Republic of the Philippines On April 15, 2004, the RTC rendered a Decision2 upholding the validity of the
SUPREME COURT deeds of sale in question and TCT No. 745, rejecting the allegations of forgery
Manila
THIRD DIVISION
G.R. No. 199852 November 12, 2014
SPS. FELIPE SOLITARIOS and JULIA TORDA, Petitioners,
vs.
SPS. GASTON JAQUE and LILIA JAQUE, Respondents.
DECISION
VELASCO, JR., J.:
Nature of the Case
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,
petitioners spouses Felipe Solitarios and Julia Torda (spouses Solitarios) seek
the reversal of the August 31, 2010 Decision and November 24, 2011 Resolution
of the Court of Appeals (CA) in CA-G.R. CEB-CV No. 00112, which in tum set
aside the Decision of the Regional Trial Court of Calbayog City, Branch 31
(RTC), in Civil Case No. 772.
The Facts
The property subject of this suit is a parcel of agricultural land designated as Lot
4089, consisting of 40,608 square meters (sq. m.), and located in Calbayog,
Samar. It was originally registered in the name of petitioner Felipe Solitarios
under Original Certificate of Title (OCT) No. 1249, and, thereafter, in the name of
the respondents, spouses Gaston and Lilia Jaque (the Jaques), under Transfer
Certificate of Title (TCT) No. 745.
In a Complaint for Ownership and Recovery of Possession with the RTC of
Calbayog City, the respondents spouses Jaque alleged that they purchased Lot
4089 from the petitioners, spouses Solitarios in stages. According to
respondents, they initially bought one-half of Lot No. 4089 for ₱7,000.00. This
sale is allegedly evidenced by a notarized Deed of Sale dated May 8, 1981. Two
months later, the spouses Solitarios supposedly mortgaged the remaining half of
Lot 4089 to the Jaques via a Real Estate Mortgage (REM) dated July 15, 1981,
to securea loan amounting to ₱3,000.00.
After almost two (2) years, the spouses Solitarios finally agreed to sell the
mortgaged half. However, instead of executing a separate deed of sale for the
second half, they executed a Deed of Sale dated April 26, 1983 for the whole lot
to save on taxes, by making it appear that the consideration for the sale of the
entire lot was only ₱12,000.00 when the Jaques actually paid ₱19,000.00 in cash
and condoned the spouses Solitarios’ ₱3,000.00 loan.
On the basis of this second notarized deed, the Jaques had OCT No. 1249
cancelled and registered Lot 4089 in their name under Transfer Certificate of
Title (TCT) No. 745.
In spite of the sale, the Jaques, supposedly out of pity for the spouses Solitarios,
allowed the latter to retain possession of Lot 4089, subject only to the condition
that the spouses Solitarioswill regularly deliver a portion of the property’s
produce. In an alleged breach of their agreement, however, the spouses
Solitarios stopped delivering any produce sometime in 2000. Worse, the spouses
Solitarios even claimed ownership over Lot 4089. Thus, the Jaques filed the
adverted complaint with the RTC.
For their part, the spouses Solitarios denied selling Lot 4089 and explained that
they merely mortgaged the same to the Jaques after the latter helped them
redeem the land from the Philippine National Bank (PNB).
The spouses Solitarios narrated that, way back in 1975, they obtained a loan
from PNB secured by a mortgage over Lot 4089. They were able to pay this loan
and redeem their property with their own funds. Shortly thereafter, in 1976, they
again mortgaged their property to PNB to secure a ₱5,000.00 loan. This time, the
Jaques volunteered to pay the mortgage indebtedness, including interests and
charges and so gave the spouses Solitarios ₱7,000.00 for this purpose.
However, this accommodation was made, so the spouses Solitarios add, with the
understanding that they would pay back the Jaques by delivering to them a
portion of the produce of Lot 4089, in particular, onehalf of the produce of the rice
land and one-fourth of the produce of the coconut land. The spouses Solitarios
contended that this agreement was observed by the parties until May 2000, when
Gaston Jaque informed them that he was taking possession of Lot 4089 as
owner. And to their surprise, Gaston Jaque showed them the Deeds of Sale
dated May 8, 1981 and April 26, 1983, the REM contract dated July 15, 1981,
and TCT No. 745 to prove his claim. The spouses Solitarios contended that
these deeds of sale were fictitious and their signatures therein forged. Further,
the spouses Solitarios challenge the validity of TCT No. 745, alleging thatthe
Jaques acquired it through fraud and machinations and by taking advantage of
their ignorance and educational deficiency. Thus, they prayed that the RTC: (1)
cancel TCT No. 745; (2) declare the adverted deeds of sales dated May 8, 1981
and April 26, 1983 as null and void; (3) declare them the true and lawful owners
of Lot 4089; and (4) award them moral and actual damages.
During the course of the trial, and in compliance with the February 7, 2001 Order
of the RTC, the spouses Solitarios deposited with the court a quothe Jaques’
purported share in the produce of Lot 4089 for the years 2001-2003, which
amounted to 16,635.60.1
and fraud. However, in the same breath, the RTC declared that what the parties
entered into was actually an equitable mortgage as defined under Article 1602 in
relation to Article 1604 of the New Civil Code, and not a sale. Consequently, the
RTC ordered, among others, the reformation of the Deeds ofSale dated May
9,1981 and April 26, 1983, and the cancellation of TCT No. 745 in the name of
the Jaques. The dispositive portion of the RTC Decision reads:
WHEREFORE, this Court dismisses the instant case and pronounces Judgment
against plaintiffs and hereby orders the following:
1. Reformation of the Deed of Sale dated May 9, 1981 (Exhibit "E") and the Deed
of Sale dated April 26, 1983 (Exhibit "G") into contracts of mortgage;
2. Cancellation of TCT No. 745 in the name of spouses Gaston Jaque and Lilia
Laure Jaque;
3. Considering the total mortgage debt of Php 12,000.00 as totally paid pursuant
to Article 1602 of the New Civil Code;
4. Release of the amounts deposited to the Court by defendants to them minus
lawful charges for their safekeeping, if any; and
5. Payment of costs of the proceedings by the plaintiffs.
SO ORDERED.3
The RTC anchored its holding on the nature of the pertinent contracts in question
on its findings that: (1) after the alleged sale, the spouses Solitarios remained in
possession ofthe land; (2) the Jaques did not physically occupy Lot 4089; (3) the
consideration for the sale of the whole land as stated in the Deed of Sale dated
April 26, 1983, was only ₱12,000.00, an amount grossly inadequate for a titled
coconut and rice lands consisting of 40,608 sq. m.; (3) the Jaques did not disturb
the possession of Lot 4089 by Leonora Solitarios, Felipe’s sister-in-law, who
resided therein; and (4) the Jaques never had a tenant in the subject property.
On appeal, the CA4 reversed and set aside the RTC Decision, rejecting the trial
court’s holding that the contract between the parties constituted an equitable
mortgage.
The CA noted that the allegation thatthe transaction is an equitable mortgage
and not one of sale was not presented before the trial court and was raised
belatedly on appeal. Even then, the CA held that the spouses Solitarios failed to
convincingly prove that the deeds of sale were sham, noting that their bare denial
as to their authenticity was insufficient to overcome the positive value of the
notarized deeds of sale. The CA further found that the spouses Solitarios’ claim
of inadequacy of the purchase price is unsupported by any evidence on record
and that the spouses Solitarios’ possession of Lot 4089 after the sale was not in
the concept of an owner. In addition, the appellate court gave weight to the fact
that the Jaques paid the taxes on Lot 4089 since 1984. The CA, thus, concluded
that based on the parties’ actuations before, during, and after the transactions, it
was unmistakable that they had no other intention but to enter into a contract of
sale of Lot 4089.
Their Motion for Reconsideration having thereafter been denied by the CA in its
Resolution dated November 24, 2011, the spouses Solitarios5 have filed the
instant petition.
Issue
From the foregoing narration of facts,it is abundantly clear that the only material
point of inquiry is whether the parties effectively entered into a contract of
absolute sale or anequitable mortgage of Lot 4089.
The Court's Ruling
The petition is impressed with merit.
At the outset, We note that, contrary to the finding of the CA, petitioner spouses
Solitarios actually presented before the RTC their position that the real
agreement between the parties was a mortgage, and not a sale. Being
unlettered, petitioners may have averred that the deeds of sale and TCT
presented by respondents were forgeries, obtained as they were through fraud
and machination. However, their saying that the sale instruments were "fictitious"
and their signatures thereon were "forged" amounts to alleging that they never
agreed to the sale of their lot, and they never intended to sign such conveyances.
This reality is supported by the testimony of petitioner Felipe Solitarios that was
offered to prove the true intention of the parties ―that Lot 4089 was only
mortgaged, not sold, to the Jaques. Before Felipe’s direct examination, his
counsel stated thus-
"ATTY. MARTIRES
With the permission of the Court.This witness is one of the defendants; he will
testify that the land was just mortgaged to the plaintiff contrary to the claim of the
plaintiff that the defendants sold the same to the plaintiffs; he will also testify that
the defendants never executed deed of sale in favor of the plaintiffs; he will also
testify that ½ of the produce of the cocoland subject of this case was delivered by
the defendants to the plaintiffs and with regards to the riceland, ¼ of the produce
was also delivered to the plaintiffs; and he will also testify other matters related to
this case."6
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The Court is, therefore, not precluded from looking into the real intentions of the
parties in order to resolve the present controversy. For that reason, the Court
takes guidance from Article 1370 of the Civil Code, which instructs that "if the
words [of a contract] appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former." Indeed, it is firmly settled that clarity of
contract terms and the name given to it does not bar courts from determining the
true intent of the parties. In Zamora vs. Court of Appeals,7 the Court elucidated
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 executing the agreement. As such therefore, documentary and
parol evidence may be submitted and admitted to prove such intention.8 Further,
in resolving this kind of controversy, the doctrinal teaching of Reyes vs. Court of
Appeals9 impels us to give utmost consideration to the intention of the parties in
light of the relative situation of each, and the circumstances surrounding the
execution of the contract, thus: In determining whether a deed absolute in form is
a mortgage, the court is not limited to the written memorials of the transaction.
The decisive factor in evaluating such agreement is the intention of the parties,
as shown not necessarily bythe terminology used in the contract but by all the
surrounding circumstances, such as the relative situation of the parties at that
time, the attitude, acts, conduct, declarations of the parties, the negotiations
between them leading to the deed, and generally, all pertinent facts having a
tendency to fix and determine the real nature of their design and understanding.
xxx
There is no single conclusive test to determine whether a deed of sale, absolute
on its face, is really a simple loan accommodation secured by a
mortgage.10 However, Article 1602 in relation to Article 1604 of the Civil Code
enumerates several instances whena contract, purporting to be, and in fact styled
as, an absolute sale, is presumed to be an equitable mortgage, thus:
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 withright to repurchase is unusually inadequate;
(2) When the vendor remains inpossession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received
by the vendee as rent or otherwise shall be considered as interest which shall be
subject to the usury laws.11 Art. 1604. The provisions of Article 1602 shall also
apply to a contract purporting to be an absolute sale.
As evident from Article 1602 itself, the presence of anyof the circumstances set
forth therein suffices for a contract to be deemed an equitable mortgage. No
concurrence or an overwhelming number is needed.12
With the foregoing in mind, We thus declare that the transaction between the
parties of the present case is actually one of equitable mortgage pursuant to the
foregoing provisions ofthe Civil Code. It has never denied by respondents that
the petitioners, the spouses Solitarios, have remained in possession of the
subject property and exercised acts of ownership over the said lot even after the
purported absolute sale of Lot 4089. This fact is immediately apparent from the
testimonies of the parties and the evidence extant on record, showing that the
real intention of the parties was for the transaction to secure the payment of a
debt. Nothing more.
Petitioner’s Possession of the Subject Property after the Purported Sale
During pre-trial, the Jaques admitted that the spouses Solitarios were in
possession of the subject property.13Gaston Jaque likewise confirmed that
petitioners were allowed to produce copra and till the rice field, which comprise
one-half of the lot that was previously covered by the real estate mortgage, after
said portion was allegedly sold to them.14
This Court had held that a purportedcontract of sale where the vendor remains in
physical possession of the land, as lessee or otherwise, is an indiciumof an
equitable mortgage.15 In Rockville v. Sps. Culla,16 We explained that the reason
for this rule lies in the legal reality that in a contract of sale, the legal title to the
property is immediately transferred to the vendee. Thus, retention by the vendor
of the possession of the property is inconsistent with the vendee’s acquisition of
ownership under a true sale. It discloses, in the alleged vendee, a lack of interest
in the property that belies the truthfulness of the sale.
During the period material to the present controversy, the petitioners, spouses
Solitarios, retained actual possession of the property. This was never disputed. If
the transaction had really been one of sale, as the Jaques claim, they should
have asserted their rights for the immediate delivery and possession of the lot
instead of allowing the spouses Solitarios to freely stay in the premises for almost
seventeen (17) years from the time of the purported sale until their filing ofthe
complaint. Human conduct and experience reveal that an actual owner of a
productive land will not allow the passage of a long period of time, as in this
case, without asserting his rights of ownership.
Further, Gaston Jaque first claimed possession of the subject property through
his mother-in-law, and then through hired workers when the latter passed
away;17 not personally. It is also undisputed that the Jaques never installed a
tenant on Lot 4089 and did not disturb the Solitarios’ possession of the
same.18 On this note, We agree with the finding of the RTC that the Jaques’
alleged possession of the subject property is suspect and unsubstantial, and they
never possessed the same in the concept of owners, viz:
Even as to the first half portion of the land allegedly sold by the defendants to the
plaintiffs, the evidence too tends to show that the plaintiffs did not really possess
it asowners. Plaintiffs’ evidence with regards to their possession over this portion
is very doubtful. According to plaintiff Gaston Jaque when he testified in Court,
they possessed this portion through his mother-in-law till she died in 1992 or
1992: that when she died, they possessed it already through hired workers.
However, in the statement of facts of the resolution of the public prosecutor in the
case of Qualified Theft which plaintiffs filed against the defendants, it is clearly
shown that the plaintiffs stated thatthe defendants took possession of the entire
property since 1983 yet.
On the other hand, in this case, they are now claiming that it was actually in the
year 2000 that the defendants bid claim on this land.
xxxx
Third, the fact that defendants’ witness Leonora Solitarios [Felipe’s sister] resides
and has a house in the land in question without having been disturbed by the
plaintiffs and the fact that the plaintiffs never have a tenant in the land even if
they reside in Cebu City also show in some manner that they are not really the
owners of the land, but the defendants.19
Not only is there a presumption that the deeds of sale are an equitable mortgage,
it has been amply demonstrated by petitioners that the deed of sale is intended
to be one of mortgage based on the proof presented by petitioners and propped
up even by the admissions of respondents. The intention of the parties was for
the transaction to secure the payment of a debt
To stress, Article 1602(6) of the Civil Code provides that a transaction is
presumed to be an equitable mortgage:
(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.
This provision may very well be applied in this case. There is sufficient basis to
indulge in the presumption that the transaction between the parties was that of
an equitable mortgage and that the spouses Solitarios never wanted to sell the
same to the Jaques.
The foregoing presumption finds support in the following: First, the very
testimony of Gaston Jaque and the documents he presented establish the
existence of two loans, which the Jaques extended to the spouses Solitarios, that
were secured by the subject property; and, second, the testimonies of the parties
reveal that they came to an agreement as to how these loans would be paid.
The first loan was contracted when Gaston Jaque gave the spouses Solitarios
₱7,000.00 to help them redeem the subject property from PNB.20 In effect, by
extending the ₱7,000.00 financial assistance to the spouses Solitarios, Gaston
Jaque took over the loan, became the lender and assumed the role of mortgagee
in place of PNB.
Thereafter, the spouses Solitarios obtained a second loan from the Jaques
amounting to ₱3,000.00. This is evidenced by an REM dated July 15, 1981 by
virtue of which the spouses Solitarios mortgaged one-half of the subject property
to the Jaques to secure the payment of said loan.
The parties testified that they entered into a verbal agreement on the sharing of
the produce of the subject property. For his part, it seemed that Gaston Jaque
wanted to impress upon the lower court that this sharing agreement was fixed as
a condition for his allowing the Solitarios’ continued possession and cultivation of
the subject property. However, there is a strong reason to believe that this
arrangement was, in fact, a payment scheme for the debts that the spouses
Solitarios incurred.
During his testimony, Felipe Solitarios explained that after the Jaques gave him
funds to redeemthe property from PNB, they entered into an agreement on the
sharing of the produce and that this arrangement would last until they shall have
redeemed the land from the Jaques. We note that this assertion by Felipe
Solitarios was never refuted on cross or re-cross examination. Felipe Solitarios
explained–
DIRECT EXAMINATION BY
ATTY. MELINDA MARTIRES
Q When did Lilia Jaque give you the money to redeem the mortgage
indebtedness from the Philippine National Bank?
A In 1976
Page | 2
Q How much did she give you?
A ₱5,000.00
Q After giving you the amount of 5,000.00 to be used to redeem the mortgage
indebtedness, was there any agreement between you and Lilia Jaque?
A Our agreement was, on the produce of the riceland, she will be given 1/4 and
on the coconut land 1/2.21
xxx xxx xxx
Q Where were the spouses when the land was already redeemed from the PNB?
A They were in Cebu.
Q So, to whom did you deliver their share of the produce of the land?
A To Yaning, the mother of Ma Lilia.
Q When did you start delivering the share of the plaintiff of the land in question?
A From the time I mortgaged this land to them.
Q You mean to say from 1976?
A Yes.
Q How many times did you deliver tothe parents of the plaintiffs the share of the
plaintiffs ofthe produce of the land?
A Every harvest, we deliver their share and everytime we make copra, we also
deliver their share to Ma Yaning.
xxx xxx xxx
ATTY. MARTIRES
Q Per condition with the plaintiffs which you have told us a while ago, for how
long will you deliver their share?
A Every harvest we have to give their share because we have not yet redeemed
the land.
Q So there was no duration of your giving their share of the land?
A If I desire to redeem the land from them.22
Furthermore, Gaston Jaque himself testified receiving a portion of the produce of
the subject property preciselybecause of the loan covered by the July 15, 1981
REM.23
It is, thus, clear from the foregoing that the Jaques extended two loans to the
spouses Solitarios, who in exchange, offered tothe former the subject property,
not to transfer ownership thereto, but to merely secure the payment of their
debts. This may be deduced from the testimonies of both Felipe Solitarios and
Gaston Jaque, revealing the fact that they agreed upon terms for the payment of
the loans, in particular, the sharing in the produce of the lot.
Verily, the fact that the parties agreed on payment terms is inconsistent with the
claim of the Jaques that when the spouses Solitarios executed the questioned
deeds of sale they had no other intention but to transfer ownership over the
subject property.
Thus, there is ground to presume that the transaction between the parties was an
equitable mortgage and not a sale. There is nothing in the records sufficient
enough to overturn this presumption.
The contracts of sale and mortgage are of doubtful veracity
Furthermore, an examination of the transaction documents casts doubts on their
validity. As alleged by petitioners, their signatures therein appear to be forged.
We distinctlyobserve that each of the three (3) documents bears different
versions of petitioner Julia Solitarios’ signatures. First, on the first page of the
1981 Deed of Sale, particularly on the space provided for Julia Solitarios to
express her marital consent to the sale, the signature "Julia Torda Solitarios"
appears.24 What is strange is that in the acknowledgement page of the very
same document, Julia Solitarios purportedly signed as "Julia T.
Solitarios,"25 which is obviously different from the signature appearing on the first
page. Further, while the 1981 REM document contains the signature "Julia
Turda,"26 the 1983 Deed of Sale bears the signature "Julia Torda." These
discrepancies suggest that the documents were signed by different persons.
Nevertheless, assuming arguendo that these documents were really signed by
petitioners, there is reason to believe that they did so without understanding their
real nature and thatthe Jaques never explained to them the effects and
consequencesof signing the same.
In negotiating the transactions, the parties did not deal with each other on equal
terms
The Civil Code provisions that consider certain types of sales as equitable
mortgages are intended for the protection of the unlettered such as the spouses
Solitarios, who are penurious vis-à-vis their creditors.27 In Cruz v. Court of
Appeals,28 the Court held -
Vendors covered by Art. 1602 usually find themselves in an unequal position
when bargaining with the vendees, and will readily sign onerous contracts to get
the money they need. Necessitous men are not really free men in the sense that
toanswer a pressing emergency they will submit to any terms that the crafty may
impose on them. This is precisely the evil that Art. 1602 seeks to guard against.
The evident intent of the provision is to give the supposed vendor maximum
safeguards for the protection of his legal rights under the true agreement of the
parties.
Without doubt, the spouses Solitarios need the protection afforded by the Civil
Code provisions on equitable mortgage. Certainly, the parties were negotiating
on unequal footing. As opposed to the uneducated29 and impoverished farmer,
Felipe Solitarios,30 Gaston Jaque, was a 2nd Lieutenant of the Armed Forces of
the Philippines when he retired.31 Further, Felipe Solitarios was constantly
infinancial distress. He was constantly in debt and in dire financial need. That he
borrowed money from the PNB twice, first in 1975 then in 1976, and mortgaged
the subject property to the Jaques suggest as much.
While Felipe Solitarios was able to settle his 1975 loan and redeem the mortgage
with his own money,32 he no longer had enough funds to redeem the subject
property after obtaining a loan in 1976. Thus, he was impelled to borrow money
from the Jaques to get his property back in 1981. Shortly after, on July 15, 1981,
Felipe Solitarios, again indesperate need, borrowed money from Gaston Jaque
and mortgaged to the latter a portion of the subject property.
It is, therefore, not difficult to imagine that Felipe Solitarios quickly consented to
arrangements proposed to him by a seemingly trustworthy Gaston Jaque, and
mindlessly signed instrumental documents that were never explained to him and
he never fully understood but nonetheless assured him of fast cash and easy
payment terms. What the court a quo wrote in this regard merits concurrence:
Still another fact which militates against plaintiffs’ cause is their failure to prove
during trial that they really endeavored to explain to the defendants the real
nature of the contract they were entering into, it appearing that the defendants
are of low education compared to them especially plaintiff Gaston Jaque who is a
retired military officer. The law requires that in case one of the partiesto a
contract is unable to read (or maybe of low education), and fraud isalleged, the
person enforcing the contract must show that the term thereof have been fully
explained to the former (Spouses Nena Arriola and Francisco Adolfo, et.al. vs.
Demetrio Lolita, Pedro, Nena, Braulio and Dominga, all surnamed Mahilum, et.
al. G.R. No. 123490, August 9, 2000).33
The law favors the least transmission of rights
It is further established that when doubt exists as to the true nature of the parties’
transaction, courts must construe such transaction purporting to be a sale as an
equitable mortgage, as the latter involves a lesser transmission of rights and
interests over the property in controversy.34 Thus, in several cases, the Court has
not hesitated to declare a purported contract of sale to be an equitable mortgage
based solely on one of the enumerated circumstances under Article 1602. So it
should be in the present case.
In Sps. Raymundo v. Sps. Bandong,35 the Court observed that it is contrary to
human experience that a person would easily part with his property after
incurring a debt. Rather, he would first look for means to settle his obligation, and
the selling of a propertyon which the house that shelters him and his family
stands, would be his last resort.
Here, the Court finds the spouses Solitarios’ alleged sale of the subject property
in favor of the Jaques simply contrary to normal human behavior. Be it
remembered that the spouses Solitarios depended much on this property as
source of income and livelihood. Further, they made use of it to obtain and
secure badly needed loans. This property was so important to them that they had
to borrow money from the Jaques to raise funds to ensure its redemption.
Furthermore, even after the supposed sale, the spouses Solitarios remained tied
to this land asthey never left it to live in another place and continued tilling and
cultivating the same. Thus, considering how valuable this land was to the
spouses Solitarios, being their main, if not, only source of income, it is hard to
believe that they would easily part with it and sell the same to another.
Furthermore, it is also difficult to understand why, after going through all the
complications in redeeming the property from PNB, the spouses Solitarios would
simply transfer this tothe Jaques. It is inconceivable that the spouses Solitarios
would sell their property just to pay the PNB loan. It is more believable that, if at
all, they conveyed their land on a temporary basis only, without any intention to
transfer ownership thereto and with the assurance that upon the payment of their
debts, the same would be returned to them.
The only reasonable conclusion that may be derived from the execution of the
Deeds of Sale in favor of the Jaques is to ensure that the Solitarios will pay their
obligation.
The transfer of the subject property is a pactum commissorium
Further, We cannot allow the transfer of ownership ofLot 4098 to the Jaques as it
would amount to condoning the prohibited practice of pactum comissorium.
Article 2088 of the Civil Code clearly provides that a creditor cannot appropriate
Page | 3
or consolidate ownership over a mortgaged property merely upon failure of the
mortgagor to pay a debt obligation,36 viz.:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
This finding is based on the last paragraph of Article 1602 of the New Civil Code
of the Philippines which provides that "In any of the foregoing cases, any money,
fruits, or other benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws." (underscoring
ours)

