingos was not due to any fault of their own, but to the acts of Cruz in refusing to allow the Domingos access to the premises. For his part, it is entirely possible that Cruz's actions stemmed from his misinterpretation of his lease agreement with BPI-FSB. 

Article 201 of the Civil Code provides: 

Art. 201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. 

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

 For evident absence of bad faith on the part of BPI-FSB, Villa and Cruz, the award of moral and exemplary

damages in favor of the Domingos must be, as it is hereby, deleted.  

WHEREFORE, minus the award of moral and exemplary damages in favor of the Domingos, the assailed decision of the CA is AFFIRMED in all aspects.

No pronouncement as to costs. 

SO ORDERED.    22. FIRST DIVISION  BONIFACIO NAKPIL, G.R. No. 160867

Petitioner,

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Present: 

- versus - PANGANIBAN, C.J., Chairperson, YNARES-SANTIAGO,

AUSTRIA-MARTINEZ,MANILA TOWERS CALLEJO, SR., andDEVELOPMENT CHICO-NAZARIO, JJ.CORPORATION,

Respondent.

x ------------------------------x MANILA TOWERS G.R. No. 160886DEVELOPMENT CORPORATION,

Petitioner,  

- versus - 

Promulgated:BONIFACIO NAKPIL,

Respondent. September 20, 2006x-----------------------------------------------------------------------------------------x D E C I S I O NCALLEJO, SR., J.: 

This is a consolidation of two Petitions for Review, assailing the Decisiondix[1] of the Court of Appeals (CA) in CA-G.R. CV No. 72289 dated August 25, 2003 and the Resolution dated November 19, 2003 denying the motion for reconsideration thereof.The Antecedents 

A 14-storey high rise building was constructed at 777 Ongpin St., Sta. Cruz, Manila. Sometime in 1964, its owner, Cheong Kiao Ang, leased the building to about 200 Filipino Chinese tenants who used the same for either residential or commercial purposes. One of these tenants was Atty. Bonifacio Nakpil who leased Room 204 in the mezzanine floor. He used the unit as his law office.dx[2] The tenants of the building later formed the House International Building Tenants Association, Inc. (HIBTAI). 

The property was mortgaged with the Government Service Insurance System (GSIS) as security for a loan Ang had earlier obtained. Upon failure to pay the loan, the GSIS had the real estate mortgage foreclosed and the property sold at public auction, with GSIS as the winning bidder. The latter, in turn, sold the property to the Centertown Marketing Corporation (CMC) which assigned all its rights to its sister-corporation, the Manila Tower Development Corporation (MTDC) for P21,000,000.00. The HIBTAI protested, claiming that its members had the priority to buy the property. dxi[3]

The tenants refused to pay their rentals and instead remitted them to HIBTAI. 

On June 29, 1981, the City Engineer wrote the MTDC, through Luis Javellana, requesting that the defects of the building be corrected. The City Engineer warned the MTDC that the defects were serious and would endanger the lives of the tenants if not immediately corrected. The City Engineer reiterated his request in a letter dated July 10, 1981 to MTDC urging that the building be immediately repaired. However, before the MTDC could make the necessary repairs, the HIBTAI, on October 2, 1982, filed a complaint against the GSIS for injunction and damages in the Court of First Instance (CFI) of Manila.

On January 31, 1983, the court rendered judgment dismissing the complaint. However, on February 23, 1983, HIBTAI filed another complaint for annulment of contract and damages in the CFI of Manila, docketed as Civil Case No. 83-15875, against the CMC, MTDC and GSIS. It averred that under Presidential Decree (P.D.) No. 1517, the tenants had

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the priority right to purchase the property. The court rendered judgment dismissing the complaint, prompting HIBTAI to appeal the decision to the appellate court. The ruling of the trial court was later affirmed on February 4, 1986. HIBTAI assailed the ruling in this Court via petition for review. On June 30, 1987, this Court rendered judgment affirming the decision of the CA.dxii[4] According to the Court, the tenants of the building, not the HIBTAI, were the real parties-in-interest as parties-plaintiffs. 

About eight (8) years later, on October 12, 1995, Atty. Samuel S. Samuela, the building administrator, wrote Architect Juan A. Maravillas, Jr., then Officer-in-Charge (OIC), Office of the Building Official, City of Manila, requesting for an immediate ocular inspection of the building to determine its safety. The letter mentioned that, as far back as 1981, the City Engineer and Building Official had ordered the building condemned after inspection. Atty. Samuela stated that when the MTDC was about to initiate the repairs on the building, the tenants filed several suits against it; this prevented MTDC from complying with the said order. During the pendency of these cases, the tenants likewise took control of the building and even illegally put up structures in the building without MTDC’s consent. He pleaded to the Building Official to give priority to his request to prevent undue injuries and protect the lives of the tenants.dxiii[5]

 The City Building Official granted the request and scheduled an ocular inspection of the building at 2:00 p.m. on

October 24, 1995.dxiv[6]

With prior notices to the tenants and in the presence of a representative of HIBTAI, Amado Ramoneda, the representatives of the Office of the Building Official conducted an ocular inspection of the building. dxv[7] On November 3, 1995, they submitted a Building Inspection Report with the following findings: 

I. STRUCTURAL ASPECT (Sec. 3.1 Rule VII-IRR) 

1. Cracks on the exterior interior walls are prominent which manifest earthquake movement and decrease in seismic resistance. Damages to beams and columns are feasible.

 II. ELECTRICAL ASPECT (Sec. 3.3 Rule VII-IRR) 

2. Wiring system are already old, obsolete and not properly maintained; 3. Some junction boxes are not properly covered thus exposing the wiring connections;4. Usage of dangling extension cords and octopus wiring connections were likewise

observed. III. SANITARY/PLUMBING ASPECT (Sec. 3.5 Rule VII-IRR) 

5. Defective sanitary/plumbing installations;6. Poor drainage system that caused the stagnation of waste water within the back part

(Ground Floor) of the building;7. All sanitary/plumbing fixtures on vacated 9th, 10th & 11th floors, due to lack of proper

maintenance has los[t] their trap seals, this allowed the escape of toxicating sewer gas from the system.