The essence of pactum commissorium is that ownership of the security will pass
to the creditor by the mere default of the debtor. This Court has repeatedly
declared such arrangements as contrary to morals and public policy.37
As We have repeatedly held, the only right of a mortgagee in case of non-
payment of debt secured by mortgage would be to foreclose the mortgage and
have the encumbered property sold to satisfy the outstanding indebtedness. The
mortgagor’s default does not operate to automatically vest on the mortgagee the
ownership of the encumbered property, for any such effect is against public
policy, as earlier indicated.38
Applying the principle of pactum commissorium to equitable mortgages, the
Court, in Montevirgen vs. CA,39enunciated that the consolidation of ownership in
the person of the mortgagee in equity, merely upon failure of the mortgagor in
equityto pay the obligation, would amount to a pactum commissorium.The Court
further articulated that if a mortgagee in equity desires to obtain title to a
mortgaged property, the mortgagee’s proper remedy is to cause the foreclosure
of the mortgage in equity and buy it at a foreclosure sale.
In Sps. Cruz vs. CA,40 the Court again reiteratedthat, in an equitable mortgage,
perfect title over the mortgaged property may not be secured in a pactum
commissorium fashion, but only by causing the foreclosure of the mortgage and
buying the same in an auction sale. The Court held –
Indeed, all the circumstances, taken together, are familiar badges of an equitable
mortgage. Private respondents could not in a pactum commissorium fashion
appropriate the disputed property for themselves as they appeared to have done;
otherwise, their act will not be countenanced by this Court being contrary to
goodmorals and public policy hence void. If they wish to secure a perfect title
over the mortgaged property, they should do so in accordance with law, i.e., by
foreclosing the mortgage and buying the property in the auction sale.
It does not appear, under the premises, that the Jaques availed themselves of
the remedy of foreclosure, or that they bought the subject property in an auction
sale after the spouses Solitarios failed to pay their debt obligation. What seems
clear is that the Jaques took advantage of the spouses Solitarios’ intellectual and
educational deficiency and urgent need of money and made it appear that the
latter executed in their favor the questioned Deeds of Sale, thereby automatically
appropriating unto themselves the subject property upon their debtors’ default.
The amount reflected in the 1981 Deedof Sale is telling. The sum of ₱7,000.00
representing the alleged purchase price of one-half of the subject property in the
1981 Deed of Sale is actually the amount advanced to the spouses Solitarios by
way of loan. Other than the testimony of Gaston Jaque, there is no evidence
showing that this purchase price was actually paid or that the subject property
was bought in a foreclosure sale.
If this Court will take at its face value plaintiffs’ claim in their complaint that they
get Php10,000.00 every quarter or Php40,000.00 a year from the coconut portion
and Php5,000.00 every planting season or Php10,000.00 a year from the rice
land portion of the subject land, then plaintiffs could have earned Php50,000.00 a
year or more or less one million pesos already when they filed this case in the
year 2000.
But this Court has given more credence to defendants’ assertion that from 1976
to 2000, hewas giving the one-half share of the plaintiffs from the proceeds of the
copras and rice land to plaintiffs’ alleged caretaker, Yaning. So, if the produce of
the land in question as claimed by the plaintiffs is about Php50,000.00 a year,
one-half (1/2) of it would be Php25,000.00 which is 25 times higher than the
Php1,000.00 interest at 12% per year for the alleged purchase price of
Php12,000.00 of the land in question. The Php24,000.00 excess interest would
have already been sufficient to pay even the principal of Php12,000.00. Thus,
clearly, the Php12,000.00 purchase price of the land should now be considered
fully paid.
WHEREFORE, premises considered, the petition is GRANTED. The assailed
August 31, 2010 Decision and November 24, 2011 Resolution of the Court of
Appeals in CA-G.R. CEB-CV No. 00112 are, thus, SET ASIDE. The Decision of
the Regional Trial Court, Calbayog City Branch 21 in Civil Case No. 772 is
REINSTATED, with modification that the reformation of the Deeds of Absolute
Sale dated May 9, 1981 and April 26, 1983 is deleted as it is unnecessary, and
that the transfer of the title to the name of petitioners shall be exempt from
registration fees and taxes and other charges. As Modified, the Decision of the
trial court shall read:
WHEREFORE, this Court dismisses the instant case and pronounces Judgment
against plaintiffs and hereby orders the following:
1. TCT No. 745 in the name of spouses Gaston Jaque and Lilia Laure Jaque is
declared void and cancelled. Furthermore, the Register of Deeds of the City of
Calbayog is ordered to issue a new title in the name of petitioners Felipe
Solitarios and Julia Torda without need of payment of registration fees, taxes,
and other charges;
2. The total mortgage debt is considered and deemed totally paid pursuant to
Article 1602 of the New Civil Code;
3. The amounts deposited to the Court by defendants Solitarios are ordered
released to plaintiffs Spouses Gaston and Lilia Jaque minus lawful charges for
their safekeeping, if any; and
4. The costs of the proceedings shall be paid by the plaintiffs.

Further, it can be gleaned from the testimony of Gaston Jaque that when the
spouses Solitarios failed to pay their loan of ₱3,000.00, reflected in the July 15, SO ORDERED.
1981 REM covering the remaining half of the subject property,41 the Jaques did
not foreclose the mortgage and purchase the said lot in an auction sale. Rather,
they supposedly bought the lot directly from the spouses Solitarios and offset the
loan amount against a portion of the supposed purchase price they agreed
upon.42

Indubitably, the subject property was transferred to the Jaques in a prohibited

pactum commisorium manner and, therefore, void. Thus, the foregoing
transaction and the registration of the deeds of sale, by virtue of which the
Jaques were able to obtain the impugned TCT No. 745 must be declared void. 43

Furthermore, given that the transaction between the parties is an equitable

mortgage, this means that the title to the subject property actually remained with
Felipe Solitarios, as owner-mortgagor, conformably with the well-established
doctrine that the mortgagee does not become the owner of the mortgaged
property because the ownership remains with the mortgagor.44 Thus, Felipe
Solitarios’ ownership over the subject property is not affected by the fact that the
same was already registered in the name of the Jaques. The pronouncement in
Montevirgen v. Court of Appeals is instructive:

x x x Equity looks through the form and considers the substance, and no kind of
engagement can be allowed which will enable the parties to escape from the
equitable doctrine adverted to. In other words, a conveyance of land,
accompanied by registration in the name of the transferee and the issuance of a
new certificate, is no more secured from the operation of this equitable doctrine
than the most informal conveyance that could be devised.

Finally, the circumstance that the original transaction was subsequently declared
to be an equitable mortgage must mean that the title to the subject landwhich
had been transferred to private respondents actually remained or is transferred
back to petitioners herein as ownersmortgagors, conformably to the well-
established doctrine that the mortgagee does not become the owner of the
mortgaged property because the ownership remains with the mortgagor (Art.
2088, New Civil Code).45

Finally, We agree with the RTC that the mortgage debt of the spouses Solitarios
had been fully paid.1âwphi1 This holds true whether the amount of the debt is
₱12,000.00, as found by the RTC or ₱22,000.00, the amount which the Jaques
claim they paid for the subject property. The RTC elucidated as follows -

2. The total mortgage debt of Php12,000.00 which was the consideration in Exh.
"G" is deemed totally paid.

Page | 4
 Republic of the Philippines the doctrine of the Supreme court in Conejero vs. Court of Appeals (16 SCRA
SUPREME COURT 775).
Manila

The appellate court in tackling this issue declared that plaintiff failed to make a
SECOND DIVISION valid tender of the sale price of the land paid by the defendants within the period
fixed by Art. 1623 of the Civil Code which provides as follows:

G.R. No. L-45164 March 16, 1987

ART. 1623. The right of legal pre-emption or redemption shall not be exercised
except within thirty (30) days from the notice in writing by the prospective vendor,
DOMINICO ETCUBAN, petitioner, or by the vendor, as the case may be. The deed of sale shall not be recorded in
vs. the Registry of Property, unless accompanied by an affidavit of the vendor that
THE HONORABLE COURT OF APPEALS, JESUS C. SONGALIA & he has given written notice thereof to all possible redemptioners.
GUADALUPE S. SONGALIA, respondents.

The right of redemption of co-owners excludes that of adjoining owners. (1524a)

Basilio E. Duaban for petitioner.

The respondent court found that written notice was given to plaintiff-appellee in
PARAS, J.: the form of an answer with counterclaim to the complaint in Civil Case No. BN-
109 which appears on the records to have been filed on March 18, 1972. Said
court ruled that "this notice is sufficient to inform the plaintiff about the sale and
Before Us is a petition to review the judgment of the respondent Court of
the reckoning date for the 30-day period commenced upon receipt thereof. No
Appeals 1 in CA-G.R. No. 53258-R reversing the decision of the court a quo in
other notice is needed under the premises because it is the substance conveyed
Civil Case No. BN-109, entitled Dominico Etcuban vs. Jesus G. Songalia, et. al.,
rather than the form embodying it, that counts.
by ruling that plaintiff-appellee (petitioner herein) failed to avail himself of the right
of legal redemption within the period provided for by law.
The records reveal that on May 27, 1974, plaintiff-appellee deposited with the
lower court the amount of P26,340.00 the redemption price. Since the answer
Plaintiff inherited a piece of land with an area of approximately 14.0400 hectares
with counterclaim was filed on March 18, 1972, the deposit made on May 27,
together with his co-heirs from their deceased father. Said piece of land was
1974 was clearly outside the 30-day period of legal redemption. The period within
declared in their names as heirs of Eleuterio Etcuban under Tax Declaration No.
which the right of legal redemption or preemption may be exercised is non-
06837 and was the subject matter in dispute in SP No. 1192-R, of the Court of
extendible.
First Instance of Cebu, a case for the settlement of the estate of the late Eleuterio
Etcuban In said case, petitioner Dominico Etcuban the spouse of the decease
Demetria Initan and Pedro, Vicente, Felicitas, Anastacio, Froilan, Alfonso, Petitioner contends that vendors (his co-heirs) should be the ones to give him
Advincula, Anunciaciori Jesus, Aguinaldo, surnamed Etcuban were declared as written notice and not the vendees (defendants or private respondent herein)
co-owners of the property in question. Thereafter the 11 co-heirs executed in citing the case of Butte vs. Manuel Uy & Sons, Inc., 4 SCRA 526. Such
favor of defendants (private respondents herein) 11 deeds of sale of their contention is of no moment. While it is true that written notice is required by the
respective shares in the co-ownership for the total sum of P26,340.00. It is not law (Art. 1623), it is equally true that the same "Art. 1623 does not prescribe any
disputed that the earliest of the 11 deeds of sale was made on December 9, particular form of notice, nor any distinctive method for notifying the
1963 and the last one in December 1967. (Annexes " 1-11 "). redemptioner. "So long, therefore, as the latter is informed in writing of the sale
and the particulars thereof, the 30 days for redemption start running, and the
redemptioner has no real cause to complain. (De Conejero et al v. Court of
In his complaint before the trial court, plaintiff alleged that his co-owners leased
Appeals, et al., 16 SCRA 775). In the Conejero case, We ruled that the furnishing
and/or sold their respective shares without giving due notice to him as a co-
of a copy of the disputed deed of sale to the redemptioner, was equivalent to the
owner notwithstanding his intimations to them that he was willing to buy all their
giving of written notice required by law in "a more authentic manner than any
respective shares. He further maintained that even upon inquiry from his co-
other writing could have done," and that We cannot adopt a stand of having to
heirs/co-owners, and also from the alleged buyers (defendants) he elicited
sacrifice substance to technicality. More so in the case at bar, where the vendors
nothing from them. Plaintiff discovered for the first time the existence of these 11
or co-owners of petitioner stated under oath in the deeds of sale. (Annexes "1" to
deeds of sale during the hearing on January 31, 1972 of Civil Case No. BN-87,
"11 ") that notice of sale had been given to prospective redemptioners in
entitled Jesus C. Songalia vs. Dominico ETCUBAN in the Court of First Instance
accordance with Art. 1623 of the Civil Code. "A sworn statement or clause in a
of Cebu, Branch XI. When he verified the supposed sales with his co-owners
deed of sale to the effect that a written notice of sale was given to possible
only 3 of them admitted their respective sales. Hence, the filing of Civil Case No.
redemptioners or co-owners might be used to determine whether an offer to
BN-109 by petitioner for legal redemption.
redeem was made on or out of time, or whether there was substantial
compliance with the requirement of said Art. 1623. 2
Defendants (private respondents herein) in denying the material allegations of
the complaint, argued by way of affirmative and special defenses that plaintiff has
In resume, We find that petitioner failed to substantially comply with the
no cause of petition against them; that the action is barred by prescription or
requirements of Art. 1623 on legal redemption and We see no reason to reverse
laches; that the complaint is barred by the pendency of Civil Case No. BN-87
the assailed decision of the respondent court.
involving the same parties, same subject matter and same cause of action; that
the provisions of the law pertaining to legal redemption have been fully complied
with in respect to the sale of the disputed land to them; that plaintiff came to WHEREFORE, premises considered, the petition is hereby DISMISSED and the
know of the sale of the land in question to them in August, 1968 or sometime appealed decision is hereby AFFIRMED.
prior thereto; that acting on this knowledge, plaintiff thru his lawyers wrote
defendants on August 15, 1968 about the matter; that Jesus Songalia personally
went to the office of Atty. Vicente Faelner or counsel for plaintiff to inform him of SO ORDERED.
the sale of the disputed land to them; that again another demand letter was
received on May 30, 1969 by defendants from the lawyers of plaintiff but on both
occasions, no action was taken by plaintiff despite the information plaintiff
received from defendants thru his counsel and that consequently plaintiff lost his
right to redeem under Art. 1623 of the new Civil Code because the right of
redemption may be exercised only within 30 days from notice of sale and plaintiff
was definitely notified of the sale years ago as shown by the records.

During the pre-trial conference, the parties failed to agree on any stipulation of
facts. Judgment was rendered after due trial with the following dispositive portion:

WHEREFORE, JUDGMENT is hereby rendered in favor of the plaintiff and

against the defendants as follows.

1. Allowing the plaintiff to exercise his right of redemption over the land in
question;

2. Ordering the defendants to accept the redemption price of P26,340.00 which

plaintiff should deposited with this Court within 30 days from and after this
decision becomes final and executory and thereafter to execute a deed of
reconveyance in favor of the plaintiff and to surrender the possession and
ownership of the property in question to the plaintiff; and

3. The defendants are ordered to pay the costs.

Defendants appealed to the Court of Appeals assigning several errors but the
appellate court centered its dissertation on the first assignment of error as the
issue to be most decisive and, therefore confined its discussion to it.

Defendants in their first assignment of error assailed the lower court in not
holding that the failure of the plaintiff-appellee to tender to the defendants-
appellants the redemption price or to consign the same in court or to make a
specific offer to redeem the property before filing the complaint for legal
redemption has barred the appellee's right to redeem the property pursuant to

Page | 5
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 137677 May 31, 2000
ADALIA B. FRANCISCO, petitioner,
vs.
ZENAIDA F. BOISER, respondent.
MENDOZA, J.:
This is a petition for review of the decision of the Court of Appeals in CA-G.R. CV
No. 55518 which affirmed in totothe decision of the Regional Trial Court, Branch
122, Caloocan City, dismissing petitioner's complaint for redemption of property
against respondent.
The facts are as follows:
Petitioner Adalia B. Francisco and three of her sisters, Ester, Elizabeth and
Adeluisa, were co-owners of four parcels of registered lands1 on which stands the
Ten Commandments Building at 689 Rizal Avenue Extension, Caloocan City. On
August 6, 1979, they sold 1/5 of their undivided share in the subject parcels of
land to their mother, Adela Blas, for P10,000.00, thus making the latter a co-
owner of said real property to the extent of the share sold.
On August 8, 1986, without the knowledge of the other co-owners, Adela Blas
sold her 1/5 share for P10,000.00 to respondent Zenaida Boiser who is another
sister of petitioner.
On August 5, 1992, petitioner received summons, with a copy of the complaint in
Civil Case No. 15510, filed by respondent demanding her share in the rentals
being collected by petitioner from the tenants of the building. Petitioner then
informed respondent that she was exercising her right of redemption as a co-
owner of the subject property. On August 12, 1992, she deposited the amount of
P10,000.00 as redemption price with the Clerk of Court. This move to redeem the
property was interposed as a permissive counterclaim in Civil Case No. 15510.
However, said case was dismissed after respondent was declared non-suited
with the result that petitioner's counterclaim was likewise dismissed.
On September 14, 1995, petitioner instituted Civil Case No. C-17055 before the
Regional Trial Court in Caloocan City. She alleged that the 30-day period for
redemption under Art. 1623 of the Civil Code had not begun to run against her
since the vendor, Adela Blas, never informed her and the other owners about the
sale to respondent. She learned about the sale only on August 5, 1992, after she
received the summons in Civil Case No. 15510, together with the complaint.
Respondent, on the other hand, contended that petitioner knew about the sale as
early as May 30, 1992, because, on that date, she wrote petitioner a
letter2 informing the latter about the sale, with a demand that the rentals
corresponding to her 1/5 share of the subject property be remitted to her. Said
letter was sent with a copy of the Deed of Sale 3 between respondent and Adela
Blas. On the same date, letters4 were likewise sent by respondent to the tenants
of the building, namely, Seiko Service Center and Glitters Corporation, informing
them of the sale and requesting that, thenceforth, they pay 1/5 of the monthly
rentals to respondent. That petitioner received these letters is proved by the fact
that on June 8, 1992, she wrote5 the building's tenants advising them to disregard
respondent's request and continue paying full rentals directly to her.
On August 19, 1996, the trial court dismissed petitioner's complaint for legal
redemption. It ruled that Art. 1623 does not prescribe any particular form of
notifying co-owners about a sale of property owned in common to enable them to
exercise their right of legal redemption. 6 While no written notice was given by the
vendor, Adela Blas, to petitioner or the other owners, petitioner herself admitted
that she had received respondent's letter of May 30, 1992 and was in fact
furnished a copy of the deed evidencing such sale.7 The trial court considered the
letter sent by respondent to petitioner with a copy of the deed of sale as
substantial compliance with the required written notice under Art. 1623 of the
New Civil Code.8 Consequently, the 30-day period of redemption should be
counted not from August 5, 1992, when petitioner received summons in Civil
Case No. 15510, but at the latest, from June 8, 1992, the date petitioner wrote
the tenants of the building advising them to continue paying rentals in full to her.
Petitioner failed to redeem the property within that period.
Petitioner brought the matter to the Court of Appeals, which, on October 26,
1998, affirmed the decision of the Regional Trial Court. She moved for
reconsideration, but her motion was denied by the appellate court on February
16, 1999. Hence, this petition.
The sole issue presented in this appeal is whether the letter of May 30, 1992 sent
by respondent to petitioner notifying her of the sale on August 8, 1986 of Adela
Blas' 1/5 share of the property to respondent, containing a copy of the deed
evidencing such sale, can be considered sufficient as compliance with the notice
requirement of Art. 1623 for the purpose of legal redemption. The trial court and
the Court of Appeals relied on the ruling in Distrito v.Court of
Appeals9 that Art. 1623 does not prescribe any particular form of written notice,
nor any distinctive method for notifying the redemptioner. They also invoked the
rulings in De Conejero v. Court of Appeals 10 and Badillo v. Ferrer11 that
furnishing the redemptioner with a copy of the deed of sale is equivalent to giving
him the written notice required by law.
On the other hand, petitioner points out that the cited cases are not relevant
because the present case does not concern the particular form in which notice
must be given. Rather, the issue here is whether a notice sent by the vendee
may be given in lieu of that required to be given by the vendor or prospective
vendor. 12
Art. 1623 of the Civil Code provides:
The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor,
as the case maybe. The deed of sale shall not be recorded in the Registry of
Property, unless accompanied by an affidavit of the vendor that he has given
written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
In ruling that the notice given by the vendee was sufficient, the appellate court
cited the case of Etcuban v. Court of Appeals 1 in which it was held:
Petitioner contends that vendors (his co-heirs) should be the ones to give him
written notice and not the vendees (defendants or private respondent herein)
citing the case of Butte vs. Manuel Uy & Sons. Inc.,4 SCRA 526. Such contention
is of no moment. While it is true that written notice is required by the law
(Art. 1623), it is equally true that, the same "Art. 1623 does not prescribe any
particular form of notice, nor any distinctive method for notifying the
redemptioner." So long, therefore, as the latter is informed in writing of the sale
and the particulars thereof, the 30 days for redemption start running, and the
redemptioner has no real cause to complain. (De Conejero et al v. Court of
Appeals, et al., 16 SCRA 775). In the Conejero case, we ruled that the furnishing
of a copy of the disputed deed of sale to the redemptioner was equivalent to the
giving of written notice required by law in "a more authentic manner than any
other writing could have done," and that We cannot adopt a stand of having to
sacrifice substance to technicality. More so in the case at bar, where the vendors
or co-owners of petitioner stated under oath in the deeds of sale that notice of
sale had been given to prospective redemptioners in accordance with Art. 16232
of the Civil Code. "A sworn statement or clause in a deed of sale to the effect that
a written notice of sale was given to possible redemptioners or co-owners might
be used to determine whether an offer to redeem was made on or out of time, or
whether there was substantial compliance with the requirement of said Art.
1623." 14
In Etcuban, notice to the co-owners of the sale of the share of one of them was
given by the vendees through their counterclaim in the action for legal
redemption. Despite the apparent meaning of Art. 1623, it was held in that case
that it was "of no moment" that the notice of sale was given not by the vendor but
by the vendees. "So long as the [co-owner] is informed in writing of the sale and
the particulars thereof, the 30 days for redemption stair running, and the
redemptioner has no cause to complain," so it was held. The contrary doctrine
of Butte v. Manuel Uy and Sons,Inc. 15 was thus overruled sub silencio.
However, in the later case of Salatandol v. Retes, 16 decided a year after
the Etcuban case, the Court expressly affirmed the ruling in Butte that the notice
required by Art. 1623 must be given by the vendor. In Salatandol, the notice
given to the redemptioner by the Register of Deeds of the province where the
subject land was situated was held to be insuffucient. Resolving the issue of
whether such notice was equivalent to the notice from the vendor required under
Art. 1623, this Court stated:
The appeal is impressed with merit. In Butte vs. Manuel Uy and Sons, Inc., the
Court ruled that Art. 1623 of the Civil Code clearly and expressly prescribes that
the thirty (30) days for making the pre-emption or redemption are to be counted
from notice in writing by the vendor. The Court said:
. . . The test of Article 1623 clearly and expressly prescribes that the thirty days
for making the redemption are to be counted from notice in writing by the vendor.
Under the old law (Civil Code of 1889, Art. 1524), it was immaterial who gave the
notice; so long as the redeeming co-owner learned of the alienation in favor of
the stranger, the redemption period began to run. It is thus apparent that the
Philippine legislature in Article 1623 deliberately selected a particular method of
giving notice, and that method must be deemed exclusive (39 Am. Jur., 237;
Payne vs. State, 12 S.W. (2d) (528). As ruled in Wampher vs. Lecompte, 150 Atl.
458 (aff'd. in 75 Law Ed. [U.S.] 275) —
Why these provisions were inserted in the statute we are not informed, but we
may assume until the contrary is shown, that a state of facts in respect thereto
existed, which warranted the legislature in so legislating.
The reasons for requiring that the notice should be given by the seller, and not by
the buyer, are easily divined. The seller of an undivided interest is in the best
position to know who are his co-owners that under the law must be notified of the
sale. Also, the notice by the seller removes all doubts as to fact of the sale, its
perfection, and its validity, the notice being a reaffirmation thereof; so that that
party notified need not entertain doubt that the seller may still contest the
alienation. This assurance would not exist if the notice should be given by the
buyer.
In the case at bar, the plaintiffs have not been furnished any written notice of sale
or a copy thereof by Eufemia Omole, the vendor. Said plaintiffs' right to exercise
the legal right of preemption or redemption, given to a co-owner when any one of
the other co-owners sells his share in the thing owned in common to a third
person, as provided for in Article 1623 of the Civil Code, has not yet accrued.
There was thus a return to the doctrine laid down in Butte. That ruling is sound.
In the first place, reversion to the ruling in Butte is proper. Art. 1623 of the Civil
Code is clear in requiring that the written notification should come from the
vendor or prospective vendor, not from any other person. There is, therefore, no
room for construction. Indeed, the principal difference between Art. 1524 of the
former Civil Code and Art. 1623 of the present one is that the former did not
specify who must give the notice, whereas the present one expressly says the
Page | 6
notice must be given by the vendor. Effect must be given to this change in
statutory language.

In the second place, it makes sense to require that the notice required in Art.
1623 be given by the vendor and by nobody else. As explained by this Court
through Justice J.B.L. Reyes in Butte, the vendor of an undivided interest is in
the best position to know who are his co-owners who under the law must be
notified of the sale. It is likewise the notification from the seller, not from anyone
else, which can remove all doubts as to the fact of the sale, its perfection, and its
validity, for in a contract of sale, the seller is in the best position to confirm
whether consent to the essential obligation of selling the property and
transferring ownership thereof to the vendee has been given.

Now, it is clear that by not immediately notifying the co-owner, a vendor can
delay or even effectively prevent the meaningful exercise of the right of
redemption. In the present case, for instance, the sale took place in 1986, but it
was kept secret until 1992 when vendee (herein respondent) needed to notify
petitioner about the sale to demand 1/5 rentals from the property sold. Compared
to serious prejudice to petitioner's right of legal redemption, the only adverse
effect to vendor Adela Blas and respondent-vendee is that the sale could not be
registered. It is non-binding, only insofar as third persons are concerned. 17 It is,
therefore, unjust when the subject sale has already been established before both
lower courts and now, before this Court, to further delay petitioner's exercise of
her right of legal redemption by requiring that notice be given by the vendor
before petitioner can exercise her right. For this reason, we rule that the receipt
by petitioner of summons in Civil Case No. 15510 on August 5, 1992 constitutes
actual knowledge on the basis of which petitioner may now exercise her right of
redemption within 30 days from finality of this decision.

Our ruling is not without precedent. In Alonzo v. Intermediate Appellate

Court, 18 we dispensed with the need for written notification considering that the
redemptioners lived on the same lot on which the purchaser lived and were thus
deemed to have actual knowledge of the sales. We stated that the 30-day period
of redemption started, not from the date of the sales in 1963 and 1964, but
sometime between those years and 1976, when the first complaint for
redemption was actually filed. For 13 years, however, none of the co-heirs
moved to redeem the property. We thus ruled that the right of redemption had
already been extinguished because the period for its exercise had already
expired.

In the present case, as previously discussed, receipt by petitioner of summons in

Civil Case No. 15510 on August 5, 1992 amounted to actual knowledge of the
sale from which the 30-day period of redemption commenced to run. Petitioner
had until September 4, 1992 within which to exercise her right of legal
redemption, but on August 12, 1992 she deposited the P10,000.00 redemption
price. As petitioner's exercise of said right was timely, the same should be given
effect.

WHEREFORE, in view of the foregoing, the petition is GRANTED and the

decision of the Court of Appeals is REVERSED and the Regional Trial Court,
Branch 122, Caloocan City is ordered to effect petitioner's exercise of her right of
legal redemption in Civil Case No. C-17055.

SO ORDERED.

Page | 7
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 202358 November 27, 2013
GATCHALIAN REALTY, INC., Petitioner,
vs.
EVELYN M. ANGELES, Respondent.
DECISION
CARPIO, J.:
The Case G.R. No. 202358 is a petition for review1 assailing the
Decision2 promulgated on 11 November 2011 as well as the
Resolution3 promulgated on 19 June 2012 by the Court of Appeals (CA) in CA-
G.R. SP No. 105964. The CA reversed and set aside the 8 October 2008
Order4 of Branch 197 of the Regional Trial Court of Las Piñas City (RTC) in Civil
Case No. LP-07-0143. The CA also dismissed the unlawful detainer case filed by
Gatchalian Realty, Inc. GRI) against Evelyn M. Angeles (Angeles).
The Metropolitan Trial Court (MeTC) rendered on 28 February 2006 a
decision5 in Civil Case No. 6809 in favor of GRI and against Angeles. In its
decision6 dated 13 February 2008, the RTC set aside the decision of the MeTC
and dismissed the ejectment case filed by GRI against Angeles. The RTC
reversed itself in an Order7 dated 17 June 2008, and affirmed with modification
the decision of the MeTC. The RTC denied Angeles’ Motion for Reconsideration
in an Order dated 8 October 2008.
The Facts
The CA recited the facts as follows:
On 28 December 1994, [Angeles] purchased a house (under Contract to Sell No.
2272) and lot (under Contract to Sell No. 2271) from [GRI] valued at Seven
Hundred Fifty Thousand Pesos (Php 750,000.00) and Four Hundred Fifty
Thousand Pesos (Php 450,000.00), respectively, with twenty-four percent (24%)
interest per annum to be paid by installment within a period of ten years.
The house and lot were delivered to [Angeles] in 1995. Nonetheless, under the
contracts to sell executed between the parties, [GRI] retained ownership of the
property until full payment of the purchase price.
After sometime, [Angeles] failed to satisfy her monthly installments with [GRI].
[Angeles] was only able to pay thirty-five (35) installments for Contract to Sell No.
2271 and forty-eight (48) installments for Contract to Sell No. 2272. According to
[GRI], [Angeles] was given at least twelve (12) notices for payment in a span of
three (3) years but she still failed to settle her account despite receipt of said
notices and without any valid reason. [Angeles] was again given more time to
pay her dues and likewise furnished with three (3) notices reminding her to pay
her outstanding balance with warning of impending legal action and/or rescission
of the contracts, but to no avail. After giving a total of fifty-one (51) months grace
period for both contracts and in consideration of the continued disregard of the
demands of [GRI], [Angeles] was served with a notice of notarial rescission dated
11 September 2003 by registered mail which she allegedly received on 19
September 2003 as evidenced by a registry return receipt.
Consequently [Angeles] was furnished by [GRI] with a demand letter dated 26
September 2003 demanding her to pay the amount of One Hundred Twelve
Thousand Three Hundred Four Pesos and Forty Two Centavos (Php
112,304.42) as outstanding reasonable rentals for her use and occupation of the
house and lot as of August 2003 and to vacate the same. She was informed in
said letter that the fifty percent (50%) refundable amount that she is entitled to
has already been deducted with the reasonable value for the use of the
properties or the reasonable rentals she incurred during such period that she was
not able to pay the installments due her. After deducting the rentals from the
refundable amount, she still had a balance of One Hundred Twelve Thousand
Three Hundred Four Pesos and Forty Two Centavos (Php 112,304.42) which
she was required to settle within fifteen (15) days from receipt of the letter.
Allegedly, [Angeles] subsequently sent postal money orders through registered
mail to [GRI]. In a letter dated 27 January 2004 [Angeles] was notified by [GRI] of
its receipt of a postal money order sent by [Angeles]. More so, she was
requested to notify [GRI] of the purpose of the payment. [Angeles] was informed
that if the postal money order was for her monthly amortization, the same will not
be accepted and she was likewise requested to pick it up from [GRI’s] office. On
29 January 2004, another mail with a postal money order was sent by [Angeles]
to [GRI]. In her 6 February 2004 letter, [GRI] was informed that the postal money
orders were supposed to be payments for her monthly amortization. Again, in its
8 February 2004 letter, it was reiterated by [GRI] that the postal money orders
will only be accepted if the same will serve as payment of her outstanding rentals
and not as monthly amortization. Four (4) more postal money orders were sent
by [Angeles] by registered mail to [GRI].
For her continued failure to satisfy her obligations with [GRI] and her refusal to
vacate the house and lot, [GRI] filed a complaint for unlawful detainer against
[Angeles] on 11 November 2003.8
The MeTC’s Ruling
The MeTC of Branch 79, Las Piñas City ruled in favor of GRI. The MeTC
determined that the case was for an unlawful detainer, and thus assumed
jurisdiction. The MeTC further held that the facts show that GRI was able to
establish the validity of the rescission:
A careful scrutiny of the evidence presented by both parties regarding payments
made clearly show that [Angeles] defaulted in the payment of the monthly
installments due. Repeated notices and warnings were given to her but she still
and failed to update her account (Exhibits "E" to "E-1" and "G" to "G-2", [GRI’s]
Position Paper). This is a clear violation of the condition of their contracts. An
ample grace period, i.e., 51 months, was granted to her by [GRI] but she still
failed to pay the whole amount due as provided in paragraph 6 of the contracts
and Section 3 of RA 6552. [Angeles] has been in arrears beyond the grace
period provided under the contracts and law. The last payment received by [GRI],
which represents [Angeles’] 35th installment, was made in July 2002. On the
other hand, the last payment, which represents her 48th installment, [was]
received [by GRI] in April 1999. Thus, [GRI], as seller, can terminate or rescind
the contract by giving her the notice of notarial rescission of the contracts. The
notarial rescission of the contracts was executed on September 26, 2003 and
served upon [Angeles].9
Although the MeTC agreed with Angeles that her total payment is already more
than the contracted amount, the MeTC found that Angeles did not pay the
monthly amortizations in accordance with the terms of the contract. Interests and
penalties accumulated and increased the amount due. Furthermore, the MeTC
found the monthly rentals imposed by GRI reasonable and within the range of the
prevailing rental rates in the vicinity. Compensation between GRI and Angeles
legally took effect in accordance with Article 129010 of the Civil Code. The MeTC
ruled that GRI is entitled to ₱1,060,896.39 by way of reasonable rental fee less
₱574,148.40 as of May 2005, thus leaving a balance of ₱486,747.99 plus the
amount accruing until Angeles finally vacates the subject premises.
The dispositive portion of the MeTC’s Decision reads:
WHEREFORE, in view of the foregoing, the Court renders judgment for [GRI]
and against [Angeles] and all persons claiming rights under her, as follows:
1. Ordering [Angeles] and all persons claiming rights under her to immediately
vacate the property subject of this case situated at Blk. 3, Lot 8, Lanzones St.,
Phase 3-C, Gatchalian Subdivision, Las Piñas City and surrender possession
thereof to [GRI];
2. Ordering the encashment of the Postal Money Order (PMO) in the total
amount of Php 120,000.00 in favor of [GRI];
3. Ordering [Angeles] to pay [GRI] the outstanding amount of Php 486,747.99
representing reasonable monthly rentals of the subject premises as of May 2005
less the amount of the postal money orders [worth] Php 120,000.00 and all the
monthly rentals that will accrue until she vacates the subject premises and have
possession thereof turned over to [GRI], plus the interests due thereon at the rate
of twelve percent (12%) per annum from the time of extra-judicial demand;
4. Ordering [Angeles] to pay [GRI] the amount of Php 20,000.00 as attorney’s
fees; and
5. Costs of suit.
[Angeles’] counterclaims are hereby dismissed for lack of merit.
SO ORDERED.11
On 21 March 2006, Angeles filed a notice of appeal with the MeTC. A week later,
on 28 March 2006, Angeles filed a motion to dismiss based on lack of
jurisdiction. The Las Piñas RTC denied Angeles’ motion to dismiss in an order
dated 28 July 2006.
Angeles also filed on 2 October 2006 a Petition for Certiorari with Immediate
Issuance of Temporary Restraining Order and Injunction, which was docketed as
SCA Case No. 06-008.12 On 3 May 2007, Branch 201 of the Las Piñas RTC
dismissed Angeles’ Petition for Certiorari for forum-shopping.13
GRI, on the other hand, filed a Motion for Execution Pending Appeal. A Writ of
Execution Pending Appeal was issued in favor of GRI on 25 August 2006, and
the properties were turned over to GRI on 10 October 2006.14
The RTC’s Ruling
Angeles’ appeal before Branch 197 of the Las Piñas RTC initially produced a
result favorable to her. The RTC found that the case was one for ejectment. As
an ejectment court, the MeTC’s jurisdiction is limited only to the issue of
possession and does not include the title or ownership of the properties in
question.
The RTC pointed out that Republic Act No. 6552 (R.A. 6552) provides that the
non-payment by the buyer of an installment prevents the obligation of the seller
to convey title from acquiring binding force. Moreover, cancellation of the contract
to sell may be done outside the court when the buyer agrees to the cancellation.
In the present case, Angeles denied knowledge of GRI’s notice of cancellation.
Cancellation of the contract must be done in accordance with Section 3 of R.A.
6552, which requires a notarial act of rescission and refund to the buyer of the
cash surrender value of the payments on the properties. Thus, GRI cannot insist
on compliance with Section 3(b) of R.A. 6552 by applying Angeles’ cash
surrender value to the rentals of the properties after Angeles failed to pay the
Page | 8
installments due. Contrary to the MeTC’s ruling, there was no legal
compensation between GRI and Angeles. The RTC ruled:
There being no valid cancellation of the Contract to Sell, this Court finds merit in
the appeal filed by [Angeles] and REVERSES the decision of the court a quo.
This Court recognized [Angeles’] right to continue occupying the property subject
of the Contract to Sell.
WHEREFORE, premises considered, the decision of the lower court is hereby
SET ASIDE and the ejectment case filed by [GRI] is hereby DISMISSED.
SO ORDERED.15
GRI filed a Motion for Reconsideration. The RTC issued an Order on 17 June
2008 which ruled that GRI had complied with the provisions of R.A. 6552, and
had refunded the cash surrender value to Angeles upon its cancellation of the
contract to sell when it deducted the amount of the cash surrender value from
rentals due on the subject properties. The RTC relied on this Court’s ruling in
Pilar Development Corporation v. Spouses Villar.16 The RTC ruled:
Applying the above Pilar ruling in the present case, the cash surrender value of
the payments made by [Angeles] shall be applied to the rentals that accrued on
the property occupied by [Angeles], which rental is fixed by this Court in the
amount of seven thousand pesos per month (₱7,000.00). The total rental
payment due to Gatchalian Realty Inc. is six hundred twenty three thousand
(₱623,000.00) counted from June 1999 to October 2006. According to R.A. 6552,
the cash surrender value, which in this case is equivalent to fifty percent (50%) of
the total payment made by [Angeles], should be returned to her by [GRI] upon
cancellation of the contract to sell on September 11, 2003. Admittedly no such
return was ever made by [GRI]. Thus, the cash surrender value, which in this
case is equivalent to ₱182,094.48 for Contract to Sell No. 2271 and ₱392,053.92
for Contract to Sell No. 2272 or a total cash surrender value of ₱574,148.40
should be deducted from the rental payment or award owing to [Angeles].
WHEREFORE, premises considered, the Motion for Reconsideration is hereby
GRANTED. The earlier decision dated February 13, 2008 is SET ASIDE and the
decision of the court a quo is MODIFIED to wit:
1. Ordering [Angeles] and all persons claiming rights under her to immediately
vacate the property subject of this case situated at Blk. 3, Lot 8, Lanzones St.,
Phase 3-C, Gatchalian Subdivision, Las Piñas City and surrender possession
thereof to [GRI];
2. Ordering the encashment of the Postal Money Order (PMO) in the total
amount of Php 120,000.00 in favor of [GRI];
3. Ordering defendant, Evelyn M. Angeles, to pay plaintiff, Gatchalian Realty Inc.,
the outstanding rental amount of forty eight thousand eight hundred fifty one
pesos and sixty centavos (₱48,851.60) and legal interest of six percent (6%) per
annum, until the above amount is paid;
4. Ordering [Angeles] to pay [GRI] the amount of Php 20,000.00 as attorney’s
fees; and
5. Costs of suit.
SO ORDERED.17
The Court of Appeals’ Ruling
The CA dismissed GRI’s complaint for unlawful detainer, and reversed and set
aside the RTC’s decision. Although the CA ruled that Angeles received the notice
of notarial rescission, it ruled that the actual cancellation of the contract between
the parties did not take place because GRI failed to refund to Angeles the cash
surrender value. The CA denied GRI’s motion for reconsideration.
GRI filed the present petition for review before this Court on 10 August 2012.
The Issues
GRI assigned the following errors of the CA:
The court a quo committed reversible error when it declared that there was no
refund of the cash surrender value in favor of [Angeles] pursuant to R.A. No.
6552; and
The court a quo erred in holding that the actual cancellation of the contract
between the parties did not take place.18
The Court’s Ruling
GRI’s petition has no merit. We affirm the ruling of the CA with modification.
Validity of GRI’s
Cancellation of the Contracts
Republic Act No. 6552, also known as the Maceda Law, or the Realty Installment
Buyer Protection Act, has the declared public policy of "protecting buyers of real
estate on installment payments against onerous and oppressive
conditions."19 Section 3 of R.A. 6552 provides for the rights of a buyer who has
paid at least two years of installments but defaults in the payment of succeeding
installments. Section 3 reads:
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.
The sixth paragraph of the contracts between Angeles and GRI similarly
provides:
SIXTH - Should the VENDEE/S fail to pay due any monthly installment the
VENDOR shall have the right to cancel this Contract and resell the lot/s subject
matter of this contract to another buyer, provided, however, that where the
VENDEE/S has/have already paid at least two years of installments, the
VENDEE/S will have the right:
a) to pay without additional interest, the installments in arrears within the total
grace period earned by him/her/them which is hereby fixed at the rate of one (1)
month grace period for every one (1) year of installment payment made, but this
right can be exercised by the VENDEE/S only once in every five (5) years of the
life of this contract and its extension, if any, and
b) if the contract is cancelled, the VENDOR shall refund to the VENDEE/S the
cash surrender value of the payments made on the lot/s equivalent to fifty per
cent (50%) of the total payments made, and after five (5) years of installment, an
additional five per cent (5%) every year but not to exceed ninety per cent (90%)
of the total payments made; Provided, that the actual cancellation of the contract
shall take place after thirty (30) days from the receipt by the VENDEE/S of the
notice of cancellation or the demand for rescission of the contract by a notarial
act upon full payment of the cash surrender value to the VENDEE/S; where,
however, the VENDEE/S has/have paid less than two (2) years of installments,
the VENDOR shall give the VENDEE/S [a] grace period of sixty (60) days from
the date the installment became due; and if the VENDEE/S fail/s to pay the
installment due after the expiration of the grace period, the VENDOR may cancel
the contract after thirty (30) days from receipt by the VENDEE/S of the notice of
cancellation or the demand for rescission of the contract by a notarial act; and in
case of cancellation and/or rescission of this contract, all improvements on the
lot/s above-described shall be forfeited in favor of the VENDOR, and in this
connection, the VENDEE/S obligate/s himself/herself/themselves to peacefully
vacate the premises mentioned above without necessity of notice or demand by
the VENDOR.20
We examine GRI’s compliance with the requirements of R.A. 6552, as it insists
that it extended to Angeles considerations that are beyond what the law provides.
Grace Period
It should be noted that Section 3 of R.A. 6552 and paragraph six of Contract Nos.
2271 and 2272, speak of "two years of installments." The basis for computation
of the term refers to the installments that correspond to the number of months of
payments, and not to the number of months that the contract is in effect as well
as any grace period that has been given. Both the law and the contracts thus
prevent any buyer who has not been diligent in paying his monthly installments
from unduly claiming the rights provided in Section 3 of R.A. 6552.
The MeTC, the RTC, and the CA all found that Angeles was able to pay 35
installments for the lot (Contract No. 2271) and 48 installments for the house
(Contract No. 2272).21 Angeles thus made installment payments for less than
three years on the lot, and exactly four years on the house.
Section 3(a) of R.A. 6552 provides that the total grace period corresponds to one
month for every one year of installment payments made, provided that the buyer
may exercise this right only once in every five years of the life of the contract and
its extensions. The buyer’s failure to pay the installments due at the expiration of
the grace period allows the seller to cancel the contract after 30 days from the
buyer’s receipt of the notice of cancellation or demand for rescission of the
contract by a notarial act. Paragraph 6(a) of the contract gave Angeles the same
rights.
Both the RTC and the CA found that GRI gave Angeles an accumulated grace
period of 51 months.22 This extension went beyond what was provided in R.A.
6552 and in their contracts.
Receipt of the Notice of Notarial Rescission
Page | 9
The registry return of the registered mail is prima facie proof of the facts indicated
therein.23 Angeles failed to present contrary evidence to rebut this presumption
with competent and proper evidence. To establish its claim of service of the
notarial rescission upon Angeles, GRI presented the affidavit of its liaison officer
Fortunato Gumahad,24 the registry receipt from the Greenhills Post Office,25 and
the registry return receipt.26 We affirm the CA’s ruling that GRI was able to
substantiate its claim that it served Angeles the notarial rescission sent through
registered mail in accordance with the requirements of R.A. 6552.
Amount of the Cash Surrender Value
GRI claims that it gave Angeles a refund of the cash surrender value of both the
house and the lot in the total amount of ₱574,148.40 when it deducted the
amount of the cash surrender value from the amount of rentals due.
For paying more than two years of installments on the lot, Angeles was entitled to
receive cash surrender value of her payments on the lot equivalent to fifty per
cent of the total payments made. This right is provided by Section 3(b) of R.A.
6552, as well as paragraph 6(b) of the contract. Out of the contract price of
₱450,000, Angeles paid GRI a total of ₱364,188.96 consisting of ₱135,000 as
downpayment and ₱229,188.96 as installments and penalties.27 The cash
surrender value of Angeles’ payments on the lot amounted to ₱182,094.48.28
For the same reasons, Angeles was also entitled to receive cash surrender value
of the payments on the house equivalent to fifty per cent of the total payments
made. Out of the contract price of ₱750,000, Angeles paid GRI a total of
₱784,107.84 consisting of ₱165,000 as downpayment and ₱619,107.84 as
installments and penalties.29 The cash surrender value of Angeles’ payments on
the house amounted to ₱392,053.92.30
Actual Cancellation of the Contracts
There was no actual cancellation of the contracts because of GRI’s failure to
actually refund the cash surrender value to Angeles.
Cancellation of the contracts for the house and lot was contained in a notice of
notarial rescission dated 11 September 2003.31 The registry return receipts show
that Angeles received this notice on 19 September 2003.32GRI’s demand for
rentals on the properties, where GRI offset Angeles’ accrued rentals by the
refundable cash surrender value, was contained in another letter dated 26
September 2003.33 The registry return receipts show that Angeles received this
letter on 29 September 2003.34 GRI filed a complaint for unlawful detainer
against Angeles on 11 November 2003, 61 days after the date of its notice of
notarial rescission, and 46 days after the date of its demand for rentals. For her
part, Angeles sent GRI postal money orders in the total amount of ₱120,000.35
The MeTC ruled that it was proper for GRI to compensate the rentals due from
Angeles’ occupation of the property from the cash surrender value due to
Angeles from GRI. The MeTC stated that compensation legally took effect in
accordance with Article 1290 of the Civil Code, which reads: "When all the
requisites mentioned in Article 1279 are present, compensation takes effect by
operation of law and extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the compensation." In turn,
Article 1279 of the Civil Code provides:
In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist of a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
However, it was error for the MeTC to apply Article 1279 as there was nothing in
the contracts which provided for the amount of rentals in case the buyer defaults
in her installment payments. The rentals due to GRI were not liquidated. GRI, in
its letter to Angeles dated 26 September 2003, unilaterally imposed the amount
of rentals, as well as an annual 10% increase:
We cannot subscribe to GRI’s view that it merely followed our ruling in Pilar
Development Corporation v. Spouses Villar37 (Pilar) when it deducted the cash
surrender value from the rentals due. In Pilar, the developer also failed to refund
the cash surrender value to the defaulting buyer when it cancelled the Contract to
Sell through a Notice of Cancellation. It was this Court, and not the developer,
that deducted the amount of the cash surrender value from the accrued rentals.
Moreover, the developer in Pilar did not unilaterally impose rentals. It was the
MeTC that decreed the amount of monthly rent. Neither did the developer
unilaterally reduce the accrued rentals by the refundable cash surrender value.
The cancellation of the contract took effect only by virtue of this Court’s judgment
because of the developer’s failure to return the cash surrender value.
This was how we ruled in Pilar:
According to R.A. 6552, the cash surrender value, which in this case is
equivalent to fifty percent (50%) of the total payment made by the respondent
spouses, should be returned to them by the petitioner upon the cancellation of
the contract to sell on August 31, 1998 for the cancellation to take effect.
Admittedly, no such return was ever made by petitioner. Thus, the said cash
surrender value is hereby ordered deducted from the award owing to the
petitioner based on the MeTC judgment, and cancellation takes effect by virtue of
this judgment.
Finally, as regards the award of ₱7,000.00/month as rental payment decreed by
the MeTC for the use of the property in question from the time the respondent
spouses obtained possession thereof up to the time that its actual possession is
surrendered or restored to the petitioner, the Court finds the same just and
equitable to prevent the respondent spouses, who breached their contract to sell,
from unjustly enriching themselves at the expense of the petitioner which, for all
legal intents and purposes, never ceased to be the owner of the same property
because of the respondents’ non-fulfillment of the indispensable condition of full
payment of the purchase price, as embodied in the parties’ contract to sell.
However, as earlier explained, this sum is to be reduced by the cash surrender
value of the payments so far made by the spouses, and the resulting net amount
still owing as accrued rentals shall be subject to legal interest from finality of this
Decision up to the time of actual payment thereof.38
Mandatory Twin Requirements:
Notarized Notice of Cancellation and
Refund of Cash Surrender Value
This Court has been consistent in ruling that a valid and effective cancellation
under R.A. 6552 must comply with the mandatory twin requirements of a
notarized notice of cancellation and a refund of the cash surrender value.
In Olympia Housing, Inc. v. Panasiatic Travel Corp.,39 we ruled that the notarial
act of rescission must be accompanied by the refund of the cash surrender
value.
x x x The actual cancellation of the contract can only be deemed to take place
upon the expiry of a 30-day period following the receipt by the buyer of the notice
of cancellation or demand for rescission by a notarial act and the full payment of
the cash surrender value.
In Pagtalunan v. Dela Cruz Vda. De Manzano,40 we ruled that there is no valid
cancellation of the Contract to Sell in the absence of a refund of the cash
surrender value. We stated that:
x x x Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value of
the payments on the property to the buyer before cancellation of the contract.
The provision does not provide a different requirement for contracts to sell which
allow possession of the property by the buyer upon execution of the contract like
the instant case. Hence, petitioner cannot insist on compliance with the
requirement by assuming that the cash surrender value payable to the buyer had
been applied to rentals of the property after respondent failed to pay the
installments due. (Emphasis supplied)
Remedies of the Buyer
in the Absence of a Valid Cancellation of a Contract to Sell
In view of the absence of a valid cancellation, the Contract to Sell between GRI
and Angeles remains valid and subsisting. Apart from Olympia and Pagtalunan,
we are guided by our rulings in Active Realty & Development Corp. v.
Daroya41 (Active) and Associated Marine Officers and Seamen’s Union of the
Philippines PTGWO-ITF v. Decena42 (Associated).
In Olympia , this Court dismissed the complaint for recovery of possession for
having been prematurely filed without complying with the mandate of R.A. 6552.
We ordered the defaulting buyer to pay the developer the balance as of the date
of the filing of the complaint plus 18% interest per annum computed from the day
after the date of the filing of the complaint, but within 60 days from the receipt of
a copy of the decision. Upon payment, the developer shall issue the
corresponding certificate of title in favor of the defaulting buyer. If the defaulting
buyer fails to pay the full amount, then the defaulting buyer shall vacate the
subject property without need of demand and all payments will be charged as
rentals to the property. There was no award for damages and attorney’s fees,
and no costs were charged to the parties.
In Pagtalunan, this Court dismissed the complaint for unlawful detainer. We also
ordered the defaulting buyer to pay the developer the balance of the purchase
price plus interest at 6% per annum from the date of filing of the complaint up to
the finality of judgment, and thereafter, at the rate of 12% per annum. Upon
payment, the developer shall issue a Deed of Absolute Sale of the subject
property and deliver the corresponding certificate of title in favor of the defaulting
buyer. If the defaulting buyer fails to pay the full amount within 60 days from
finality of the decision, then the defaulting buyer should vacate the subject
property without need of demand and all payments will be charged as rentals to
the property. No costs were charged to the parties.
In Active, this Court held that the Contract to Sell between the parties remained
valid because of the developer’s failure to send a notarized notice of cancellation
and to refund the cash surrender value. The defaulting buyer thus had the right to
offer to pay the balance of the purchase price, and the developer had no choice
but to accept payment. However, the defaulting buyer was unable to exercise this
right because the developer sold the subject lot. This Court ordered the
developer to refund to the defaulting buyer the actual value of the lot with 12%
interest per annum computed from the date of the filing of the complaint until fully
paid, or to deliver a substitute lot at the option of the defaulting buyer.
In Associated, this Court dismissed the complaint for unlawful detainer. We held
that the Contract to Sell between the parties remained valid because the
developer failed to send to the defaulting buyer a notarized notice of cancellation
and to refund the cash surrender value. We ordered the MeTC to conduct a
hearing within 30 days from receipt of the decision to determine the unpaid
Page | 10
balance of the full value of the subject properties as well as the current
reasonable amount of rent for the subject properties. We ordered the defaulting
buyer to pay, within 60 days from the trial court’s determination of the amounts,
the unpaid balance of the full value of the subject properties with interest at 6%
per annum computed from the date of sending of the notice of final demand up to
the date of actual payment. Upon payment, we ordered the developer to execute
a Deed of Absolute Sale over the subject properties and deliver the transfer
certificate of title to the defaulting buyer. In case of failure to pay within the
mandated 60-day period, we ordered the defaulting buyer to immediately vacate
the premises without need for further demand. The developer should also pay
the defaulting buyer the cash surrender value, and the contract should be
deemed cancelled 30 days after the defaulting buyer’s receipt of the full payment
of the cash surrender value. If the defaulting buyer failed to vacate the premises,
he should be charged reasonable rental in the amount determined by the trial
court.