 IV. ARCHITECTURAL ASPECT (Sec. 3.6 Rule VII-IRR). 

8. Steel frames and roofings at deck are rusted/corroded and inadequately maintained;9. Broken window glass panes and rusted steel casement; 10. Inadequate light and ventilation resulting from illegal constructions at the required open

space areas;11. Illegal use of 14th floor as sauna bath parlor which is non-conforming to City Ordinance.

 OTHERS 

12. Non-compliance with the provisions of BP 344, the Law to Enhance Mobility of Disabled Persons;

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13. Illegal construction at the estero easement area and at the required open spaces in violations of Section 3.8 Rule VII-IRR.dxvi[8] (Underscoring supplied)

The City Building Official recommended that the windows glass/frames be repaired and the illegally appended structures removed. It was also recommended that the use of the sauna bath be discontinued and the old electrical wiring system and fixtures be replaced. He also stated that the structural integrity of the building was questionable, and that structural testing was needed.dxvii[9]

 Consequently, on November 10, 1995, the City Building Official wrote a letter to the building administrator,

ordering him to cause the tenants to vacate the building and undertake the necessary repairs and rehabilitation of the building. The following warning was also issued: 

Failure to comply herewith shall constrain this Office to impose further administrative sanctions in accordance with the provisions of the National Building Code PD. 1096, as well as the other existing laws and ordinances. This is without prejudice to further legal action that may be taken under the provisions of Articles 482 and 694 to 707 of the Civil Code of the Philippines.dxviii[10]

 However, the MTDC did not respond to the letter. On January 24, 1996, the City Building Official issued a

Closure Order to the MTDC and ordered the building administrator to cause the tenants to vacate the building within fifteen (15) days from notice and to commence its repair. He also directed MTDC to file an application for the necessary permits before the start of the actual repairs, together with a certification on structural stability from the building’s structural designer and to attach thereto the results of the structural testing as well as the recommendation/evaluation reports, scope of project activities, repair/renovation plans and retrofitting plans. The order would only be lifted after the defects or deficiencies of the subject building or structure shall have been corrected or substantially complied with in accordance with Section 21, Rule VIII-IRR, P.D. No. 1096, without prejudice to further action that may be taken under the provisions of Articles 482, and 694 to 707 of the Civil Code, as well as other existing laws and ordinances.dxix[11]

 The City Building Official conducted a reinspection of the building and, on March 26, 1996, made the following

recommendation: 

It is recommended that because of: 1) the adamant refusal of the owners of the building to correct the serious defects noted by this Office as early as 1981 up to the present, notwithstanding notices to this effect; 2) the directive of national as well as local leaders to intensify the campaign against buildings which are dangerous to life and limb as exemplified in the tragic Ozone case in Quezon City; and 3) the possibility of City officials incurring criminal as well as administrative liabilities for failure to take positive steps to protect the lives of the people against ruinous or dangerous buildings. The persistence of the owners of the building in not undertaking the required urgent repairs

allegedly because of suits filed against them, gives this Office no better alternative but to recommend that the City Engineer be authorized and directed to make the necessary repairs and all expenses thereto be shouldered by the owners of the building and also to order the occupants of the building to immediately vacate the premises to give way to the repair and to ensure the protection of their lives and property.

 Approval of this request is urgently needed.dxx[12]

 The City Mayor approved the recommendation and directed the repairs of the building by the City Building

Official with the expenses therefor to be charged against the account of MTDC.dxxi[13]

 

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On June 28, 1996, notices were sent to the tenants, giving them fifteen (15) days within which to vacate the building to give way to its general repair.dxxii[14] However, at the time, Atty. Nakpil was in the United States for medical treatment, and his secretary was left behind to take care of the law office. 

Felix Ong, one of the tenants in the building and the President of the HIBTAI, filed a petition for prohibition with a plea for a writ of preliminary injunction and/or a temporary restraining order (TRO) with damages against the MTDC, City Engineer and Police Major Franklin Gacutan, docketed as Civil Case No. 96-79267. Ong prayed that a TRO be issued to enjoin respondents from conducting repair and rehabilitation work within the building, which the court granted. 

Clemente Sy, who claimed to be the Barangay Captain of Barangay No. 297, Zone 29 where the building was located and the incumbent President of the House International Building Tenants Association, filed a similar petition against the same respondents, including MTDC.dxxiii[15]

 At about 4:00 p.m. on July 19, 1996, a group of men led by Engr. Melvin Balagot, the Chief Slum Clearance

and Demolition Services of the Office of the City Building Official, entered the building and, in compliance with the order of the City Mayor as recommended by the City Building Official, commenced the repairs and tore down some of the structures. However, the repair works were temporarily suspended on July 22, 1996 as a result of the TRO issued by the court in favor of Ong in Civil Case No. 96-79267. 

On July 23, 1996, Engr. Balagot submitted the following Report: 

1. That all the occupants thereat already vacated the premises to give way for the repair work of the subject structure except for the unit occupied by the security guards at the ground floor;

 2. That most of the interior walls were already dismantled by this Office to give way

for immediate replacement.  3. It is likewise reported that the said building is not safe for occupancy for the

meantime. For your information and further instruction. 

(SGD)MELVIN Q. BALAGOTEngineer VChief, Slum Clearance and

Demolition Services.dxxiv[16]

 Upon his arrival in the Philippines, Atty. Nakpil filed, on November 5, 1996, a complaint in the Regional Trial

Court (RTC) of Manila against the MTDC, seeking for actual, moral, and exemplary damages, attorney’s fees, litigation expenses, costs of suit and other reliefs. The case was docketed as Civil Case No. 65980. He alleged that the MTDC, through its agents and representatives and the policemen who accompanied the demolition team, forced the guard to open the gate to the building, and, thereafter, 200 people armed with hammer and crowbars started destroying the mezzanine floor of the building on July 19, 1996. His room was destroyed, the walls and partitions were completely hammered down, and the electricity was cut off. His personal belongings were either scattered, thrown away, or stolen. He pointed out that he had been renting the premises and complying with the conditions of the lease since 1965. The MTDC violated his right as lessee to the possession of the premises, unlawfully depriving him of said possession without any lawful authority or court order.dxxv[17]

 Atty. Nakpil prayed that MTDC be ordered to pay the following:

 

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a)      P100,000 for actual damages, representing the value of the personal belongings and important papers which were lost and/or stolen by the representatives of the defendant during the actual demo[li]tion and tearing or hammering down of the walls and partitions of the room of the plaintiff;

b)      The sum of P500,000.00 as moral damages;c)      The sum of P100,000.00 as exemplary damages;d)      The sum equivalent to 20% of the amount due to the plaintiff as attorney’s fees; ande)      The sum of P50,000 as litigation expenses, plus costs of suit. 

Plaintiff prays for such other relief and remedies he is entitled to in the premises.dxxvi[18]

 Meantime, the trial court dismissed the complaint of Ong in Civil Case No. 96-79267. In view of this

development, the Office of the Mayor sent a letter dated March 6, 1998 to the President and officers of the MTDC, and the owners of the building, directing them to undertake immediate repairs within three (3) days from receipt thereof, otherwise, it will undertake the repair and all expenses shall be charged against them.dxxvii[19] The Office of the Mayor made it clear that the order became necessary to protect the people from any injury as a consequence of the dilapidated and serious deterioration of the building. The MTDC forthwith applied for a demolition permit with the Office of the Building Official which was granted on March 30, 1998.dxxviii[20] The MTDC later had the building demolished. 

In due course, the complaint and summons were served on MTDC on April 14, 1998 in Civil Case No. 65980.dxxix[21] In its answer to the complaint, MTDC alleged that it was the City of Manila which caused the repair of the building, following the tragic Ozone fire incident in Quezon City. Consequently, it was not liable for Atty. Nakpil’s claims. 

Atty. Nakpil testified that he had been a lessee of Room 204 and used the room as a law office; on July 19, 1996, he was in the United States for treatment when his daughter informed him, through phone, that his place was being demolished. He rushed back home and arrived in Manila on July 30, 1996, and discovered that he had no more office to speak of. The demolition team (the sheriff, policemen and laborers), armed with crowbars, looted the room and destroyed the pipes and cabinets and scattered his things.dxxx[22] He lost some of his books, a tanguile table, three paintings, two manual typewriters, all valued at P100,000.00. He averred that he had been in the law practice for 30 years, all spent in Room 204; because of the demolition of his office, he could not resume his law practice. 

For his part, Joseph Villanueva declared that, since 1973, he had leased a portion of the mezzanine floor, Room 200, which he used as his clinic. At around 3:00 p.m. on July 19, 1996, a group of employees of the City Engineer’s Office, accompanied by policemen and sheriffs, gained entry into the building, cut the electric current, and destroyed the pipes with the use of heavy equipments and crowbars. They demolished the mezzanine and upper floors and other parts of the building. Around 20 members of the demolition crew entered the office of Atty. Nakpil. Some members of the demolition crew looted the room and took everything they could carry. He stated that what he and the tenants received were notices to repair and not notice of demolition. 

Atty. Nakpil presented Engr. Guillermo de Leon who testified that he was requested to conduct an ocular inspection of the building. As per his report dated August 9, 1990, he assessed the building to be safe, sound and stable. The building was not destroyed by the earthquake on July 6, 1990. He found hairline cracks, caused probably by temperature. He never used any instrument to determine the structural stability because there was no danger. He stated that upon inspection, he found no hairline cracks and that the building could be saved by plastering; in fact, it could withstand any earthquake. 

Carmelita Tan, a member of the HIBTAI, testified that she owned a grocery store in the ground floor and in the mezzanine. At about 4:00 p.m. on July 19, 1996, 100 persons, carrying hammers and crowbars and long irons, gained entry into the building. She rushed to the mezzanine and saw that ten of them were in the law office of Atty. Nakpil and that the door and partitions were damaged. The lights were off at the time. 

MTDC adduced testimonial and documentary evidence that the Office of the City Engineer, through Engr. Melvin Balagot, Jr., commenced the repairs of the building on July 19, 1996, with the assistance of the employees of the City Engineer’s Office, laborers and policemen who were tasked to check the flow of traffic. They removed the cracked

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interior walls of the building with crowbars, hammers and other instruments, and some portions of the ceiling which needed to be replaced.dxxxi[23] However, they did not remove the walls and partitions in the mezzanine floor.dxxxii[24] They started the work on the 9th and 10th floors of the building,dxxxiii[25] but had to stop due to the temporary restraining order from the RTC of Manila on the complaint of Felix Ong. During the ocular inspection of the building on August 8, 1996 conducted by the Clerk of Court in connection with Civil Case No. 96-79267, the Office of Atty. Nakpil was unoccupied.dxxxiv[26]

 On May 20, 2001, the court rendered judgment in favor of MTDC and ordered the dismissal of the complaint.

The trial court declared that Atty. Nakpil failed to prove that the building was demolished on July 30, 1996 and failed to link MTDC to the incident on July 19, 1996 and the loss of the personal properties of Atty. Nakpil. As admitted by one of his witnesses (Villanueva), the employees of the City Engineer’s office were the ones who demolished the building, while Carmelita Tan declared that she did not know who those people were.dxxxv[27]

 Atty. Nakpil appealed to the CA. On August 25, 2003, the CA rendered judgment granting the appeal and

reversing the decision of the RTC. The fallo of the decision reads: 

WHEREFORE premises considered, the appealed decision of the Regional Trial Court, Branch 152 in Civil Case No. is hereby REVERSED and SET ASIDE. A new one is hereby rendered ordering defendant-appellee, Manila Towers to pay herein plaintiff-appellant Bonifacio Nakpil the amount of P50,000.00 as nominal damages.