We observe that this case has, from the institution of the complaint, been
pending with the courts for 10 years. As both parties prayed for the issuance of
reliefs that are just and equitable under the premises, and in the exercise of our
discretion, we resolve to dispose of this case in an equitable manner.
Considering that GRI did not validly rescind Contracts to Sell Nos. 2271 and
2272, Angeles has two options:

1. The option to pay, within 60 days from the MeTC’s determination of the proper
amounts, the unpaid balance of the full value of the purchase price of the subject
properties plus interest at 6% per annum from 11 November 2003, the date of
filing of the complaint, up to the finality of this Decision, and thereafter, at the rate
of 6% per annum.43 Upon payment of the full amount, GRI shall immediately
execute Deeds of Absolute Sale over the subject properties and deliver the
corresponding transfer certificate of title to Angeles.

In the event that the subject properties are no longer available, GRI should offer
substitute properties of equal value.1âwphi1 Acceptance of the suitability of the
substitute properties is Angeles’ sole prerogative. Should Angeles refuse the
substitute properties, GRI shall refund to Angeles the actual value of the subject
properties with 6% interest per annum 44 computed from 11 November 2003, the
date of the filing of the complaint, until fully paid; and

2. The option to accept from GRI ₱574,148.40, the cash surrender value of the
subject properties, with interest at 6% per annum,45 computed from 11 November
2003, the date of the filing of the complaint, until fully paid. Contracts to Sell Nos.
2271 and 2272 shall be deemed cancelled 30 days after Angeles’ receipt of
GRI’s full payment of the cash surrender value. No rent is further charged upon
Angeles as GRI already had possession of the subject properties on 10 October
2006.

WHEREFORE, we DENY the petition. The Decision of the Court of Appeals in

CA-G.R. SP No. 105964 promulgated on 11 November 2011 and the Resolution
promulgated on 19 June 2012 are AFFIRMED with MODIFICATIONS.

1. The Metropolitan Trial Court of Las Piñas City is directed to conduct a hearing
within a maximum period of 30 days from finality of this Decision to (1) determine
Evelyn M. Angeles’ unpaid balance on Contracts to Sell Nos. 2271 and 2272;
and (2) the actual value of the subject properties as of 11 November 2003.

2. Evelyn M. Angeles shall notify the Metropolitan Trial Court of Las Piñas City
and Gatchalian Realty, Inc. within a maximum period of 60 days from the
Metropolitan Trial Court of Las Piñas City’s determination of the unpaid balance
whether she will pay the unpaid balance or accept the cash surrender value.

Should Evelyn M. Angeles choose to pay the unpaid balance, she shall pay,
within 60 days from the MeTC’s determination of the proper amounts, the unpaid
balance of the full value of the purchase price of the subject properties plus
interest at 6% per annum from 11 November 2003, the date of filing of the
complaint, up to the finality of this Decision, and thereafter, at the rate of 6% per
annum. Upon payment of the full amount, GRI shall immediately execute Deeds
of Absolute Sale over the subject properties and deliver the corresponding
transfer certificate of title to Angeles.

In the event that the subject properties are no longer available, GRI should offer
substitute properties of equal value. Should Angeles refuse the substitute
properties, GRI shall refund to Angeles the actual value of the subject properties
with 6 interest per annum computed from November 2003, the date of the filing of
the complaint, until fully paid. Should Evelyn M. Angeles choose to accept
payment of the cash surrender value, she shall receive from GRI ₱574,148.40
with interest at 6 per annum computed from November 2003, the date of the filing
of the complaint, until fully paid. Contracts to Sell Nos. 2271 and 2272 shall be
deemed cancelled 30 days after Angeles' receipt of GRI's full payment of the
cash surrender value. No rent is further charged upon Evelyn M. Angeles.

No costs.

SO ORDERED.

Page | 11
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 131679 February 1, 2000
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST
COMPANY, petitioners,
vs.
SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF
APPEALS, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court of Appeals
in C.A. GR CV No. 42315 and the order dated December 9, 1997 denying
petitioners' motion for reconsideration.
The following facts are not in dispute.
Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust
Company (FEBTC) are banking institutions duly organized and existing under
Philippine laws. On or about June 15, 1983, a certain Rodolfo Guansing obtained
a loan in the amount of P90,000.00 from CDB, to secure which he mortgaged a
parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and
covered by TCT No. 300809 registered in his name. As Guansing defaulted in
the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale
held on March 15, 1984, the mortgaged property was sold to CDB as the highest
bidder. Guansing failed to redeem, and on March 2, 1987, CDB consolidated title
to the property in its name. TCT No. 300809 in the name of Guansing was
cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of
CDB.1âwphi1.nêt
On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker
named Remedios Gatpandan, offered to purchase the property from CDB. The
written Offer to Purchase, signed by Lim and Gatpandan, states in part:
We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La
Loma, Quezon City for P300,000.00 under the following terms and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of illegal occupants or tenants.
Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB
P30,000.00 as Option Money, for which she was issued Official Receipt No.
3160, dated June 17, 1988, by CDB. However, after some time following up the
sale, Lim discovered that the subject property was originally registered in the
name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT
No. 91148. Rodolfo succeeded in having the property registered in his name
under TCT No. 300809, the same title he mortgaged to CDB and from which the
latter's title (TCT No. 355588) was derived. It appears, however, that the father,
Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court, Branch
83, Quezon City, for the cancellation of his son's title. On March 23, 1984, the
trial court rendered a decision2 restoring Perfecto's previous title (TCT No.
91148) and cancelling TCT No. 300809 on the ground that the latter was
fraudulently secured by Rodolfo. This decision has since become final and
executory.
Aggrieved by what she considered a serious misrepresentation by CDB and its
mother-company, FEBTC, on their ability to sell the subject property, Lim, joined
by her husband, filed on August 29, 1989 an action for specific performance and
damages against petitioners in the Regional Trial Court, Branch 96, Quezon City,
where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the
complaint was amended by impleading the Register of Deeds of Quezon City as
an additional defendant.
On March 10, 1993, the trial court rendered a decision in favor of the Lim
spouses. It ruled that: (1) there was a perfected contract of sale between Lim and
CDB, contrary to the latter's contention that the written offer to purchase and the
payment of P30,000.00 were merely pre-conditions to the sale and still subject to
the approval of FEBTC; (2) performance by CDB of its obligation under the
perfected contract of sale had become impossible on account of the 1984
decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor
Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite
the impossibility of performance, because they could not credibly disclaim
knowledge of the cancellation of Rodolfo Guansing's title without the admitting
their failure to discharge their duties to the public as reputable banking
institutions; and (4) CDB and FEBTC are liable for damages for the prejudice
caused against the Lims.3 Based on the foregoing findings, the trial court ordered
CDB and FEBTC to pay private respondents, jointly and severally, the amount of
P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full
payment. It also ordered petitioners to pay private respondents, jointly and
severally, the amounts of P250,000.00 as moral damages, P50,000.00 as
exemplary damages, P30,000.00 as attorney's fees, and the costs of the suit.4
Petitioners brought the matter to the Court of Appeals, which, on October 14,
1997, affirmed in toto the decision of the Regional Trial Court. Petitioners moved
for reconsideration, but their motion was denied by the appellate court on
December 9, 1997. Hence, this petition. Petitioners contend that —
1. The Honorable Court of Appeals erred when it held that petitioners CDB and
FEBTC were aware of the decision dated March 23, 1984 of the Regional Trial
Court of Quezon City in Civil Case No. Q-39732.
2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on
the deposit of THIRTY THOUSAND PESOS (P30,000.00) by applying Article
2209 of the New Civil Code.
3. The Honorable Court of Appeals erred in ordering petitioners to pay moral
damages, exemplary damages, attorney's fees and costs of suit.
I.
At the outset, it is necessary to determine the legal relation, if any, of the parties.
Petitioners deny that a contract of sale was ever perfected between them and
private respondent Lolita Chan Lim. They contend that Lim's letter-offer clearly
states that the sum of P30,000,00 was given as option money, not as earnest
money.5 They thus conclude that the contract between CDB and Lim was merely
an option contract, not a contract of sale.
The contention has no merit. Contracts are not defined by the parries thereto but
by principles of law.6 In determining the nature of a contract, the courts are not
bound by the name or title given to it by the contracting parties.7 In the case at
bar, the sum of P30,000.00, although denominated in the offer to purchase as
"option money," is actually in the nature of earnest money or down payment
when considered with the other terms of the offer. In Carceler v. Court of
Appeals,8 we explained the nature of an option contract, viz. —
An option contract is a preparatory contract in which one party grants to the
other, for a fixed period and under specified conditions, the power to decide,
whether or not to enter into a principal contract, it binds the party who has given
the option not to enter into the principal contract with any other person during the
period; designated, and within that period, to enter into such contract with the
one to whom the option was granted, if the latter should decide to use the option.
It is a separate agreement distinct from the contract to which the parties may
enter upon the consummation of the option.
An option contract is therefore a contract separate from and preparatory to a
contract of sale which, if perfected, does not result in the perfection or
consummation of the sale. Only when the option is exercised may a sale be
perfected.
In this case, however, after the payment of the 10% option money, the Offer to
Purchase provides for the payment only of the balance of the purchase price,
implying that the "option money" forms part of the purchase price. This is
precisely the result of paying earnest money under Art. 1482 of the Civil Code. It
is clear then that the parties in this case actually entered into a contract of sale,
partially consummated as to the payment of the price. Moreover, the following
findings of the trial court based on the testimony of the witnesses establish that
CDB accepted Lim's offer to purchase:
It is further to be noted that CDB and FEBTC already considered plaintiffs' offer
as good and no longer subject to a final approval. In his testimony for the
defendants on February 13, 1992, FEBTC's Leomar Guzman stated that he was
then in the Acquired Assets Department of FEBTC wherein plaintiffs' offer to
purchase was endorsed thereto by Myoresco Abadilla, CDB's senior vice-
president, with a recommendation that the necessary petition for writ of
possession be filed in the proper court; that the recommendation was in accord
with one of the conditions of the offer, i.e., the clearing of the property of illegal
occupants or tenants (tsn, p. 12); that, in compliance with the request, a petition
for writ of possession was thereafter filed on July 22, 1988 (Exhs. 1 and 1-A);
that the offer met the requirements of the banks; and that no rejection of the offer
was thereafter relayed to the plaintiffs (p. 17); which was not a normal procedure,
and neither did the banks return the amount of P30,000.00 to the plaintiffs.9
Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of
sale was perfected and, indeed, partially executed because of the partial
payment of the purchase price. There is, however, a serious legal obstacle to
such sale, rendering it impossible for CDB to perform its obligation as seller to
deliver and transfer ownership of the property.
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give
what one does not have. In applying this precept to a contract of sale, a
distinction must be kept in mind between the "perfection" and "consummation"
stages of the contract.
A contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price.10 It is, therefore,
not required that, at the perfection stage, the seller be the owner of the thing sold
or even that such subject matter of the sale exists at that point in time. 11 Thus,
under Art. 1434 of the Civil Code, when a person sells or alienates a thing which,
at that time, was not his, but later acquires title thereto, such title passes by
operation of law to the buyer or grantee. This is the same principle behind the
sale of "future goods" under Art. 1462 of the Civil Code. However, under Art.
1459, at the time of delivery or consummation stage of the sale, it is required that
the seller be the owner of the thing sold. Otherwise, he will not be able to comply
with his obligation to transfer ownership to the buyer. It is at the consummation
stage where the principle of nemo dat quod non habet applies.
In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the
sellers of the subject land were no longer the owners of the same because of a
prior sale.13 Again, in Nool v. Court of Appeals,14 we ruled that a contract of
repurchase, in which the seller does not have any title to the property sold, is
invalid:
Page | 12
We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable
only to valid and enforceable contracts. The Regional Trial Court and the Court of
Appeals rules that the principal contract of sale contained in Exhibit C and the
auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the
two lower courts appears to find support in Dignos v. Court of Appeals, where the
Court held:
Be that as it may, it is evident that when petitioners sold said land to the Cabigas
spouses, they were no longer owners of the same and the sale is null and void.
In the present case, it is clear that the sellers no longer had any title to the
parcels of land at the time of sale. Since Exhibit D, the alleged contract of
repurchase, was dependent on the validity of Exhibit C, it is itself void. A void
contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code
provides that (a) contract which is the direct result of a previous illegal contract, is
also void and inexistent.
We should however add that Dignos did not cite its basis for ruling that a "sale is
null and void" where the sellers "were no longer the owners" of the property.
Such a situation (where the sellers were no longer owners) does not appear to
be one of the void contracts enumerated in Article 1409 of the Civil Code.
Moreover, the Civil Code itself recognizes a sale where the goods are to be
acquired . . . by the seller after the perfection of the contract of sale, clearly
implying that a sale is possible even if the seller was not the owner at the time of
sale, provided he acquires title to the property later on.
In this case, there is no evidence that CDB observed its duty of diligence in
ascertaining the validity of Rodolfo Guansing's title. It appears that Rodolfo
Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement
of the Estate With Waiver where he made it appear that he and Perfecto
Guansing were the only surviving heirs entitled to the property, and that Perfecto
had waived all his rights thereto. This self-executed deed should have placed
CDB on guard against any possible defect in or question as to the mortgagor's
title. Moreover, the alleged ocular inspection report20 by CDB's representative
was never formally offered in evidence. Indeed, petitioners admit that they are
aware that the subject land was being occupied by persons other than Rodolfo
Guansing and that said persons, who are the heirs of Perfecto Guansing, contest
the title of Rodolfo.21
II.
The sale by CDB to Lim being void, the question now arises as to who, if any,
among the parties was at fault for the nullity of the contract. Both the trial court
and the appellate court found petitioners guilty of fraud, because on June 16,
1988, when Lim was asked by CDB to pay the 10% option money, CDB already
knew that it was no longer the owner of the said property, its title having been
cancelled.22 Petitioners contend that: (1) such finding of the appellate court is
founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was
a party in the case where the mortgagor's title was cancelled; (3) CDB is not privy
to any problem among the Guansings; and (4) the final decision cancelling the
mortgagor's title was not annotated in the latter's title.

In the present case, however, it is likewise clear that the sellers can no longer
deliver the object of the sale to the buyers, as the buyers themselves have
already acquired title and delivery thereof from the rightful owner, the DBP. Thus,
such contract may be deemed to be inoperative and may thus fall, by analogy,
under item No. 5 of Article 1409 of the Civil Code: Those which contemplate an
impossible service. Article 1459 of the Civil Code provides that "the vendor must
have a right to transfer the ownership thereof [subject of the sale] at the time it is
delivered." Here, delivery of ownership is no longer possible. It has become
impossible.15
As a rule, only questions of law may be raised in a petition for review, except in
circumstances where questions of fact may be properly raised.23 Here, while
petitioners raise these factual issues, they have not sufficiently shown that the
instant case falls under any of the exceptions to the above rule. We are thus
bound by the findings of fact of the appellate court. In any case, we are
convinced of petitioners' negligence in approving the mortgage application of
Rodolfo Guansing.
III.

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by
Rodolfo Guansing must, therefore, be deemed a nullity for CDB did not have a
valid title to the said property. To be sure, CDB never acquired a valid title to the
property because the foreclosure sale, by virtue of which, the property had been
awarded to CDB as highest bidder, is likewise void since the mortgagor was not
the owner of the property foreclosed.
We now come to the civil effects of the void contract of sale between the parties.
Article 1412(2) of the Civil Code provides:
If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:

A foreclosure sale, though essentially a "forced sale," is still a sale in accordance xxx xxx xxx
with Art. 1458 of the Civil Code, under which the mortgagor in default, the forced
seller, becomes obliged to transfer the ownership of the thing sold to the highest
(2) When only one of the contracting parties is at fault, he cannot recover what
bidder who, in turn, is obliged to pay therefor the bid price in money or its
he has given by reason of the contract, or ask for the fulfillment of what has been
equivalent. Being a sale, the rule that the seller must be the owner of the thing
promised him. The other, who is not at fault, may demand the return of what he
sold also applies in a foreclosure sale. This is the reason Art. 208516 of the Civil
has given without any obligation to comply with his promise.
Code, in providing for the essential requisites of the contract of mortgage and
pledge, requires, among other things, that the mortgagor or pledgor be the
absolute owner of the thing pledged or mortgaged, in anticipation of a possible Private respondents are thus entitled to recover the P30,000,00 option money
foreclosure sale should the mortgagor default in the payment of the loan. paid by them. Moreover, since the filing of the action for damages against
petitioners amounted to a demand by respondents for the return of their money,
interest thereon at the legal rate should be computed from August 29, 1989, the
There is, however, a situation where, despite the fact that the mortgagor is not
date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners
the owner of the mortgaged property, his title being fraudulent, the mortgage
accepted the payment. This is in accord with our ruling in Castillo
contract and any foreclosure sale arising therefrom are given effect by reason of
v. Abalayan24 that in case of avoid sale, the seller has no right whatsoever to
public policy. This is the doctrine of "the mortgagee in good faith" based on the
keep the money paid by virtue thereof and should refund it, with interest at the
rule that all persons dealing with property covered by a Torrens Certificate of
legal rate, computed from the date of filing of the complaint until fully paid.
Title, as buyers or mortgagees, are not required to go beyond what appears on
Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the
the face of the title.17 The public interest in upholding the indefeasibility of a
return of what he has given" clearly implies that without such prior demand, the
certificate of title, as evidence of the lawful ownership of the land or of any
obligation to return what was given does not become legally demandable.
encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied
upon what appears on the face of the certificate of title.
Considering CDB's negligence, we sustain the award of moral damages on the
basis of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of
This principle is cited by petitioners in claiming that, as a mortgagee bank, it is
Appeals25 that moral damages may be recovered even if a bank's negligence is
not required to make a detailed investigation of the history of the title of the
not attended with malice and bad faith. We find, however, that the sum of
property given as security before accepting a mortgage.
P250,000.00 awarded by the trial court is excessive. Moral damages are only
intended to alleviate the moral suffering undergone by private respondent, not to
We are not convinced, however, that under the circumstances of this case, CDB enrich them at the expenses of the petitioners.26 Accordingly, the award of moral
can be considered a mortgagee in good faith. While petitioners are not expected damages must be reduced to P50,000.00.
to conduct an exhaustive investigation on the history of the mortgagor's title, they
cannot be excused from the duty of exercising the due diligence required of
Likewise, the award of P50,000.00 as exemplary damages, although justified
banking institutions. In Tomas v. Tomas,18 we noted that it is standard practice
under Art. 2232 of the Civil Code, is excessive and should be reduced to
for banks, before approving a loan, to send representatives to the premises of
P30,000.00. The award of P30,000.00 attorney's fees based on Art. 2208, pars.
the land offered as collateral and to investigate who are real owners thereof,
1, 2, 5 and 11 of the Civil Code should similarly be reduced to P20,000.00.
noting that banks are expected to exercise more care and prudence than private
individuals in their dealings, even those involving registered lands, for their
business is affected with public interest. We held thus: WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
MODIFICATION as to the award of damages as above stated.1âwphi1.nêt
We, indeed, find more weight and vigor in a doctrine which recognizes a better
right for the innocent original registered owner who obtained his certificate of title SO ORDERED.
through perfectly legal and regular proceedings, than one who obtains his
certificate from a totally void one, as to prevail over judicial pronouncements to
the effect that one dealing with a registered land, such as a purchaser, is under
no obligation to look beyond the certificate of title of the vendor, for in the latter
case, good faith has yet to be established by the vendee or transferee, being the
most essential condition, coupled with valuable consideration, to entitle him to
respect for his newly acquired title even as against the holder of an earlier and
perfectly valid title. There might be circumstances apparent on the face of the
certificate of title which could excite suspicion as to prompt inquiry, such as when
the transfer is not by virtue of a voluntary act of the original registered owner, as
in the instant case, where it was by means of a self-executed deed of extra-
judicial settlement, a fact which should be noted on the face of Eusebia Tomas
certificate of title. Failing to make such inquiry would hardly be consistent with
any pretense of good faith, which the appellant bank invokes to claim the right to
be protected as a mortgagee, and for the reversal of the judgment rendered
against it by the lower court.19