 SO ORDERED.dxxxvi[28]

 The CA held that MTDC was remiss in its duty as lessor under Article 1654, that is, to make the necessary repairs

on the building. This led to the demolition of the leased premises, thereby disturbing the peaceful and adequate enjoyment of the lessee. Thus, the failure of MTDC to fulfill such obligation entitled Atty. Nakpil to damages. The appellate court cited Goldstein v. Roces.dxxxvii[29] However, the CA also ruled that no actual damages could be awarded to Atty. Nakpil since he failed to present competent evidence to prove the actual damages sustained. Neither can moral damages be awarded to him since he likewise failed to prove bad faith or any fraudulent act on the part of MTDC. Thus, no exemplary damages could likewise be awarded, and, consequently, he was not entitled to attorney’s fees. According to the CA, the most that could be adjudged in his favor was nominal damages for violation of his right.dxxxviii[30]

 The parties filed their respective motions for reconsideration of the decision, which the CA denied in its

Resolution dated November 19, 2003.dxxxix[31]

 The parties filed their respective petitions for review on certiorari in this Court, seeking to reverse the decision

and resolution of the appellate court. 

In G.R. No. 160867, Nakpil, petitioner therein, contends that, while actual damages must be proven as a general rule and the amount of damages must possess at least a degree of certainty, it is not necessary to prove exactly how much the loss was; it is enough that loss is proven. He insists that he has presented proof that he suffered losses when his office was demolished and the value he gave was a fair and reasonable assessment thereof. He maintains that as of June 1995, there were already 245 volumes of the Supreme Court Reports Annotated (SCRA). In 1998, the value of each volume of the SCRA was P520.00; hence, the value of 245 volumes would be P127,400.00, a matter which the court can take judicial notice of. Assuming that the evidence he presented is not sufficient to entitle him to an award of actual damages, the P50,000.00 nominal damages awarded to him is too minimal. He maintains that he is entitled to moral damages because the MTDC had the building demolished to have him evicted from his office; he suffered mental anguish and was embarrassed by his eviction; he had his law office for more than 30 years and considered it his second home. 

On the other hand, in G.R. No. 160886, MTDC, petitioner therein, avers that it cannot be made liable for actual, moral and exemplary damages because it had not been remiss in its duty to make the necessary repairs; it was prohibited from taking possession of the property by the tenants who had filed several suits against it.dxl[32] It alleged that it acquired the building from the GSIS in 1981, and it was the HIBTAI that had been managing the affairs of the said building and collected the rentals from the tenants. It pointed out that in CA-G.R. No. 04393, the CA ruled that the HIBTAI had no right to collect the rentals. Moreover, HIBTAI did not use the rentals to make the necessary repairs but used it instead to

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pay its accounts and obligations. By their own actions, the tenants of the subject building prevented MTDC from performing its duty to maintain them in their peaceful possession and enjoyment of the property. Moreover, Nakpil failed to prove that it had anything to do with the demolition/repairs and the loss of his personal property. 

Nakpil counters that while MTDC may have failed to make the necessary repairs because it was prevented by the tenants’ association from doing so, there is no showing that it failed to maintain him in the peaceful and adequate possession of the leased premises for the same reason. He contends that MTDC allowed the city to demolish the building even when the order was only for its repair. He posits that the MTDC is liable for damages because the MTDC, not a third person, deprived him of his possession of the leased premises.dxli[33]

 The threshold issues are: (1) whether or not the MTDC is liable for actual, moral and exemplary damages to

Nakpil; and (2) whether the award of P50,000.00 for nominal damages has factual and legal basis. The Ruling of the Court 

The petition of the MTDC in G.R. No. 160886 is meritorious. The petition of Nakpil in G.R. No. 160867 is denied for lack of merit. 

Article 1654 of the Civil Code enumerates the obligations of the lessor: (1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the

use intended;(2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use

for which it has been devoted, unless there is a stipulation to the contrary;(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of

the contract.  

Failure of the lessor to fulfill any of these obligations will render the lessor liable for damages. dxlii[34] In contracts, the obligor (lessor) who acted in good faith is liable for damages that are the material and probable consequence of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was contracted. In case of fraud, bad faith, malice or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.dxliii[35]

 We do not agree with the ruling of the CA that the MTDC committed a breach of its lease contract with Nakpil

when it failed to comply with its obligation as lessor, and that the MTDC is liable for nominal damages. Breach of contract is the failure without legal reason to comply with the terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise which forms the whole or part of the contract.dxliv[36] There is no factual and legal basis for any award for damages to respondent. 

The duty to maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the contract is merely a warranty that the lessee shall not be disturbed in his legal, and not physical, possession. dxlv[37] In the early case of Goldstein v. Roces,dxlvi[38] the Court, citing the commentaries of Manresa, pointed out that the obligation to maintain the lessee in the peaceful and adequate enjoyment of the leased property seeks to protect the lessee not only from acts of third persons but also from the acts of the lessor, thus:  

The lessor must see that the enjoyment is not interrupted or disturbed, either by others’ acts [save in the case provided for in the article 1560 (now Article 1664)], or by his own. By his own acts, because, being the person principally obligated by the contract, he would openly violate it if, in going back on his agreement, he should attempt to render ineffective in practice the right in the thing he had granted to the lessee; and by others’ acts, because he must guarantee the right he created, for he is obliged to give warranty in the manner we have set forth in our commentary on article 1553, and, in this sense, it is incumbent upon him to protect the lessee in the latter’s peaceful enjoyment.dxlvii[39]