Page | 13
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 199648 January 28, 2015
FIRST OPTIMA REALTY CORPORATION, Petitioner,
vs.
SECURITRON SECURITY SERVICES, INC., Respondent.
DECISION
DEL CASTILLO, J.:
In a potential sale transaction, the prior payment of earnest money even before
the property owner can agree to sell his property is irregular, and cannot be used
to bind the owner to the obligations of a seller under an otherwise perfected
contract of sale; to cite a well-worn cliche, the carriage cannot be placed before
the horse. The property owner-prospective seller may not be legally obliged to
enter into a sale with a prospective buyer through the latter's employment of
questionable practices which prevent the owner from freely giving his consent to
the transaction; this constitutes a palpable transgression of the prospective
seller's rights of ownership over his property, an anomaly which the Court will
certainly not condone.
This Petition for Review on Certiorari1 seeks to set aside: 1) the September 30,
2011 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 93715 affirming
the February 16, 2009 Decision' of the Regional Trial Court (RTC) of Pasay City,
Branch 115 in Civil Case No. 06-0492 CFM; and 2) the CA’s December 9, 2011
Resolution4 denying the herein petitioner’s Motion for Reconsideration5 of the
assailed judgment.
Factual Antecedents
Petitioner First Optima Realty Corporation is a domestic corporation engaged in
the real estate business. It is the registered owner of a 256-square meter parcel
of land with improvements located in Pasay City, covered by Transfer Certificate
of Title No. 125318 (the subject property).6 Respondent Securitron Security
Services, Inc., on the other hand, is a domestic corporation with offices located
beside the subject property.
Looking to expand its business and add toits existing offices, respondent –
through its General Manager, Antonio Eleazar (Eleazar) – sent a December 9,
2004 Letter7 addressed to petitioner – through its Executive Vice-President,
Carolina T. Young (Young) – offering to purchase the subject property at
₱6,000.00 per square meter. A series of telephone calls ensued, but only
between Eleazar and Young’s secretary;8 Eleazar likewise personally negotiated
with a certain Maria Remoso (Remoso), who was an employee of petitioner.9 At
this point, Eleazar was unable to personally negotiate with Young or the
petitioner’s board of directors.
Sometime thereafter, Eleazar personally went to petitioner’s office offering to pay
for the subject property in cash, which he already brought with him. However,
Young declined to accept payment, saying that she still needed to secure her
sister’s advice on the matter.10 She likewise informed Eleazar that prior approval
of petitioner’s Board of Directors was required for the transaction, to which
remark Eleazar replied that respondent shall instead await such approval.11
On February 4, 2005, respondent sent a Letter12 of even date to petitioner. It was
accompanied by Philippine National Bank Check No. 24677 (the subject check),
issued for ₱100,000.00 and made payable to petitioner. The letter states thus:
Gentlemen:
As agreed upon, we are making a deposit of ONE HUNDRED THOUSAND
PESOS (Php 100,000.00) as earnest money for your property at the corner of
Layug St., & Lim-An St., Pasay City as per TCT No. 125318 with an area of 256
sq. m. at 6,000.00/ sq. m. for a total of ONE MILLION FIVE HUNDRED THIRTY
SIX THOUSAND PESOS (Php 1,536,000.00).
Full payment upon clearing of the tenants at said property and signing of the
Deed of Sale.
(signed)
ANTONIO S. ELEAZAR13
Despite the delicate nature of the matter and large amount involved, respondent
did not deliver the letter and check directly to Young or her office; instead, they
were coursed through an ordinary receiving clerk/receptionist of the petitioner,
who thus received the same and therefor issued and signed Provisional Receipt
No. 33430.14 The said receipt reads:
Received from x x x Antonio Eleazar x x x the sum of Pesos One Hundred
Thousand x x x
IN PAYMENT OF THE FOLLOWING x x x
Earnest money or Partial payment of
Pasay Property Layug & Lim-an St. x x x.
Note: This is issued to transactions not
yet cleared but subsequently an OfficialReceipt will be issued. x x x15
The check was eventually deposited with and credited to petitioner’s bank
account.
Thereafter, respondent through counsel demanded in writing that petitioner
proceed with the sale of the property.16In a March 3, 2006 Letter17 addressed to
respondent’s counsel, petitioner wrote back:
Dear Atty. De Jesus:
Anent your letter dated January 16, 2006 received on February 20, 2006, please
be informed of the following:
1. It was your client SECURITRON SECURITY SERVICES, INC. represented by
Mr. Antonio Eleazar who offered to buy our property located at corner Layug and
Lim-An St., Pasay City;
2. It tendered an earnest money despite the fact that we are still undecided to sell
the said property;
3. Our Board of Directors failed to pass a resolution to date whether it agrees to
sell the property;
4. We have no Contract for the earnest money nor Contract to Sell the said
property with your client;
Considering therefore the above as well as due to haste and demands which we
feel [are forms] of intimidation and harassment, we regret to inform you that we
are now incline (sic) not to accept your offer to buy our property. Please inform
your client to coordinate with us for the refund of this (sic) money.
Very truly yours,
(signed)
CAROLINA T. YOUNG
Executive Vice[-]President18
Ruling of the Regional Trial Court of Pasay City
On April 18, 2006, respondent filed with the Pasay RTC a civil case against
petitioner for specific performance with damages to compel the latter to
consummate the supposed sale of the subject property. Docketed as Civil Case
No. 06-0492 CFM and assigned to Branch 115 of the Pasay RTC, the
Complaint19 is predicated on the claim that since a perfected contract of sale
arose between the parties after negotiations were conducted and respondent
paid the ₱100,000.00 supposed earnest money – which petitioner accepted, the
latter should be compelled to sell the subject property to the former. Thus,
respondent prayed that petitioner be ordered to comply with its obligation as
seller, accept the balance of the purchase price, and execute the corresponding
deed of sale in respondent’s favor; and that petitioner be made to pay
₱200,000.00 damages for its breach and delay in the performance of its
obligations, ₱200,000.00 by way of attorney's fees, and costs of suit.
In its Answer with Compulsory Counterclaim,20 petitioner argued that it never
agreed to sell the subject property; that its board of directors did not authorize the
sale thereof to respondent, as no corresponding board resolution to such effect
was issued; that the respondent’s ₱100,000.00 check payment cannot be
considered as earnest money for the subject property, since said payment was
merely coursed through petitioner’s receiving clerk, who was forced to accept the
same; and that respondent was simply motivated by a desire to acquire the
subject property at any cost. Thus, petitioner prayed for the dismissal of the case
and, by way of counterclaim, it sought the payment of moral damages in the
amount of ₱200,000.00; exemplary damages in the amount of ₱100,000.00; and
attorney’s fees and costs of suit.
In a Reply,21 respondent countered that authorization by petitioner’s Board of
Directors was not necessary since it is a real estate corporation principally
engaged in the buying and selling of real property; that respondent did not force
nor intimidate petitioner’s receiving clerk into accepting the February 4, 2005
letter and check for ₱100,000.00; that petitioner’s acceptance of the check and
its failure – for more than a year – to return respondent’s payment amounts to
estoppel and a ratification of the sale; and that petitioner is not entitled to its
counterclaim.
After due proceedings were taken, the Pasay RTC issued its Decision dated
February 16, 2009, decreeing as follows:
WHEREFORE, defendant First Optima Realty Corporation is directed to comply
with its obligation by accepting the remaining balance of One Million Five
Hundred Thirty-Six Thousand Pesos and Ninety-Nine Centavos (₱1,536,000.99),
and executing the corresponding deed of sale in favor of the plaintiff Securitron
Security Services, Inc. over the subject parcel of land.
No costs.
SO ORDERED.22
Page | 14
In ruling for the respondent, the trial court held that petitioner’s acceptance of
₱100,000.00 earnest money indicated the existence of a perfected contract of
sale between the parties; that there is no showing that when respondent gave the
February 4, 2005 letter and check to petitioner’s receiving clerk, the latter was
harassed or forced to accept the same; and that for the sale of the subject
property, no resolution of petitioner’s board of directors was required since
Young was "free to represent" the corporation in negotiating with respondent for
the sale thereof. Ruling of the Court of Appeals
Petitioner filed an appeal with the CA. Docketed as CA-G.R. CV No. 93715, the
appeal made out a case that no earnest money can be considered to have been
paid to petitioner as the supposed payment was received by a mere receiving
clerk, who was not authorized to accept the same; that the required board of
directors resolution authorizing the sale of corporate assets cannot be dispensed
with in the case of petitioner; that whatever negotiations were held between the
parties only concerned the possible sale, not the sale itself, of the subject
property; that without the written authority of petitioner’s board of directors,
Young cannot enter into a sale of its corporate property; and finally, that there
was no meeting of the minds between the parties in the first place.
On September 30, 2011, the CA issued the assailed Decision affirming the trial
court’s February 16, 2009Decision, pronouncing thus:
Article 1318 of the Civil Code declares that no contract exists unless the following
requisites concur: (1) consent of the contracting parties; (2) object certain which
is the subject matter of the contract; and (3) cause of the obligation established.
A careful perusal of the records of the case show[s] that there was indeed a
negotiation between the parties as regards the sale of the subject property, their
disagreement lies on whether they have arrived on an agreement regarding said
sale. Plaintiff-appellee avers that the parties have already agreed on the sale and
the price for it and the payment of earnest money and the remaining balance
upon clearing of the property of unwanted tenants. Defendant-appellant on the
other hand disputes the same and insists that there was no concrete agreement
between the parties.
Upon a careful consideration of the arguments of the parties and the records of
the case, we are more inclined to sustain the arguments of the plaintiff-appellee
and affirm the findings of the trial court that there was indeed a perfected contract
of sale between the parties. The following instances militate against the claim of
the defendant-appellant: First. The letter of the plaintiff-appellee dated February
4, 2005 reiterating their agreement as to the sale of the realty for the
consideration of Php 1,536,000.00 was not disputed nor replied to by the
defendant-appellant, the said letter also provides for the payment of the earnest
money of Php 100,000.00 and the full payment upon the clearing of the property
of unwanted tenants, if the defendant-appellant did not really agree on the sale of
the property it could have easily replied to the said letter informing the plaintiff-
appellee that it is not selling the property or that the matter will be decided first by
the board of directors, defendant-appellant’s silence or inaction on said letter
shows its conformity or consent thereto; Second. In addition to the
aforementioned letter, defendant-appellant’s acceptance of the earnest money
and the issuance of a provisional receipt clearly shows that there was indeed an
agreement between the parties and we do not subscribe to the argument of the
defendant-appellant that the check was merely forced upon its employee and the
contents of the receipt was just dictated by the plaintiff-appellee’s employee
because common sense dictates that a person would not issue a receipt for a
check with a huge amount if she does not know what that is for and similarly
would not issue [a] receipt which would bind her employer if she does not have
prior instructions to do [so] from her superiors; Third. The said check for earnest
money was deposited in the bank by defendant-appellant and not until after one
year did it offer to return the same. Defendant-appellant cannot claim lack of
knowledge of the payment of the check since there was a letter for it, and it is just
incredible that a big amount of money was deposited in [its] account [without
knowing] about it [or] investigat[ing] what [it was] for. We are more inclined to
believe that their inaction for more than one year on the earnest money paid was
due to the fact that after the payment of earnest money the place should be
cleared of unwanted tenants before the full amount of the purchase price will be
paid as agreed upon as shown in the letter sent by the plaintiff-appellee.
As stated above the presence of defendant-appellant’s consent and, corollarily,
the existence of a perfected contract between the parties are evidenced by the
payment and receipt of Php 100,000.00 as earnest money by the contracting
parties’ x x x. Under the law on sales, specifically Article 1482 of the Civil Code, it
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.
Although the presumption is not conclusive, as the parties may treat the earnest
money differently, there is nothing alleged in the present case that would give
rise to a contrary presumption.
We also do not find merit in the contention of the defendant-appellant that there
is a need for a board resolution for them to sell the subject property since it is a
corporation, a juridical entity which acts only thru the board of directors. While we
agree that said rule is correct, we must also point out that said rule is the general
rule for all corporations [but] a corporation [whose main business is buying and
selling real estate] like herein defendant-appellant, is not required to have a
board resolution for the sale of the realty in the ordinary course of business, thus
defendant-appellant’s claim deserves scant consideration.
Furthermore, the High Court has held that "a corporate officer or agent may
represent and bind the corporation in transactions with third persons to the extent
that the authority to do so has been conferred upon him, and this includes
powers which have been intentionally conferred, and also such powers as, in the
usual course of the particular business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and such apparent powers as
the corporation has caused persons dealing with the officer or agent to believe
that it was conferred."
In the case at bench, it is not disputed and in fact was admitted by the defendant-
appellant that Ms. Young, the Executive Vice-President was authorized to
negotiate for the possible sale of the subject parcel of land. Therefore, Ms.
Young can represent and bind defendant-appellant in the transaction.
Moreover, plaintiff-appellee can assume that Ms. Young, by virtue of her position,
was authorized to sell the property of the corporation. Selling of realty is not
foreign to [an] executive vice[-]president’s function, and the real estate sale was
shown to be a normal business activity of defendant-appellant since its primary
business is the buy and sell of real estate. Unmistakably, its Executive Vice-
President is cloaked with actual or apparent authority to buy or sell real property,
an activity which falls within the scope of her general authority.
Furthermore, assuming arguendo that a board resolution was indeed needed for
the sale of the subject property, the defendant-appellant is estopped from raising
it now since, [it] did not inform the plaintiff-appellee of the same, and the latter
deal (sic) with them in good faith. Also it must be stressed that the plaintiff-
appellee negotiated with one of the top officer (sic) of the company thus, any
requirement on the said sale must have been known to Ms. Young and she
should have informed the plaintiff-appellee of the same.
In view of the foregoing we do not find any reason to deviate from the findings of
the trial court, the parties entered into the contract freely, thus they must perform
their obligation faithfully. Defendant-appellant’s unjustified refusal to perform its
part of the agreement constitutes bad faith and the court will not tolerate the
same.
WHEREFORE, premises considered, the Decision of the Regional Trial Court of
Pasay City Branch 115, in Civil Case No. 06-0492 CFM is hereby AFFIRMED.
SO ORDERED.23
Petitioner moved for reconsideration,24 but in a December 9, 2011 Resolution,
the CA held its ground. Hence, the present Petition.
Issues
In an October 9,2013 Resolution,25 this Court resolved to give due course to the
Petition, which raises the following issues:
I
THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF LAW
WHEN IT RULED THAT THE MONEY RESPONDENT DELIVERED TO
PETITIONER WAS EARNEST MONEY THEREBY PROVIDING A PERFECTED
CONTRACT OF SALE.
II
THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION OF LAW
WHEN IT RULED THAT THE TIME THAT LAPSED IN RETURNING THE
MONEY AND IN REPLYING TO THE LETTER IS PROOF OF ACCEPTANCE
OF EARNEST MONEY.
III
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND
GRAVE ERROR WHEN IT IGNOREDTHE RESERVATION IN THE
PROVISIONAL RECEIPT – "Note: This is issued to transactions not yet cleared
but subsequently an Official Receipt will be issued."26
Petitioner’s Arguments
In its Petition and Reply27 seeking to reverse and set aside the assailed CA
dispositions and in effect to dismiss Civil Case No. 06-0492 CFM, petitioner
argues that respondent failed to prove its case that a contract of sale was
perfected between the parties. It particularly notes that, contrary to the CA’s
ruling, respondent’s delivery of the February 4, 2005 letter and check; petitioner’s
failure to respond to said letter; petitioner’s supposed acceptance of the check by
depositing the same in its account; and its failure to return the same after more
than one year from its tender – these circumstances do not at all prove that a
contract of sale was perfected between the parties. It claims that there was never
an agreement in the first place between them concerning the sale of the subject
property, much less the payment of earnest money therefor; that during trial,
Eleazar himself admitted that the check was merely a "deposit";28 that the
February 4, 2005 letter and check were delivered not to Young, but to a mere
receiving clerk of petitioner who knew nothing about the supposed transaction
and was simply obliged to accept the same without the prerogative to reject
them; that the acceptance of respondent’s supposed payment was not cleared
and was subject to approval and issuance of the corresponding official receipt as
noted in Provisional Receipt No. 33430; that respondent intentionally delivered
the letter and check in the manner that it did in order to bind petitioner to the
supposed sale with or without the latter’s consent; that petitioner could not be
faulted for receiving the check and for depositing the same as a matter of
operational procedure with respect to checks received in the course of its day-to-
day business.
Petitioner argues that ultimately, it cannot be said that it gave its consent to any
transaction with respondent or to the payment made by the latter. Respondent’s
letter and check constitute merely an offer which required petitioner’s acceptance
in order to give rise to a perfected sale; "[o]therwise, a buyer can easily bind any
unsuspecting seller to a contract of sale by merely devising a way that prevents
the latter from acting on the communicated offer."29
Petitioner thus theorizes that since it had no perfected agreement with the
respondent, the latter’s check should be treated not as earnest money, but as
Page | 15
mere guarantee, deposit or option money to prevent the prospective seller from
backing out from the sale,30 since the payment of any consideration acquires the
character of earnest money only after a perfected sale between the parties has
been arrived at.31
Respondent’s Arguments
In its Comment,32 respondent counters that petitioner’s case typifies a situation
where the seller has had an undue change of mind and desires to escape the
legal consequences attendant to a perfected contract of sale. It reiterates the
appellate court’s pronouncements that petitioner’s failure to reply to respondent’s
February 4, 2005 letter indicates its consent to the sale; that its acceptance of the
check as earnest money and the issuance of the provisional receipt prove that
there is a prior agreement between the parties; that the deposit of the check in
petitioner’s account and failure to timely return the money to respondent militates
against petitioner’s claim of lack of knowledge and consent. Rather they indicate
petitioner’s decision to sell subject property as agreed. Respondent adds that
contrary to petitioner’s claim, negotiations were in fact held between the parties
after it sent its December 9, 2004 letter-offer, which negotiations precisely
culminated in the preparation and issuance of the February4, 2005 letter; that
petitioner’s failure to reply to its February 4, 2005 letter meant that it was
amenable to respondent’s terms; that the issuance of a provisional receipt does
not prevent the perfection of the agreement between the parties, since earnest
money was already paid; and that petitioner cannot pretend to be ignorant of
respondent’s check payment, as it involved a large sum of money that was
deposited in the former’s bank account.
Our Ruling
The Court grants the Petition. The trial and appellate courts erred materially in
deciding the case; they overlooked important facts that should change the
complexion and outcome of the case.
It cannot be denied that there were negotiations between the parties conducted
after the respondent’s December 9, 2004 letter-offer and prior to the February 4,
2005 letter. These negotiations culminated in a meeting between Eleazar and
Young whereby the latter declined to enter into an agreement and accept cash
payment then being tendered by the former. Instead, Young informed Eleazar
during said meeting that she still had to confer with her sister and petitioner’s
board of directors; in turn, Eleazar told Young that respondent shall await the
necessary approval.
Thus, the trial and appellate courts failed to appreciate that respondent’s offer to
purchase the subject property was never accepted by the petitioner at any
instance, even after negotiations were held between them. Thus, as between
them, there is no sale to speak of. "When there is merely an offer by one party
without acceptance of the other, there is no contract." 33 To borrow a
pronouncement in a previously decided case,
The stages of a contract of sale are: (1) negotiation, starting 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; and (3) consummation, which commences
when the parties perform their respective undertakings under the contract of sale,
culminating in the extinguishment of the contract.
In the present case, the parties never got past the negotiation stage. Nothing
shows that the parties had agreed on any final arrangement containing the
essential elements of a contract of sale, namely, (1) consent or the meeting of
the minds of the parties; (2) object or subject matter of the contract; and (3) price
or consideration of the sale.34
officer of petitioner can be expected to know of the ongoing talks covering the
subject property. Respondent already knew, from Eleazar’s previous meeting
with Young, that it could only effectively deal with her; more than that, it should
know that corporations work only through the proper channels. By acting the way
it did – coursing the February 4, 2005 letter and check through petitioner’s mere
receiving clerk or receptionist instead of directly with Young’s office, respondent
placed itself under grave suspicion of putting into effect a premeditated plan to
unduly bind petitioner to its rejected offer, in a manner which it could not achieve
through negotiation and employing normal business practices. It impresses the
Court that respondent attempted to secure the consent needed for the sale by
depositing part of the purchase price and under the false pretense that an
agreement was already arrived at, even though there was none. Respondent
achieved the desired effect up to this point, but the Court will not be fooled.
Thus, as between respondent’s irregular and improper actions and petitioner’s
failure to timely return the ₱100,000.00 purported earnest money, this Court
sides with petitioner. In a manner of speaking, respondent cannot fault petitioner
for not making a refund since it is equally to blame for making such payment
under false pretenses and irregular circumstances, and with improper motives.
Parties must come to court with clean hands, as it were.
In a potential sale transaction, the prior payment of earnest money even before
the property owner can agree to sell his property is irregular, and cannot be used
to bind the owner to the obligations of a seller under an otherwise perfected
contract of sale; to cite a well-worn cliché, the carriage cannot be placed before
the horse. The property owner-prospective seller may not be legally obliged to
enter into a sale with a prospective buyer through the latter’s employment of
questionable practices which prevent the owner from freely giving his consent to
the transaction; this constitutes a palpable transgression of the prospective
seller’s rights of ownership over his property, an anomaly which the Court will
certainly not condone. An agreement where the prior free consent of one party
thereto is withheld or suppressed will be struck down, and the Court shall always
endeavor to protect a property owner’s rights against devious practices that put
his property in danger of being lost or unduly disposed without his prior
knowledge or consent. As this ponente has held before, "[t]his Court cannot
presume the existence of a sale of land, absent any direct proof of it."37
Nor will respondent's supposed payment be 'treated as a deposit or guarantee;
its actions will not be dignified and must be called for what they are: they were
done irregularly and with a view to acquiring the subject property against
petitioner's consent.
Finally, since there is nothing in legal contemplation which petitioner must
perform particularly for the respondent, it should follow that Civil Case No. 06-
0492 CFM for specific performance with damages is left with no leg. to stand on;
it must be dismissed.
With the foregoing view, there is no need to resolve the other specific issues and
arguments raised by the petitioner, as they do not materially affect the rights and
obligations of the parties - the Court having declared that no agreement exists
between them; nor do they have the effect of altering the outcome of the case.
WHEREFORE, the Petition is GRANTED. The September 30, 2011 Decision and
December 9, 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 93715,
as well as the February 16, 2009 Decision of the Regional Trial Court of Pasay
City, Branch 115 in Civil Case No. 06-0492 CFM are REVERSED and SET
ASIDE. Civil Case No. 06-0492 CFM is ordered DISMISSED. , Petitioner First
Optima Realty Corporation is ordered to REFUND the amount of ₱100,000.00 to
respondent Securitron Security Services, Inc. without interest, unless petitioner
has done so during the course of the proceedings.
SO ORDERED.

Respondent’s subsequent sending of the February 4, 2005 letter and check to

petitioner – without awaiting the approval of petitioner’s board of directors and
Young’s decision, or without making a new offer – constitutes a mere reiteration
of its original offer which was already rejected previously; thus, petitioner was
under no obligation to reply to the February 4, 2005 letter. It would be absurd to
require a party to reject the very same offer each and every time it is made;
otherwise, a perfected contract of sale could simply arise from the failure to reject
the same offer made for the hundredth time.1âwphi1 Thus, said letter cannot be
considered as evidence of a perfected sale, which does not exist in the first
place; no binding obligation on the part of the petitioner to sell its property arose
as a consequence. The letter made no new offer replacing the first which was
rejected.

Since there is no perfected sale between the parties, respondent had no

obligation to make payment through the check; nor did it possess the right to
deliver earnest money to petitioner in order to bind the latter to a sale. As
contemplated under Art. 1482 of the Civil Code, "there must first be a perfected
contract of sale before we can speak of earnest money." 35 "Where the parties
merely exchanged offers and counter-offers, no contract is perfected since they
did not yet give their consent to such offers. Earnest money applies to a
perfected sale."36

This Court is inclined to accept petitioner’s explanation that since the check was
mixed up with all other checks and correspondence sent to and received by the
corporation during the course of its daily operations, Young could not have timely
discovered respondent’s check payment; petitioner’s failure to return the
purported earnest money cannot mean that it agreed to respondent’s offer.

Besides, respondent’s payment of supposed earnest money was made under

dubious circumstances and in disregard of sound business practice and common
sense. Indeed, respondent must be faulted for taking such a course of action that
is irregular and extraordinary: common sense and logic dictate that if any
payment is made under the supposed sale transaction, it should have been
made directly to Young or coursed directly through her office, since she is the
officer directly responsible for negotiating the sale, as far as respondent is
concerned and considering the amount of money involved; no other ranking

Page | 16
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 179965 February 20, 2013
NICOLAS P. DIEGO, Petitioner,
vs.
RODOLFO P. DIEGO and EDUARDO P. DIEGO, Respondents.
DECISION
DEL CASTILLO, J.:
It is settled jurisprudence, to the point of being elementary, that an agreement
which stipulates that the seller shall execute a deed of sale only upon or after tl1ll
payment of the purchase price is a contract to sell, not a contract of sale.
In Reyes v. Tuparan, 1 this Court declared in categorical terms that "[w]here the
vendor promises to execute a deed of absolute sale upon the completion
by the vendee of the payment of the price, the contract is only a contract to
sell. The aforecited stipulation shows that the vendors reserved title to the
subject property until full payment of the purchase price."
In this case, it is not disputed as in tact both parties agreed that the deed of sale
shall only be executed upon payment of the remaining balance of the purchase
price. Thus, pursuant to the above stated jurisprudence, we similarly declare that
the transaction entered into by the parties is a contract to sell.
Before us is a Petition for Review on Certiorari2 questioning the June 29, 2007
Decision3 and the October 3, 2007 Resolution4 of the Court of Appeals (CA) in
CA-G.R. CV No. 86512, which affirmed the April 19, 2005 Decision5 of the
Regional Trial Court (RTC), Branch 40, of Dagupan City in Civil Case No. 99-
02971-D.
Factual Antecedents
In 1993, petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo,
respondent herein, entered into an oral contract to sell covering Nicolas’s share,
fixed at ₱500,000.00, as co-owner of the family’s Diego Building situated in
Dagupan City. Rodolfo made a downpayment of ₱250,000.00. It was agreed that
the deed of sale shall be executed upon payment of the remaining balance of
₱250,000.00. However, Rodolfo failed to pay the remaining balance.
Meanwhile, the building was leased out to third parties, but Nicolas’s share in the
rents were not remitted to him by herein respondent Eduardo, another brother of
Nicolas and designated administrator of the Diego Building. Instead, Eduardo
gave Nicolas’s monthly share in the rents to Rodolfo. Despite demands and
protestations by Nicolas, Rodolfo and Eduardo failed to render an accounting
and remit his share in the rents and fruits of the building, and Eduardo continued
to hand them over to Rodolfo.
Thus, on May 17, 1999, Nicolas filed a Complaint6 against Rodolfo and Eduardo
before the RTC of Dagupan City and docketed as Civil Case No. 99-02971-D.
Nicolas prayed that Eduardo be ordered to render an accounting of all the
transactions over the Diego Building; that Eduardo and Rodolfo be ordered to
deliver to Nicolas his share in the rents; and that Eduardo and Rodolfo be held
solidarily liable for attorney’s fees and litigation expenses.
Rodolfo and Eduardo filed their Answer with Counterclaim 7 for damages and
attorney’s fees. They argued that Nicolas had no more claim in the rents in the
Diego Building since he had already sold his share to Rodolfo. Rodolfo admitted
having remitted only ₱250,000.00 to Nicolas. He asserted that he would pay the
balance of the purchase price to Nicolas only after the latter shall have executed
a deed of absolute sale.
Ruling of the Regional Trial Court
After trial on the merits, or on April 19, 2005, the trial court rendered its
Decision8 dismissing Civil Case No. 99-02971-D for lack of merit and ordering
Nicolas to execute a deed of absolute sale in favor of Rodolfo upon payment by
the latter of the ₱250,000.00 balance of the agreed purchase price. It made the
following interesting pronouncement:
It is undisputed that plaintiff (Nicolas) is one of the co-owners of the Diego
Building, x x x. As a co-owner, he is entitled to [his] share in the rentals of the
said building. However, plaintiff [had] already sold his share to defendant Rodolfo
Diego in the amount of ₱500,000.00 and in fact, [had] already received a partial
payment in the purchase price in the amount of ₱250,000.00. Defendant
Eduardo Diego testified that as per agreement, verbal, of the plaintiff and
defendant Rodolfo Diego, the remaining balance of ₱250,000.00 will be paid
upon the execution of the Deed of Absolute Sale. It was in the year 1997
when plaintiff was being required by defendant Eduardo Diego to sign the Deed
of Absolute Sale. Clearly, defendant Rodolfo Diego was not yet in default as the
plaintiff claims which cause [sic] him to refuse to sign [sic] document. The
contract of sale was already perfected as early as the year 1993 when plaintiff
received the partial payment, hence, he cannot unilaterally revoke or rescind the
same. From then on, plaintiff has, therefore, ceased to be a co-owner of the
building and is no longer entitled to the fruits of the Diego Building.
Equity and fairness dictate that defendant [sic] has to execute the necessary
document regarding the sale of his share to defendant Rodolfo Diego.
Correspondingly, defendant Rodolfo Diego has to perform his obligation as per
their verbal agreement by paying the remaining balance of ₱250,000.00.9
To summarize, the trial court ruled that as early as 1993, Nicolas was no longer
entitled to the fruits of his aliquot share in the Diego Building because he had
"ceased to be a co-owner" thereof. The trial court held that when Nicolas
received the ₱250,000.00 downpayment, a "contract of sale" was perfected.
Consequently, Nicolas is obligated to convey such share to Rodolfo, without right
of rescission. Finally, the trial court held that the ₱250,000.00 balance from
Rodolfo will only be due and demandable when Nicolas executes an absolute
deed of sale.
Ruling of the Court of Appeals
Nicolas appealed to the CA which sustained the trial court’s Decision in toto. The
CA held that since there was a perfected contract of sale between Nicolas and
Rodolfo, the latter may compel the former to execute the proper sale document.
Besides, Nicolas’s insistence that he has since rescinded their agreement in
1997 proved the existence of a perfected sale. It added that Nicolas could not
validly rescind the contract because: "1) Rodolfo ha[d] already made a partial
payment; 2) Nicolas ha[d] already partially performed his part regarding the
contract; and 3) Rodolfo opposes the rescission."10
The CA then proceeded to rule that since no period was stipulated within which
Rodolfo shall deliver the balance of the purchase price, it was incumbent upon
Nicolas to have filed a civil case to fix the same. But because he failed to do so,
Rodolfo cannot be considered to be in delay or default.
Finally, the CA made another interesting pronouncement, that by virtue of the
agreement Nicolas entered into with Rodolfo, he had already transferred his
ownership over the subject property and as a consequence, Rodolfo is legally
entitled to collect the fruits thereof in the form of rentals. Nicolas’ remaining right
is to demand payment of the balance of the purchase price, provided that he first
executes a deed of absolute sale in favor of Rodolfo.
Nicolas moved for reconsideration but the same was denied by the CA in its
Resolution dated October 3, 2007.
Hence, this Petition.
Issues
The Petition raises the following errors that must be rectified:
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT
THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PETITIONER
NICOLAS DIEGO AND RESPONDENT RODOLFO DIEGO OVER NICOLAS’S
SHARE OF THE BUILDING BECAUSE THE SUSPENSIVE CONDITION HAS
NOT YET BEEN FULFILLED.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
CONTRACT OF SALE BETWEEN PETITIONER AND RESPONDENT
RODOLFO DIEGO REMAINS LEGALLY BINDING AND IS NOT RESCINDED
GIVING MISPLACED RELIANCE ON PETITIONER NICOLAS’ STATEMENT
THAT THE SALE HAS NOT YET BEEN REVOKED.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT
PETITIONER NICOLAS DIEGO ACTED LEGALLY AND CORRECTLY WHEN
HE UNILATERALLY RESCINDED AND REVOKED HIS AGREEMENT OF SALE
WITH RESPONDENT RODOLFO DIEGO CONSIDERING RODOLFO’S
MATERIAL, SUBSTANTIAL BREACH OF THE CONTRACT.
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER HAS NO MORE RIGHTS OVER HIS SHARE IN THE BUILDING,
DESPITE THE FACT THAT THERE WAS AS YET NO PERFECTED
CONTRACT OF SALE BETWEEN PETITIONER NICOLAS DIEGO AND
RODOLFO DIEGO AND THERE WAS YET NO TRANSFER OF OWNERSHIP
OF PETITIONER’S SHARE TO RODOLFO DUE TO THE NON-FULFILLMENT
BY RODOLFO OF THE SUSPENSIVE CONDITION UNDER THE CONTRACT.
V
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT RODOLFO HAS UNJUSTLY ENRICHED HIMSELF AT THE
EXPENSE OF PETITIONER BECAUSE DESPITE NOT HAVING PAID THE
BALANCE OF THE PURCHASE PRICE OF THE SALE, THAT RODOLFO HAS
NOT YET ACQUIRED OWNERSHIP OVER THE SHARE OF PETITIONER
NICOLAS, HE HAS ALREADY BEEN APPROPRIATING FOR HIMSELF AND
FOR HIS PERSONAL BENEFIT THE SHARE OF THE INCOME OF THE
BUILDING AND THE PORTION OF THE BUILDING ITSELF WHICH WAS DUE
TO AND OWNED BY PETITIONER NICOLAS.
VI
Page | 17
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING
ACTUAL DAMAGES, ATTORNEY’S FEES AND LITIGATION EXPENSES TO
THE PETITIONER DESPITE THE FACT THAT PETITIONER’S RIGHTS HAD
BEEN WANTONLY VIOLATED BY THE RESPONDENTS.11
Petitioner’s Arguments
In his Petition, the Supplement12 thereon, and Reply,13 Nicolas argues that,
contrary to what the CA found, there was no perfected contract of sale even
though Rodolfo had partially paid the price; that in the absence of the third
element in a sale contract – the price – there could be no perfected sale; that
failing to pay the required price in full, Nicolas had the right to rescind the
agreement as an unpaid seller.
Nicolas likewise takes exception to the CA finding that Rodolfo was not in default
or delay in the payment of the agreed balance for his (Nicolas’s) failure to file a
case to fix the period within which payment of the balance should be made. He
believes that Rodolfo’s failure to pay within a reasonable time was a substantial
and material breach of the agreement which gave him the right to unilaterally and
extrajudicially rescind the agreement and be discharged of his obligations as
seller; and that his repeated written demands upon Rodolfo to pay the balance
granted him such rights.
Nicolas further claims that based on his agreement with Rodolfo, there was to be
no transfer of title over his share in the building until Rodolfo has effected full
payment of the purchase price, thus, giving no right to the latter to collect his
share in the rentals.
Finally, Nicolas bewails the CA’s failure to award damages, attorney’s fees and
litigation expenses for what he believes is a case of unjust enrichment at his
expense.
Respondents’ Arguments
Apart from echoing the RTC and CA pronouncements, respondents accuse the
petitioner of "cheating" them, claiming that after the latter received the
₱250,000.00 downpayment, he "vanished like thin air and hibernated in the USA,
he being an American citizen,"14 only to come back claiming that the said amount
was a mere loan.
They add that the Petition is a mere rehash and reiteration of the petitioner’s
arguments below, which are deemed to have been sufficiently passed upon and
debunked by the appellate court.
Our Ruling
The Court finds merit in the Petition.
The contract entered into by Nicolas and Rodolfo was a contract to sell.
a) The stipulation to execute a deed of sale upon full payment of the
purchase price is a unique and distinguishing characteristic of a contract
to sell. It also shows that the vendor reserved title to the property until full
payment.
There is no dispute that in 1993, Rodolfo agreed to buy Nicolas’s share in the
Diego Building for the price of ₱500,000.00. There is also no dispute that of the
total purchase price, Rodolfo paid, and Nicolas received, ₱250,000.00.
Significantly, it is also not disputed that the parties agreed that the remaining
amount of ₱250,000.00 would be paid after Nicolas shall have executed a deed
of sale.
This stipulation, i.e., to execute a deed of absolute sale upon full payment of the
purchase price, is a unique and distinguishing characteristic of a contract to
sell. In Reyes v. Tuparan,15 this Court ruled that a stipulation in the
contract, "[w]here the vendor promises to execute a deed of absolute sale
upon the completion by the vendee of the payment of the price," indicates
that the parties entered into a contract to sell. According to this Court, this
particular provision is tantamount to a reservation of ownership on the part of the
vendor. Explicitly stated, the Court ruled that the agreement to execute a deed of
sale upon full payment of the purchase price "shows that the vendors reserved
title to the subject property until full payment of the purchase price." 16
In Tan v. Benolirao,17 this Court, speaking through Justice Brion, ruled that the
parties entered into a contract to sell as revealed by the following stipulation:
d) That in case, BUYER has complied with the terms and conditions of this
contract, then the SELLERS shall execute and deliver to the BUYER the
appropriate Deed of Absolute Sale;18
The Court further held that "[j]urisprudence has established that where the
seller promises to execute a deed of absolute sale upon the completion by
the buyer of the payment of the price, the contract is only a contract to
sell."19
b) The acknowledgement receipt signed by Nicolas as well as the
contemporaneous acts of the parties show that they agreed on a contract
to sell, not of sale. The absence of a formal deed of conveyance is
indicative of a contract to sell.
In San Lorenzo Development Corporation v. Court of Appeals,20 the facts show
that spouses Miguel and Pacita Lu (Lu) sold a certain parcel of land to Pablo
Babasanta (Pablo). After several payments, Pablo wrote Lu demanding "the
execution of a final deed of sale in his favor so that he could effect full payment
of the purchase price."21 To prove his allegation that there was a perfected
contract of sale between him and Lu, Pablo presented a receipt signed by Lu
acknowledging receipt of ₱50,000.00 as partial payment.22
However, when the case reached this Court, it was ruled that the transaction
entered into by Pablo and Lu was only a contract to sell, not a contract of sale.
The Court held thus:
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty
thousand pesos (₱50,000.00) from Babasanta as partial payment of 3.6 hectares
of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the
seller reserves the ownership of the property until full payment of the price which
is a distinguishing feature of a contract to sell, the subsequent acts of the parties
convince us that the Spouses Lu never intended to transfer ownership to
Babasanta except upon full payment of the purchase price.
Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that
despite his repeated requests for the execution of the final deed of sale in his
favor so that he could effect full payment of the price, Pacita Lu allegedly refused
to do so. In effect, Babasanta himself recognized that ownership of the
property would not be transferred to him until such time as he shall have
effected full payment of the price. Moreover, had the sellers intended to
transfer title, they could have easily executed the document of sale in its
required form simultaneously with their acceptance of the partial payment,
but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally
be considered as a perfected contract to sell.23
In the instant case, records show that Nicolas signed a mere
receipt24 acknowledging partial payment of ₱250,000.00 from Rodolfo. It states:
July 8, 1993
Received the amount of [₱250,000.00] for 1 share of Diego Building as partial
payment for Nicolas Diego.
(signed)
Nicolas Diego25
As we ruled in San Lorenzo Development Corporation v. Court of Appeals,26 the
parties could have executed a document of sale upon receipt of the partial
payment but they did not. This is thus an indication that Nicolas did not intend to
immediately transfer title over his share but only upon full payment of the
purchase price. Having thus reserved title over the property, the contract entered
into by Nicolas is a contract to sell. In addition, Eduardo admitted that he and
Rodolfo repeatedly asked Nicolas to sign the deed of sale27 but the latter refused
because he was not yet paid the full amount. As we have ruled in San Lorenzo
Development Corporation v. Court of Appeals,28the fact that Eduardo and
Rodolfo asked Nicolas to execute a deed of sale is a clear recognition on their
part that the ownership over the property still remains with Nicolas. In fine, the
totality of the parties’ acts convinces us that Nicolas never intended to transfer
the ownership over his share in the Diego Building until the full payment of the
purchase price. Without doubt, the transaction agreed upon by the parties was a
contract to sell, not of sale.
In Chua v. Court of Appeals,29 the parties reached an impasse when the seller
wanted to be first paid the consideration before a new transfer certificate of title
(TCT) is issued in the name of the buyer. Contrarily, the buyer wanted to secure
a new TCT in his name before paying the full amount. Their agreement was
embodied in a receipt containing the following terms: "(1) the balance of
₱10,215,000.00 is payable on or before 15 July 1989; (2) the capital gains tax is
for the account of x x x; and (3) if [the buyer] fails to pay the balance x x x the
[seller] has the right to forfeit the earnest money x x x."30 The case eventually
reached this Court. In resolving the impasse, the Court, speaking
through Justice Carpio, held that "[a] perusal of the Receipt shows that the true
agreement between the parties was a contract to sell."31 The Court noted that
"the agreement x x x was embodied in a receipt rather than in a deed of sale,
ownership not having passed between them."32 The Court thus concluded
that "[t]he 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."33 Thus, the "true
agreement between the parties was a contract to sell."34
In the instant case, the parties were similarly embroiled in an impasse. The
parties’ agreement was likewise embodied only in a receipt. Also, Nicolas did not
want to sign the deed of sale unless he is fully paid. On the other hand, Rodolfo
did not want to pay unless a deed of sale is duly executed in his favor. We thus
say, pursuant to our ruling in Chua v. Court of Appeals35 that the agreement
between Nicolas and Rodolfo is a contract to sell.
This Court cannot subscribe to the appellate court’s view that Nicolas
should first execute a deed of absolute sale in favor of Rodolfo, before the latter
can be compelled to pay the balance of the price. This is patently ridiculous, and
goes against every rule in the book. This pronouncement virtually places the
prospective seller in a contract to sell at the mercy of the prospective buyer, and
sustaining this point of view would place all contracts to sell in jeopardy of being
rendered ineffective by the act of the prospective buyers, who naturally would
demand that the deeds of absolute sale be first executed before they pay the
balance of the price. Surely, no prospective seller would accommodate.
In fine, "the need to execute a deed of absolute sale upon completion of
payment of the price generally indicates that it is a contract to sell, as it
implies the reservation of title in the vendor until the vendee has completed
the payment of the price."36 In addition, "[a] stipulation reserving ownership in
the vendor until full payment of the price is x x x typical in a contract to
sell."37 Thus, contrary to the pronouncements of the trial and appellate courts, the
parties to this case only entered into a contract to sell; as such title cannot legally
pass to Rodolfo until he makes full payment of the agreed purchase price.
Page | 18
c) Nicolas did not surrender or deliver title or possession to Rodolfo.
Moreover, there could not even be a surrender or delivery of title or possession
to the prospective buyer Rodolfo. This was made clear by the nature of the
agreement, by Nicolas’s repeated demands for the return of all rents unlawfully
and unjustly remitted to Rodolfo by Eduardo, and by Rodolfo and Eduardo’s
repeated demands for Nicolas to execute a deed of sale which, as we said
before, is a recognition on their part that ownership over the subject property still
remains with Nicolas.
Significantly, when Eduardo testified, he claimed to be knowledgeable about the
terms and conditions of the transaction between Nicolas and Rodolfo. However,
aside from stating that out of the total consideration of ₱500,000.00, the amount
of ₱250,000.00 had already been paid while the remaining ₱250,000.00 would
be paid after the execution of the Deed of Sale, he never testified that there was
a stipulation as regards delivery of title or possession.38
It is also quite understandable why Nicolas belatedly demanded the payment of
the rentals. Records show that the structural integrity of the Diego Building was
severely compromised when an earthquake struck Dagupan City in 1990.39 In
order to rehabilitate the building, the co-owners obtained a loan from a
bank.40 Starting May 1994, the property was leased to third parties and the
rentals received were used to pay off the loan.41 It was only in 1996, or after
payment of the loan that the co-owners started receiving their share in the
rentals.42 During this time, Nicolas was in the USA but immediately upon his
return, he demanded for the payment of his share in the rentals which Eduardo
remitted to Rodolfo. Failing which, he filed the instant Complaint. To us, this
bolsters our findings that Nicolas did not intend to immediately transfer title over
the property.
It must be stressed that it is anathema in a contract to sell that the prospective
seller should deliver title to the property to the prospective buyer pending the
latter’s payment of the price in full. It certainly is absurd to assume that in the
absence of stipulation, a buyer under a contract to sell is granted ownership of
the property even when he has not paid the seller in full. If this were the case,
then prospective sellers in a contract to sell would in all likelihood not be paid the
balance of the price.
This ponente has had occasion to rule that "[a] contract to sell is one where the
prospective seller reserves the transfer of title to the prospective buyer until the
happening of an event, such as full payment of the purchase price. What the
seller obliges himself to do is to sell the subject property only when the entire
amount of the purchase price has already been delivered to him. ‘In other words,
the full payment of the purchase price partakes of a suspensive condition, the
nonfulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the
prospective buyer.’ It does not, by itself, transfer ownership to the buyer." 43
The contract to sell is terminated or cancelled.
Having established that the transaction was a contract to sell, what happens now
to the parties’ agreement?
The remedy of rescission is not available in contracts to sell. 44 As explained
in Spouses Santos v. Court of Appeals:45
In view of our finding in the present case that the agreement between the parties
is a contract to sell, it follows that the appellate court erred when it decreed that a
judicial rescission of said agreement was necessary. This is because there was
no rescission to speak of in the first place. As we earlier pointed out, in a contract
to sell, title remains with the vendor and does not pass on to the vendee until the
purchase price is paid in full. Thus, in a contract to sell, the payment of the
purchase price is a positive suspensive condition. Failure to pay the price agreed
upon is not a mere breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an obligatory force. This is
entirely different from the situation in a contract of sale, where non-payment of
the price is a negative resolutory condition. The effects in law are not identical. In
a contract of sale, the vendor has lost ownership of the thing sold and cannot
recover it, unless the contract of sale is rescinded and set aside. In a contract to
sell, however, the vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase price. If the vendor
should eject the vendee for failure to meet the condition precedent, he
is enforcing the contract and not rescinding it. When the petitioners in the instant
case repossessed the disputed house and lot for failure of private respondents to
pay the purchase price in full, they were merely enforcing the contract and not
rescinding it. As petitioners correctly point out, the Court of Appeals erred when it
ruled that petitioners should have judicially rescinded the contract pursuant to
Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of
the purchase price as a resolutory condition. It does not apply to a contract to
sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when
applied to sales of immovable property. Neither provision is applicable in the
present case.46
Similarly, we held in Chua v. Court of Appeals47 that "Article 1592 of the Civil
Code permits the buyer to pay, even after the expiration of the period, as long as
no demand for rescission of the contract has been made upon him either
judicially or by notarial act. However, Article 1592 does not apply to a contract to
sell where the seller reserves the ownership until full payment of the price,"48 as
in this case.1âwphi1
Applying the above jurisprudence, we hold that when Rodolfo failed to fully pay
the purchase price, the contract to sell was deemed terminated or cancelled.49 As
we have held in Chua v. Court of Appeals,50 "[s]ince the agreement x x x is a
mere contract to sell, the full payment of the purchase price partakes of a
suspensive condition. The non-fulfillment of the condition prevents the
obligation to sell from arising and ownership is retained by the seller
without further remedies by the buyer." Similarly, we held in Reyes v.
Tuparan51 that "petitioner’s obligation to sell the subject properties becomes
demandable only upon the happening of the positive suspensive condition, which
is the respondent’s full payment of the purchase price. Without respondent’s
full payment, there can be no breach of contract to speak of because
petitioner has no obligation yet to turn over the title. Respondent’s failure to
pay in full the purchase price in full is not the breach of contract contemplated
under Article 1191 of the New Civil Code but rather just an event that prevents
the petitioner from being bound to convey title to respondent." Otherwise stated,
Rodolfo has no right to compel Nicolas to transfer ownership to him because he
failed to pay in full the purchase price. Correlatively, Nicolas has no obligation to
transfer his ownership over his share in the Diego Building to Rodolfo.52
Thus, it was erroneous for the CA to rule that Nicolas should have filed a case to
fix the period for Rodolfo’s payment of the balance of the purchase price. It was
not Nicolas’s obligation to compel Rodolfo to pay the balance; it was Rodolfo’s
duty to remit it.
It would appear that after Nicolas refused to sign the deed as there was yet no
full payment, Rodolfo and Eduardo hired the services of the Daroya Accounting
Office "for the purpose of estimating the amount to which [Nicolas] still owes
[Rodolfo] as a consequence of the unconsummated verbal agreement regarding
the former’s share in the co-ownership of [Diego Building] in favor of the
latter."53 According to the accountant’s report, after Nicolas revoked his
agreement with Rodolfo due to non-payment, the downpayment of ₱250,000.00
was considered a loan of Nicolas from Rodolfo.54 The accountant opined that the
₱250,000.00 should earn interest at 18%.55 Nicolas however objected as regards
the imposition of interest as it was not previously agreed upon. Notably, the
contents of the accountant’s report were not disputed or rebutted by the
respondents. In fact, it was stated therein that "[a]ll the bases and assumptions
made particularly in the fixing of the applicable rate of interest have been
discussed with [Eduardo]."56
We find it irrelevant and immaterial that Nicolas described the termination or
cancellation of his agreement with Rodolfo as one of rescission. Being a layman,
he is understandably not adept in legal terms and their implications. Besides, this
Court should not be held captive or bound by the conclusion reached by the
parties. The proper characterization of an action should be based on what the
law says it to be, not by what a party believed it to be. "A contract is what the law
defines it to be x x x and not what the contracting parties call it."57
On the other hand, the respondents’ additional submission – that Nicolas
cheated them by "vanishing and hibernating" in the USA after receiving Rodolfo’s
₱250,000.00 downpayment, only to come back later and claim that the amount
he received was a mere loan – cannot be believed. How the respondents could
have been cheated or disadvantaged by Nicolas’s leaving is beyond
comprehension. If there was anybody who benefited from Nicolas’s perceived
"hibernation", it was the respondents, for they certainly had free rein over
Nicolas’s interest in the Diego Building. Rodolfo put off payment of the balance of
the price, yet, with the aid of Eduardo, collected and appropriated for himself the
rents which belonged to Nicolas.
Eduardo is solidarily liable with Rodolfo as regards the share of Nicolas in
the rents.
For his complicity, bad faith and abuse of authority as the Diego Building
administrator, Eduardo must be held solidarily liable with Rodolfo for all that
Nicolas should be entitled to from 1993 up to the present, or in respect of actual
damages suffered in relation to his interest in the Diego Building. Eduardo was
the primary cause of Nicolas’s loss, being directly responsible for making and
causing the wrongful payments to Rodolfo, who received them under obligation
to return them to Nicolas, the true recipient.1âwphi1 As such, Eduardo should be
principally responsible to Nicolas as well. Suffice it to state that every person
must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith; and every
person who, contrary to law, wilfully or negligently causes damage to another,
shall indemnify the latter for the same.58
Attorney’s fees and other costs.
"Although attorney’s fees are not allowed in the absence of stipulation, the court
can award the same when the defendant’s act or omission has compelled the
plaintiff to incur expenses to protect his interest or where the defendant acted in
gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just
and demandable claim."59 In the instant case, it is beyond cavil that petitioner
was constrained to file the instant case to protect his interest because of
respondents’ unreasonable and unjustified refusal to render an accounting and to
remit to the petitioner his rightful share in rents and fruits in the Diego Building.
Thus, we deem it proper to award to petitioner attorney’s fees in the amount of
₱50,000.00,60 as well as litigation expenses in the amount of ₱20,000.00 and the
sum of ₱1,000.00 for each court appearance by his lawyer or lawyers, as prayed
for.
WHEREFORE, premises considered, the Petition is GRANTED. The June 29,
2007 Decision and October 3, 2007 Resolution of the Court of Appeals in CA-
G.R. CV No. 86512, and the April 19, 2005 Decision of the Dagupan City
Regional Trial Court, Branch 40 in Civil Case No. 99-02971-D, are
hereby ANNULLED and SET ASIDE.
The Court further decrees the following:
1. The oral contract to sell between petitioner Nicolas P. Diego and respondent
Rodolfo P. Diego is DECLARED terminated/cancelled;
2. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED to
surrender possession and control, as the case may be, of Nicolas P. Diego’s
share in the Diego Building. Respondents are further commanded to return or
surrender to the petitioner the documents of title, receipts, papers, contracts, and
all other documents in any form or manner pertaining to the latter’s share in the
building, which are deemed to be in their unauthorized and illegal possession;
Page | 19
3. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED to
immediately render an accounting of all the transactions, from the period
beginning 1993 up to the present, pertaining to Nicolas P. Diego’s share in the
Diego Building, and thereafter commanded to jointly and severally remit to the
petitioner all rents, monies, payments and benefits of whatever kind or nature
pertaining thereto, which are hereby deemed received by them during the said
period, and made to them or are due, demandable and forthcoming during the
said period and from the date of this Decision, with legal interest from the filing of
the Complaint;

4. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED,

immediately and without further delay upon receipt of this Decision, to solidarily
pay the petitioner attorney’s fees in the amount of ₱50,000.00; litigation
expenses in the amount of ₱20,000.00 and the sum of ₱1,000.00 per counsel for
each court appearance by his lawyer or lawyers;

5. The payment of ₱250,000.00 made by respondent Rodolfo P. Diego, with legal

interest from the filing of the Complaint, shall be APPLIED, by way of
compensation, to his liabilities to the petitioner and to answer for all damages
and other awards and interests which are owing to the latter under this Decision;
and

6. Respondents’ counterclaim is DISMISSED.

SO ORDERED.