 When the act of trespass is done by third persons, it must be distinguished whether it is trespass in fact or in law

because the lessor is not liable for a trespass in fact or a mere act of trespass by a third person. dxlviii[40] In the Goldstein

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case, trespass in fact was distinguished from legal trespass, thus: “if the act of trespass is not accompanied or preceded by anything which reveals a juridic intention on the part of the trespasser, in such wise that the lessee can only distinguish the material fact, stripped of all legal form or reasons, we understand it to be trespass in fact only ( de mero hecho).”dxlix[41]

Further, the obligation under Article 1654(3) arises only when acts, termed as legal trespass (perturbacion de derecho), disturb, dispute, object to, or place difficulties in the way of the lessee’s peaceful enjoyment of the premises that in some manner cast doubt upon the right of the lessor by virtue of which the lessor himself executed the lease.dl[42]

 What is evident in the present case is that the disturbance on the leased premises on July 19, 1996 was actually

done by the employees under the City Engineer of Manila and the City Building Official on orders of the City Mayor without the participation of the MTDC. It bears stressing that the City Building Official is authorized and mandated under Section 214 of the National Building Code to order the repair, maintenance or demolition of the building found or declared to be dangerous or ruinous, depending upon the degree of danger to life, health, safety and/or well-being of the general public and its occupants as provided in Section 215 thereof. This is without prejudice to the provisions of Articles 482, 694 and 707 of the New Civil Code. Sections 214 and 215 of the National Building Code read: 

SECTION 214. Dangerous and Ruinous Buildings or Structures Dangerous buildings are those which are herein declared as such or are structurally unsafe or not

provided with safe egress, or which constitute a fire hazard, or are otherwise dangerous to human life, or which in relation to existing use, constitute a hazard to safety or health or public welfare because of inadequate maintenance, dilapidation, obsolescence, or abandonment; or which otherwise contribute to the pollution of the site or the community to an intolerable degree.

SECTION 215. Abatement of Dangerous Buildings When any building or structure is found or declared to be dangerous or ruinous, the Building

Official shall order its repair, vacation or demolition depending upon the degree of danger to life, health, or safety. This is without prejudice to further action that may be taken under the provisions of Articles 482 and 694 to 707 of the Civil Code of the Philippines.

 When the personnel of the City Building Official/City Engineer in coordination with the Philippine National

Police undertook the repair/rehabilitation of the building, they did so in the lawful performance of their duties, independently of and separate from the obligation of the MTDC to effect the required immediate repair/rehabilitation of the building. 

Admittedly, the MTDC requested the City Building Official for the inspection of the building to determine its safety, conformably with its obligation under Article 1654 of the New Civil Code to maintain peaceful and adequate enjoyment of the tenants of the leased premises, and to insure the personal safety of the tenants and their properties. At the time, the Ozone Bar and Grill in Quezon City had just been burned down, and many lives were lost. 

There is no question that the possession by respondent of the leased premises had been disturbed by the attempt of the personnel of the City Building Official to repair and rehabilitate the building due to MTDC’s failure to undertake the same. Any act or omission by the lessor which causes a substantial interference with the actual possession of the lessee will constitute a breach of the obligation of quiet enjoyment. In some jurisdictions, the lessor’s failure to make repairs or alterations to the leased premises as required by public authorities, particularly those that are substantial and structural in nature, constitutes constructive eviction, which makes the lessor liable for damages.dli[43] Such conclusion is grounded on the fact that the lessors, in those cases, were obliged to make structural and substantial repairs on the leased property. The same doctrine could very well be applied in our jurisdiction considering that, under our laws, the lessor is likewise obliged to make the necessary repairs on the leased premises which would undoubtedly include those that are structural and substantial in nature. In fact, there may be a constructive eviction if the landlord does a wrongful act or is guilty of any default or neglect whereby the leased premises are rendered unsafe, unfit, or unsuitable for occupancy, in whole, or in substantial part, for the purposes for which they were leased.dlii[44]

 It bears stressing, however, that two factors must exist before there can be a constructive eviction: (1) an act or

omission by the landlord, or someone acting under his authority, which permanently interferes with the tenant’s beneficial

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enjoyment or use of the leased premises; and (2) an abandonment of possession by the lessee within a reasonable time. dliii

[45]

 Nakpil failed to establish any of the foregoing factors. The City Building Official was tasked merely to

repair/rehabilitate the building and not to demolish the same and cause the placement eviction of the tenants. Neither did respondent abandon the leased premises. Admittedly, the MTDC failed to make the necessary repairs in the building despite requests of the City Building Official as early as June 29, 1981 and July 10, 1981. However, the MTDC cannot be faulted for such failure. No less than the HIBTAI or its members prevented MTDC from instituting the necessary repairs. Even Villanueva, Nakpil’s witness, admitted that HIBTAI objected to the orders of the City Building Official for the repair of the building.dliv[46]

 Moreover, a complaint for injunction and damages was filed by the HIBTAI on October 2, 1982 against the

MTDC. Even after the dismissal of the complaint, on January 31, 1983, the HIBTAI filed a complaint against the GSIS, CMC and MTDC with the RTC of Manila for the nullification of the deed of conditional sale between the GSIS and the CMC and the deed of assignment executed by the defendant CMC and the MTDC over the property. Plaintiff alleged therein that its members, presumably including Nakpil, the tenants in the building had the priority right under P.D. No. 1517 to purchase the property; that the CMC was not qualified to purchase the property from the GSIS under its Articles of Information and, hence, the deed of conditional sale was ultra vires; consequently, the deed of assignment executed by the CMC and its sister corporation was null and void. The tenants in the building, including Nakpil, refused to pay rentals and remitted the same to the HIBTAI which used the money partly to finance its suits against the MTDC, thus depriving the latter from generating funds for the repair of the building. In fine, the tenants, through the HIBTAI, already controlled the premises. The RTC dismissed the complaint of HIBTAI. The Intermediate Appellate Court affirmed the dismissal on February 4, 1986. The HIBTAI filed a petition for review in this Court and, on June 30, 1987, the petition was denied for lack of merit.dlv[47] The Court ruled that the HIBTAI had no personality to assail the contracts and to invoke P.D. No. 1517 for its members, including Nakpil. Shortly, thereafter, in 1988, a complaint was filed against the GSIS by one of the tenants entitled Dy v. Government Service Insurance System.dlvi[48] In 1994, a similar complaint was filed against the GSIS by another tenant entitled Cruz v. GSIS.dlvii[49]

 Even Nakpil admitted that the MTDC was prevented by the HIBTAI and its members from undertaking any

repairs in the building. The only recourse of the MTDC was for the repair/rehabilitation of the building through the Office of the City Engineer/City Building Official. Thus, in 1995, it requested for an immediate ocular inspection of the building to determine the condition and safety of the building under Sections 214 and 215 of the National Building Code. The MTDC had no involvement in the actual repairs/rehabilitation of the building, nor in the selection, supervision and control of the laborers to initially repair/rehabilitate the building. 

Moreover, Atty. Nakpil failed to present preponderance of evidence to prove that any of the laborers under the Office of the City Building Official/City Engineer carried away his books, table, painting, and typewriter. Villanueva merely testified that the laborers carried away “things they could carry.” The evidence of Nakpil shows that the mezzanine floor was dark, as the lights had been turned off to prevent a conflagration. If at all the laborers had taken any of the materials from any of the rooms in the building, these were building materials which they were authorized to carry away under Section 10, Rule II of the Implementing Rules of the National Building Code which reads: 

10. The building/structure as repaired or in case of demolition, the building materials gathered after the demolition thereof shall be held by the OBO until full reimbursement of the cost of repair, renovation, demolition and removal is made by the owner which, in no case, shall extend beyond thirty (30) days from the date of completion of the repair, renovation, demolition and removal. After such period, said building materials of the building thus repaired, renovated or removed shall be sold at public auction to satisfy the claim of the OBO. Any amount in excess of the claim of the government realized from the sale of the building and/or building materials shall be delivered to the owner.

 Assuming that Atty. Nakpil lost any of his personal properties, at the very least, he should have inquired from the

office of the City Engineer/City Building Official and requested that they be returned to him. 

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WHEREFORE, premises considered, the petition in G.R. No 160867 is DENIED. The petition in G.R. No. 160886 is GRANTED. The Decision of the Court of Appeals is REVERSED AND SET ASIDE. The decision of the Regional Trial Court is AFFIRMED. No costs. 

 SO ORDERED.

  

23.

SECOND DIVISION  JL INVESTMENT AND G.R. No. 148596 DEVELOPMENT, INC.,

Petitioner,Present:

 QUISUMBING, J.,

Chairperson, - versus - CARPIO,

CARPIO MORALES, TINGA, and

VELASCO, JR., JJ.   TENDON PHILIPPINES, INC.,J. STA. MARIA CONSTRUCTIONCORPORATION, and JAIME T. Promulgated:STA. MARIA, JR.,

Respondents. January 22, 2007

x --------------------------------------------------------------------------------------- x   D E C I S I O N CARPIO, J.:  The Case 

This is a petition for reviewdlviii[1] of the Decisiondlix[2] dated 3 May 2001 and the Resolution dated 19 June 2001 of the Court of Appeals holding petitioner JL Investment and Development, Inc. (petitioner) jointly and severally liable with respondents J. Sta. Maria Construction Corporation (SMCC) and Jaime T. Sta. Maria, Jr. (Sta. Maria) in a collection suit filed by respondent Tendon Philippines, Inc. (TPI). The Facts  

Petitioner hired respondent SMCC to undertake the structural and architectural work for the first 12 floors of a 16-floor building (JLID Building) in Kalaw corner Cortada Streets, Ermita, Manila. Under the Construction Agreement

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(Agreement) between petitioner and SMCC, petitioner agreed to pay SMCC P63,333,085.84 for the project. The Agreement also required SMCC to submit monthly progress billings to petitioner.dlx[3]

 To supply the concrete piles needed for the structural work, SMCC subcontracted respondent TPI, a local

manufacturer of pre-cast concrete products. Accordingly, TPI delivered 142 pieces of concrete piles to SMCC worth P4,118,000 payable on installment basis.

 By early August 1996, SMCC, using the concrete piles that TPI supplied, finished the pile driving work for the

first 12 floors of the JLID Building.  

On 13 September 1996, petitioner paid SMCC for the pile driving work as indicated in SMCC’s seventh progress billing dated 30 August 1996.  

Claiming that SMCC did not fully pay for the concrete piles, TPI sought payment of the balance from petitioner. Petitioner ignored TPI’s demand. Thus, TPI sued SMCC, SMCC’s President, respondent Sta. Maria, and petitioner (respondents) in the Regional Trial Court of Pasig City, Branch 167 (trial court), to collect the unpaid balance of P1,389,330. TPI prayed that the trial court hold respondents solidarily liable for the balance with interest, attorney’s fees, and the costs of suit.  

In its Answer, petitioner denied any liability, alleging that under the Agreement, SMCC is solely liable for any obligation due to its suppliers. Nevertheless, petitioner filed a cross-claim against SMCC, praying reimbursement for any amount it may be held liable to TPI. Petitioner also prayed for the payment of attorney’s fees and litigation expenses. 

In their Answer, SMCC and Sta. Maria also raised the defense of full payment. Alternatively, SMCC and Sta. Maria contended that the pile drives TPI delivered did not conform to the agreed specifications. SMCC and Sta. Maria counterclaimed for damages. 

Before trial commenced, TPI submitted interrogatories to petitioner. In its response, petitioner claimed, for the first time, that it had made advance payments to SMCC, resulting in an alleged overpayment. 

During the pre-trial, SMCC and Sta. Maria failed to appear, thus the trial court declared them in default.  The Ruling of the Trial Court  

In its Decision dated 17 May 1999, the trial court held SMCC and Sta. Maria solidarily liable to TPI for P1,389,330 with 12% interest per annum, computed from the filing of the complaint, and attorney’s fees equivalent to 10% of the principal obligation. dlxi[4] The trial court dismissed both TPI’s complaint against petitioner and petitioner’s cross-claim against SMCC for lack of basis.  

In absolving petitioner from any liability, the trial court held that TPI’s cause of action against petitioner under Article 1729 of the Civil Code applies only to the amount petitioner owed SMCC for the pile driving work. Since at the time TPI demanded payment from petitioner on 3 December 1996, petitioner had already fully paid SMCC for the pile driving work, the trial court concluded that TPI ceased to have any cause of action against petitioner. The trial court held: 

The liability of the defendant contractor J. Sta. Maria Construction, as well as Jaime T. Sta. Maria Jr., is settled. By preponderance of evidence, plaintiff demonstrates [sic] ineluctably that all the concrete piles ordered by the defendant J. Sta. Maria Construction were delivered and used in the building under construction. The defendant J. Sta. Maria benefited from the materials, as accordingly, it was paid by the defendant-owner of the building.  

The claim of plaintiff Tendon [Philippines, Inc.] against the defendant [JL] Investment is anchored on the provision of Art. 1729 of the Civil Code of the Philippines, which is quoted as follows:  

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Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees and furnishers of materials:

1. Payments made by the owner to the contractor before they are due;2. Renunciation by the contractor of any amount due from the owner.This article is subject to the provision[s] of special laws. x x x

 It is readily apparent from the provision invoked that the owner of the materials has a cause of

action against the owner of the building for materials furnished to the contractor only up to the amount owing from the owner to the contractor at the time the claim is made.

 Equating the provision of law to the evidence of the plaintiff, to prove the liability of the

defendant-owner of the building, it is undisputedly clear that at the time the claim or demand was presented by plaintiff to the defendant JL Investment in December 1996, all the materials supplied by it and used in the building by the defendant-contractor had all been paid by the owner of the building JL Investment to the contractor, J. Sta. Maria Construction. In fact, it does not appear that the owner of the building is indebted at all to the defendant-contractor. It is qui[te] unfair, if not altogether in[i]quitous, for the defendant-owner of the building to pay twice for the materials used in the building. In the absence of a clear showing that there is still an amount due from the owner, JL Investment, to the defendant-contractors representing the value of the materials used, the plaintiff, as owner of the materials[] used in the building has no cause of action against the owner of the building JL Investment. The logical recourse of the owner of the material x x x would be against the contractor, who in the first place ordered and purchase [sic] the materials. Put otherwise, the privity or tie is between the owner of the materials and the contractor. But, considering that plaintiff was compelled to litigate and incurred expenses to protect its interest, an entitlement to a reasonable attorney’s fees is warranted.dlxii[5]

(Emphasis in the original)  

TPI appealed to the Court of Appeals, contending that the trial court erred in not holding petitioner solidarily liable with SMCC and Sta. Maria.

SMCC and Sta. Maria also appealed. However, for SMCC and Sta. Maria’s failure to file their appellants’ brief, the Court of Appeals considered their appeal abandoned and dismissed it in the Resolution of 31 July 2000.   The Ruling of the Court of Appeals  

In its Decision of 3 May 2001, the Court of Appeals granted TPI’s appeal and modified the trial court’s ruling by holding petitioner solidarily liable with SMCC and Sta. Maria. The Court of Appeals ruled that (1) Article 1729 does not limit the supplier’s cause of action against the owner to the value of the materials the supplier furnished, and (2) petitioner failed to prove its claim that it had fully paid, if not overpaid, SMCC for the project. The Court of Appeals held:

 Art. 1729 of the Civil Code indeed does not make any distinction whether such amount owing

from the owner to the contractor pertains to a specific item of payment or account, particularly whether such amount owing to the contractor was intended for payment of the x x x materials supplied. The clear intendment of the law is to provide protection to the x x x furnisher of materials so that a restrictive interpretation of said provision as what the trial court had done, would undermine such legislative policy and objective.  

x x x x 

Of course, where the owner of the building has fully paid the contractor, the former’s liability ceases. In this regard, defendant-appellee’s [JL Investment] evidence showed that although the pile

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driving works was [sic] 100% accomplished or completed, the overall Project accomplishment is [sic] not yet fully executed as of August 30, 1996, indicating 29.5% accomplishment for the 7 th Progress Billing. Defendant-appellee JL Investment & Development Corporation also claims to have “overpaid” the contractor, defendant J. Sta. Maria Construction Corporation when it extended financial assistance to it on the supply of cement, deformed bars and formworks system and tower crane, “for the period of two (2) months – November to December 1996 – at the estimated total amount of P11,539,954.00” and by reason of which, completion date of the Project was extended to January 6, 1997 as evidenced by the “Addendum to Construction Agreement.” Such “financial assistance”, according to appellant [TPI], constitutes advance payment to the contractor which under Art. 1729 shall not prejudice the claim of furnisher of materials such as herein appellant [TPI]. Defendant-appellee JL Investment & Development Corporation, on the other hand, contends that in view of the “overpayment” to the defendant contractor, J. Sta. Maria Construction Corporation, there is no longer any such amount owing and due to said contractor, and hence, appellant no longer has any cause of action against the defendant-appellee [JL Investment], the owner of the building. And yet, no evidence was presented by defendant-appellee [JL Investment] showing that such advances or “financial assistance” in the amount stated in the “Addendum to Construction Agreement” was actually paid by it. Exhibits “5”, “5-A” and “5-B” reflected only the payment for the 7th Progress Billing on September 13, 1996 in which the cost of pile driving works was fully paid. No evidence of payment for the alleged “financial assistance” on which the claim of overpayment by defendant-appellee [JL Investment] rests, was submitted by the defendant-appellee [JL Investment]. Therefore, its defense that there is no longer any such amount owing to the defendant contractor at the time the claim is made upon it by plaintiff-appellant [TPI], must fail. The trial court thus erred in holding that only defendants-contractors [SMCC and Sta. Maria] may be held liable in this action by plaintiff-appellant [TPI], thereby absolving the owner of the building, defendant-appellee JL Investment & Development Corporation from any liability for the unpaid materials furnished by the plaintiff-appellant.dlxiii[6] Petitioner sought reconsideration but the Court of Appeals denied its motion in the Resolution of 19 June 2001.

  Hence, this petition.  

Petitioner insists that it had fully paid SMCC not only for the pile driving work but also for the entire project, which SMCC allegedly abandoned “in 1996 or 1997.” Petitioner adds that it had in fact overpaid SMCC because of advance payments SMCC received in “November and December 1996.” Petitioner also contests the Court of Appeals’ finding that it failed to prove its claim of full or over payment to SMCC. Alternatively, petitioner prays that the Court grant its cross-claim against SMCC so it can recover reimbursement for any amount it will pay TPI.  The Issues  

The petition raises the following issues: (1) Whether the Court of Appeals erred in holding petitioner solidarily liable with SMCC and Sta. Maria to TPI

for the unpaid balance under the contract between SMCC and TPI, and, if in the negative, (2) Whether SMCC is liable to reimburse petitioner under the latter’s cross-claim.

  The Ruling of the Court  

The petition is partly meritorious. Although petitioner is solidarily liable with SMCC and Sta. Maria to TPI for the balance under TPI’s contract with SMCC, petitioner has a right to reimbursement under its cross-claim against SMCC.

  On the Owner’s Liability to Suppliers under Article 1729   

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Article 1729 of the Civil Code provides: 

Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees and furnishers of materials:

1. Payments made by the owner to the contractor before they are due;2. Renunciation by the contractor of any amount due from the owner.This article is subject to the provisions of special laws. (Emphasis supplied)

 This provision imposes a direct liability on an owner of a piece of work in favor of suppliers of materials (and laborers) hired by the contractor “up to the amount owing from the [owner] to the contractor at the time the claim is made.”dlxiv[7]

Thus, to this extent, the owner’s liability is solidary with the contractor, if both are sued together. By creating a constructive vinculum between suppliers of materials (and laborers), on the one hand, and the owner of a piece of work, on the other hand, as an exception to the rule on privity of contracts, Article 1729 protects suppliers of materials (and laborers) from unscrupulous contractors and possible connivance between owners and contractors.dlxv[8] As the Court of Appeals correctly ruled, the supplier’s cause of action under this provision, reckoned from the time of judicial or extra-judicial demand, subsists so long as any amount remains owing from the owner to the contractor. Only full payment of the agreed contract price serves as a defense against the supplier’s claim.dlxvi[9]  

Here, petitioner resists TPI’s suit on the ground that it had fully paid, if not overpaid, SMCC at the time TPI demanded payment on 3 December 1996. However, as the Court of Appeals found, petitioner failed to substantiate its claim. What petitioner submits as proof of its alleged full or over payment, namely, its answer to TPI’s interrogatories and the testimony of one of its witnesses, are no more than mere uncorroborated allegations. The only proof of payment on record are the official receipt, voucher, and check for the seventh progress billing dated 30 August 1996, nearly four months before TPI sought payment from petitioner on 3 December 1996. Allegation of payments, advance or otherwise, is no substitute for proof of such fact. Thus, absent incontrovertible proof of payment such as receipts, checks, cash disbursement vouchers, and the like, petitioner’s claim of full or over payment remains only that. At any rate, Article 1729 clearly provides that “payments made by the owner to the contractor before they are due” do not prejudice suppliers of materials.  Petitioner is Entitled to Reimbursementfrom SMCC under its Cross-claim  

Petitioner’s solidary liability with SMCC and Sta. Maria to TPI does not preclude petitioner’s right to demand reimbursement for whatever amount it will pay TPI. This is only proper since SMCC contracted TPI to supply the concrete piles. To hold otherwise is to sanction unjust enrichment by the contractor at the expense of the owner. Although Article 1729 protects suppliers, it is no license to oppress owners. Thus, we grant petitioner’s prayer for reimbursement under its cross-claim against SMCC.dlxvii[10]

 On the 12% rate of interest the trial court applied on the principal obligation, this is proper only when the obligation consists of loans or forbearance of money, in the absence of stipulation to the contrary.dlxviii[11] If, as here, the obligation is otherwise, the applicable rate is 6% per annum computed from the time of extra-judicial or judicial demand. Upon the finality of this ruling, the entire amount due shall earn interest at 12% per annum until its satisfaction.dlxix[12] 

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision dated 3 May 2001 and the Resolution dated 19 June 2001 of the Court of Appeals with the following MODIFICATIONS:

(1) We ORDER petitioner JL Investment and Development, Inc. and respondents J. Sta. Maria Construction Corporation and Jaime T. Sta. Maria, Jr. to pay solidarily respondent Tendon Philippines, Inc. P1,389,330, with interest at 6% per annum computed from the time of the filing of respondent Tendon Philippines, Inc.’s complaint, and attorney’s fees equivalent to 10% of the principal obligation. Upon finality of this judgment, the entire obligation shall earn interest at 12% per annum until its satisfaction, and

 

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(2) We GRANT the cross-claim of petitioner JL Investment and Development, Inc. against respondent J. Sta. Maria Construction Corporation. We ORDER respondent J. Sta. Maria Construction Corporation to reimburse petitioner JL Investment and Development, Inc. any amount the latter will pay respondent Tendon Philippines, Inc. under this judgment. 

SO ORDERED.

 

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