Page | 20
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 109696 August 14, 1995
THELMA P. OLEA, petitioner,
vs.
COURT OF APPEALS, ELENA VDA. DE PACARDO, JESUS PALENCIA,
ELIZABETH PALENCIA AND MONSERRAT PACIENTE, respondents.
BELLOSILLO, J.:
This is a petition for review of the decision of the Court of Appeals affirming that
of the court a quo which dismissed the complaint of petitioner for recovery of
possession on the ground that the action had already prescribed and that the
deed of sale with right to repurchase on which petitioner based her claim was an
equitable mortgage.
On 27 January 1947 spouses Filoteo Pacardo and Severa de Pacardo executed
a deed of Sale Con Pacto de Retroover Lot No. 767 of the Passi Cadastre
covered by Transfer Certificate of Title No. 26424 in their name for a
consideration of P950.00 in favor of Maura Palabrica, predecessor in interest of
petitioner, subject to the condition that —
. . . if we, the said spouses, Filoteo Pacardo and Severa de Pacardo, our heirs,
assigns, successors-in-interest, executors and administrators shall and will truly
repurchase the above-described parcel of land from the said Maura Palabrica,
her heirs, assigns, successors-in-interest after THREE YEARS counting from the
date of the execution of this instrument, to wit, on January 27, 1950 in cash
payment in the sum of Five Hundred Pesos, Philippine currency, plus Four
Hundred and Fifty Pesos (P450), also lawful currency, in cash or eighteen (18)
cavans of palay (Provincial Measurement) at our option, then this sale shall
become null and void and of no force and effect whatsoever. On the contrary, the
same will become irrevocable, definite and final and will vest complete and
absolute title on the vendee upon the premises.1
The contract of sale with right to repurchase was acknowledged by the vendors
before Notary Public Victorio Tagamolila on the same day the contract was
executed in the Municipality of Passi, Province of Iloilo. The vendors also
delivered to the vendee their owner's copy of the title.
After the execution of the sale, the Pacardo spouses as vendors remained in
possession of the land and continued the cultivation thereof. Since the sale on 27
January 1947 up to August 1987, or for a period of about 40 years, the spouses
delivered annually one-third (1/3) of the produce of the land to Maura Palabrica
and kept for themselves the remaining two-thirds (2/3).
On 27 January 1950, despite the lapse of three (3) years, the Pacardo spouses
did not repurchase the land but faithfully continued to give 1/3 of the produce to
Maura Palabrica. When the spouses died, their son Filoteo Jr., took over the
possession and assumed the cultivation of the land and, like his parents, gave
1/3 of the produce to Maura Palabrica and later to her daughter, petitioner herein,
who would eventually buy from her the lot subject of the litigation.
On 22 September 1966 Maura Palabrica caused the registration of the Sale Con
Pacto de Retro with the Register of Deeds of Iloilo and its annotation on Transfer
Certificate of Title No. 26424 covering the subject lot.
On 10 May 1978 Maura Palabrica sold Lot No. 767 for P40,000.00 to one of her
daughters, petitioner Thelma Olea. From then on it was petitioner who received
the one-third (1/3) share of the annual produce of the land from Filoteo Pacardo,
Jr., until he died in August 1987. His widow Elena Vda. de Pacardo however
refused to give to petitioner the one-third (1/3) share of the produce. After Elena
transferred residence to another barangay the spouses Jesus and Elizabeth
Palencia took over the possession and cultivation of the property. Elizabeth
Palencia is a sister of Filoteo Jr., and is one of the children of spouses Filoteo
and Severina Pacardo. The Palencias delivered the share of the produce not to
petitioner but to respondent Elena Pacardo.
Hence, on 25 January 1989, petitioner filed a complaint against Elena Pacardo
and the spouses Jesus and Elizabeth Palencia for recovery of possession with
damages. She alleged that she was the owner of Lot No. 767 having acquired
the same from her mother Maura Palabrica through a deed of sale, who in turn
acquired the lot from the spouses Filoteo and Severa Pacardo through a pacto
de retro sale, and that due to the failure of the spouses to redeem the property
three (3) years thereafter ownership thereof passed on to Maura Palabrica who
later caused the registration of the Sale Con Pacto de Retro with the Registry of
Deeds of Iloilo and its annotation on TCT No. 26424.
Private respondents Elena Vda. de Pacardo and Jesus and Elizabeth Palencia
filed their answer alleging that their parents intended the disputed transaction to
be an equitable mortgage and not a sale with right to repurchase. Respondent
Monserrat Paciente, another daughter of the vendor-spouses Filoteo and Severa
Pacardo, filed an answer in intervention raising likewise as defense that the Sale
Con Pacto de Retro was indeed an equitable mortgage.
On 19 February 1991 the trial court rendered judgment dismissing the complaint.
Petitioner appealed to the Court of Appeals which on 16 December 1992
affirmed the judgment of the trial court.
In the instant recourse, petitioner assails the Court of Appeals for its conclusions
and findings allegedly grounded entirely on speculations, surmises, conjectures
and misapprehension of facts.2 Petitioner submits that the terms and conditions
of the Sale Con Pacto de Retro between her mother Maura Palabrica and the
Pacardos on 27 January 1947 are clear and leave no room for interpretation; that
the parties to the transaction have specified that the consideration of the sale
was P950.00 and the repurchase price was P500.00 in cash plus P450.00 cash
or eighteen (18) cavans of palay at the option of the vendor-spouses in case they
repurchased the property three (3) years afterwards; and that the Court of
Appeals erred in holding that the repurchase price was only P450.00 or eighteen
cavans of palay.
Petitioner also asserts that the failure of her mother, the vendee Maura
Palabrica, to consolidate ownership under Art. 1607 of the New Civil Code
should not be a ground for considering the sale to be an equitable mortgage
because both parties have stipulated in the contract that when the spouses
should fail to repurchase Lot No. 767 on 27 January 1950 complete and absolute
title would forthwith be vested in Maura Palabrica; and that even granting that
Art. 1607 of the New Civil Code, which took effect 30 August 1950, be granted
retroactive effect Maura Palabrica had already acquired a vested right of
ownership over the land as of 27 January 1950 which Art. 1607 can no longer
invalidate under Art. 2252 of the New Civil Code. Moreover, petitioner submits
that the Pacardo spouses remained in possession of the land they sold to
Palabrica because of their good relations with each other and the latter
consented that the spouses would be the ones to till the land.
We cannot sustain petitioner. Art. 1602 of the New Civil Code provides that the
contract of sale with right to repurchase shall be presumed to be an equitable
mortgage in any of the following cases: (a) when the price of the sale is unusually
inadequate; (b) when the vendor remains in possession as lessee or otherwise;
(c) 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; (d) when the purchaser retains for himself a part of the purchase price;
(e) when the vendor binds himself to pay the taxes on the thing sold; and, (f) 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. Being remedial in nature, Art. 1602 may be applied
retroactively to cases prior to the effectivity of the New Civil Code3 Hence it may
apply to the instant case where the deed of sale with right to repurchase was
executed on 27 January 1947.
It has been held that a contract should be construed as a mortgage or a loan
instead of a pacto de retro sale when its terms are ambiguous or the
circumstances surrounding its execution or its performance are incompatible or
inconsistent with the theory that it is a sale.4 Even when a document appears on
its face to be a sale with pacto de retro the owner of the property may prove that
the contract is really a loan with mortgage by raising as an issue the fact that the
document does not express the true intent and agreement of the parties. In this
case, parol evidence then becomes competent and admissible to prove that the
instrument was in truth and in fact given merely as a security for the repayment
of a loan. And upon proof of the truth of such allegations, the court will enforce
the agreement or understanding in consonance with the true intent of the parties
at the time of execution of the contract.5 This principle is applicable even if the
purported Sale Con Pacto de Retro was registered in the name of the transferee
and a new certificate of title was issued in the name of the latter.6
There is no dispute that when Maura Palabrica "bought" the land on 27 January
1947 the vendors, the Pacardo spouses, remained in possession of the property
and cultivated the same. Their son continued the cultivation when the spouses
died, which cultivation was continued later by his widow Elena Vda. de Pacardo
and then by his sister Elizabeth Palencia. During the direct examination,
petitioner admitted —
Q. And who later on cultivated this lot 767 if you know?
A. When the Pacardos sold to my mother, it was the spouses who cultivated the
land. When Filoteo Pacardo Sr. could no longer till, it was Filoteo Pacardo Jr.
who took over.7
Defendant-intervenor Monserrat Paciente also testified —
Q. Do you know whether any transaction was had between your mother Severa
Pacardo and Maura Palabrica involving this Lot No. 767?
A. There was a transaction. Every year, dues was (sic) paid to this land when the
land was mortgaged. It was a 1/3 transaction, 1/3 was given to them and 2/3
were taken by us.
Q. When did you come to know that alleged transaction between your parents
and the late Maura Palabrica?
A. When I came to the age of reason, it was told to me by my parents. 8
The rule is settled that where in a contract of sale with pacto de retro the vendor
remains in physical possession of the land sold as lessee or otherwise, the
contract should be considered an equitable mortgage. 9 The same presumption
applies when the vendee was given the right to appropriate the fruits thereof in
lieu of receiving interest on the loan. 10
Moreover, the terms of the document itself can aid in arriving at the true nature of
the transaction. Where the contract contains a stipulation, as in this case, that
upon payment by the vendor of the purchase price within a certain period the
document shall become null and void and have no legal force or effect, the
purported sale should be considered a mortgage contract. In pacto de retro sale
the payment of the repurchase price does not merely render the document null
and void but there is the obligation on the part of the vendee to sell back the
property. 11
Page | 21
It has been consistently held that the presence of even one of the circumstances
enumerated in Art. 1602 of the New Civil Code is sufficient to declare a contract
of sale with right to repurchase an equitable mortgage. 12 This is so
because pacto de retro sales with the stringent and onerous effects that
accompany them are not favored. In case of doubt, a contract purporting to be a
sale with right to repurchase shall be construed as an equitable mortgage. 13

Petitioner, to prove her claim, cannot rely on the stipulation in the contract
providing that complete and absolute title shall be vested on the vendee should
the vendors fail to redeem the property on the specified date. Such stipulation
that the ownership of the property would automatically pass to the vendee in
case no redemption was effected within the stipulated period is void for being
a pactum commissorium which enables the mortgagee to acquire ownership of
the mortgaged property without need of foreclosure. Its insertion in the contract is
an avowal of the intention to mortgage rather than to sell the property. 14

Consequently, there was no valid sale to Maura Palabrica. Ownership over the
property was not transferred to her for she was merely a mortgagee. There being
no title to the land that Palabrica acquired from the spouses Filoteo and Severa
Pacardo, it follows that Palabrica had no title to the same land which could be
conveyed to petitioner. 15Hence there is no legal basis for petitioner to recover
possession of the property.

It is clear from the contract that the amount loaned to the Pacardo spouses was
P950.00 and Lot No. 767 was mortgaged as security. The spouses were allowed
under the contract to pay the amount of the loan on 27 January 1950 by
tendering the amount of the P500.00 in cash and P450.00 cash or 18 cavans of
palay at their option. The trial court made its factual finding that from 1947 when
the purported sale was executed to 1972 alone, the spouses and their
successors in interest delivered a total of 1,166 cavans of palay to Maura
Palabrica. The delivery of 1/3 of the annual produce to Palabrica and later to
petitioner continued until 1987. Under the last paragraph of Art. 1602, this
produce received by the alleged vendee as rent or otherwise should be
considered as interest.

There is no dispute that the Pacardo spouses or their successors in interest

failed to pay the amount of the loan on 27 January 1950 as stipulated in the
contract although they continued to deliver the produce to Palabrica and
petitioner until 1987 by way of interest on the loan. Even if we treat petitioner's
action to recover possession of Lot No. 767 as one for the enforcement of her
right as mortgagee, the same has already prescribed. Art. 1142 of the New Civil
Code provides that a mortgage action prescribes after ten (10) years. Since 27
January 1950 when the Pacardo spouses failed to pay the loan up to 1989 when
the action for recovery of possession was filed, thirty-nine (39) years had already
elapsed. As a result, petitioner is not only barred by prescription from instituting
her action; she is also guilty of estoppel by laches.

WHEREFORE, the petition is DENIED and the assailed decision of the Court of
Appeals dated 16 December 1992 sustaining that of the Regional Trial Court of
Iloilo City is AFFIRMED. Costs against petitioner.

SO ORDERED.

Page | 22
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-33182 December 18, 1987
PEDRO A. FELICEN SR. (Deceased), substituted by his widow, BEATRIZ
LANUEVO and his children, ELEUTERIO, PEDRO, JR., CLARITA,
FERNANDO and JOSE MARIA, all surnamed FELICEN petitioners,
vs.
SEVERINO ORIAS, MILAGROS ORIAS DE LIM, and the COURT OF
APPEALS, respondents.
NARVASA, J.:
This appeal on certiorari 1 involves Article 1606 of the Civil Code. The first
paragraph of this article declares that in cases of conventional redemption, 2i.e.,
when the vendor reserves the right to repurchase the thing sold — with the
obligation to return the price of the sale as well as the expenses of the contract,
any other legitimate payments made by reason of the sale, the necessary and
useful expenses made on the thing sold, 3 and other stipulations which may have
been agreed — upon the right to repurchase, in the absence of an express
agreement, shall last four years from the date of the contract. The second
paragraph says that should there be an agreement, the period cannot exceed ten
years. And the third and last paragraph — and it is this which is directly relevant
to the case at bar — reads as follows:
effect alter or modify the stipulation in the contract as to the definite and specific
limitation of the period for repurchase (2 years from date of sale or only until June
25, 1958) thereby not simply increasing but in reality resuscitating the expired
right to repurchase .. and likewise the already terminated and extinguished
obligation to resell by herein petitioner." The rule would thus be a made a tool to
spawn protect and even reward fraud and bad faith, a situation surely never
contemplated or intended by the law.
This Court has already had occasion to rule on the proper interpretation of the
provision in question. In Adorable v. Inacala 10 where the proofs established that
there could be no honest doubt as to the parties' intention, that the transaction
was clearly and definitely a sale with pacto de retro, the Court adjudged the
vendor a retro not to be entitled to the benefit of the third paragraph of Article
1606.
The case at bar is on all fours with Adorable. Here, as in the earlier case, the
evidence persuasively establishes not only the utter paucity of the vendors'
assertion that they had tried to exercise the right to repurchase within the
stipulated period, but also that the contract was clearly and distinctly a contract of
sale with pacto de retro and contained no provision from which another kind of
contract could fairly and reasonably be deduced, and furthermore exhibited none
cf the familiar badges of a covert mortgage specified by the Civil Code. The
Court perceives no reason to deviate from the doctrine in Adorable, and a
disposition in accord therewith is thus inevitable.
WHEREFORE, the judgments of the Court of Appeals and the Trial Court are
reversed, and another entered declaring the private respondents' right to
repurchase to have expired upon expiration of the period stipulated therefore,
and that ownership of the property in question has long since been acquired by
and now rests in the petitioner, his heirs, successors and assigns. Costs against
private respondents.

However, the vendor may still exercise the right to repurchase within thirty days
from the time final judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase.

Under a "Deed of Sale With Right to Repurchase," 4 the spouses Severino Orias
and Milagros O. Lim (private respondents herein) sold to Pedro A. Felicen, Sr.
(petitioner) a parcel of land in the Municipality of Salcedo, Province of Samar with
an area of 7.8 hectares at the price of P 3,000.00. The deed expressly reserved
to the vendors the right to redeem within two (2) years. That period expired
without any offer having been made by the vendors a retroto repurchase the
land.

Some eight (8) years afterwards" 5 the vendors a retro filed suit in the Court of
First Instance against the vendees to compel the latter to resell and reconvey the
property to them. After due proceedings, the Trial Court rendered judgment,
finding that the contract between the parties was in truth one of sale with pacto
de retro, and that the period stipulated for the repurchase had already expired;
but this notwithstanding, the vendors a retro still had the right to repurchase the
property within thirty (30) days from the time the judgment becomes final, in
accordance with the third paragraph of Article 1606 of the Civil Code, by
complying with the requirements of Article 1616. 6

The Court of Appeals affirmed the decision of the Trial Court. 7 It pronounced as
correct the Lower Court's conclusion that the claim of the vendors a retro — that
they had twice offered to repurchase the land but that these had been refused —
had not been proven, the proferred proofs being totally devoid of details that
could engender persuasiveness. It also pronounced correct the finding that the
contract in question could not be deemed to be one of loan, its terms being so
plainly and distinctly indicative of a sale with pacto de retro as to preclude its
construction as some other kind of agreement, besides bearing none of the well
known indicia of a disguised mortgage, enumerated in Article 1602 of the Civil
Code. Nevertheless, the Appellate Court deemed proper the application of the
third paragraph of Article 1606 since the main issue in the case was the
obtention of a judicial declaration that the agreement was a simple mortgage.

The thesis of both the Trial Court and the Appellate Court, in other words, was
that although the vendors a retro had failed in their suit to prove that their
contract with the vendees was actually one of loan with mortgage, the contract
having on the contrary been confirmed to be a sale with conventional
redemption, they could nonetheless still repurchase the property "within thirty
days from the time final ' judgment was rendered in a civil action on the basis that
the contract was a true sale with right to repurchase, 11 pursuant to said third
paragraph of Article 1606. The thesis cannot upon the undisputed facts be
sustained.

The application of the third paragraph of Article 1606 is predicated upon

the bona fides of the vendor a retro. It must appear that there was a belief on his
part, founded on facts attendant upon the execution of the sale with pacto de
retro, honestly and sincerely entertained, that the agreement was in reality a
mortgage, one not intended to affect the title to the property ostensibly sold, but
merely to give it as security for a loan or other obligation. In that event, if the
matter of the real nature of the contract is submitted for judicial resolution, the
application of the rule is meet and proper: that the vendor a retro be allowed to
repurchase the property sold within 30 days from rendition of final judgment
declaring the contract to be a true sale with right to repurchase. 8 Conversely, if it
should appear that the parties' agreement was really one of sale — transferring
ownership to the vendee, but accompanied by a reservation to the vendor of the
right to repurchase the property — and there are no circumstances that may
reasonably be accepted as generating some honest doubt as to the parties'
intention, the proviso is inapplicable. The reason is quite obvious. If the rule were
otherwise, it would be within the power of every vendor a retro to set at naught a
pacto de retro, or resurrect an expired right of repurchase, by simply instituting
an action to reform the contract — known to him to be in truth a sale with pacto
de retro — into an equitable mortgage. As postulated by the petitioner, 9 "to allow
herein private respondents to repurchase the property by applying said
paragraph .. to the case at bar despite the fact that the stipulated redemption
period had already long expired when they instituted the present action, would in

Page | 23
 Republic of the Philippines
SUPREME COURT
Manila
SPECIAL FIRST DIVISION
G.R. No. 146651 August 6, 2002
RONALDO P. ABILLA and GERALDA A. DIZON, petitioners,
vs.
CARLOS ANG GOBONSENG, JR. and THERESITA MIMIE ONG, respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
This resolves the Motion for Reconsideration filed by respondents of our Decision
dated January 17, 2002 which granted the instant petition and reversed the
Order dated January 14, 2001 of the Regional Trial Court of Dumaguete City,
Branch 41 in Civil Case No. 8148.
The Motion for Reconsideration raises the following grounds:
A. WITH DUE RESPECT, THIS HONORABLE HIGHEST COURT ERRED IN
NOT AFFIRMING THE ORDER OF THE REGIONAL TRIAL COURT, BRANCH
41, DUMAGUETE CITY, IN CIVIL CASE NO. 8148 WHICH GRANTED
RESPONDENT SPOUSES GOBONSENG THE RIGHT TO REPURCHASE THE
SEVENTEEN (17) LOTS SUBJECT OF THE PACTO DE RETRO SALE WITHIN
THIRTY (30) DAYS FROM THE FINALITY OF THE ORDER.
B. WITH DUE RESPECT, THIS HONORABLE HIGHEST COURT ERRED IN
NOT APPLYING TO THE INSTANT CASE THE THIRD PARAGRAPH OF
ARTICLE 1606 OF THE NEW CIVIL CODE, HENCE, THE PERIOD TO
REPURCHASE ON THE PART OF RESPONDENTS HAS NOT YET EXPIRED.
C. WITH DUE RESPECT, THIS HONORABLE HIGHEST COURT ERRED IN
APPLYING TO THE CASE AT BAR THE CASE OF VDA. DE MACOY VS.
COURT OF APPEALS (206 SCRA 244) CITING THE CASE OF FELICEN, SR.
VS. ORIAS (156 SCRA 586).1
In compliance with our resolution,2 petitioners filed their Comment to the motion
for reconsideration, arguing that respondents failed to seasonably exercise their
right of redemption; and that this Court was correct in its application of the case
of Vda. de Macoy v. Court of Appeals, which held that Article 1606, third
paragraph, of the Civil Code does not apply to cases where the parties intended
their contract of sale not as an equitable mortgage but a true sale involving
transfer of ownership.3
It may be helpful to restate the undisputed facts. Respondent contracted a loan
from petitioner in the sum of P550,000.00, secured by a real estate mortgage
over two parcels of land, covered by TCT Nos. 13607 and 13535. Respondent
defaulted in the payment of the loan, which had reached the amount of
P700,000.00. He sought a renewal of the loan and issued two postdated checks,
one for P10,000.00 and the other for P690,000.00, representing the full amount
of his obligation.
The second check was dishonored by the drawee bank. Respondent promised to
pay petitioner the sum of P690,000.00 upon approval of his pending loan
application with the State Investment House, Inc. However, the said lending
institution required a collateral before approving and releasing the loan, for which
reason respondent borrowed from petitioner the two titles, TCT Nos. 13607 and
13535, so he can mortgage the same. Thus, petitioner cancelled the mortgage in
his favor and delivered the two titles to respondent. Despite approval of the loan,
respondent failed to make good on his promise to pay his outstanding obligation
to petitioner. Hence, the latter threatened to sue him for Estafa. Respondent thus
executed a deed of absolute sale over his seventeen lots in Dumaguete City in
favor of petitioner. On the same day, the parties executed an Option to Buy
whereby respondent was allowed to repurchase the lots within a period of six
months.
Respondent failed to repurchase the seventeen lots within the stipulated period
of six months. Consequently, petitioners instituted an action for specific
performance, praying that respondent be made to pay the capital gains tax and
registration expenses for the transfer of title to the said lots, pursuant to the deed
of absolute sale. In his answer, respondent interposed the defense that the
transaction was in reality an equitable mortgage. On October 29, 1990, the
Regional Trial Court of Dumaguete City, Branch 42, rendered judgment in favor
of petitioner and ruled that the Option to Buy was rendered null and void by
respondent's failure to exercise the option within the period of six months.4 On
appeal, the Court of Appeals affirmed the decision of the trial court, but further
declared that "the deed of sale and option to buy actually constitute a pacto de
retro sale."5 Respondent's motion for reconsideration was denied,6 and the
petition filed with this Court was dismissed.7 Hence, the decision became final on
February 8, 1999 and was duly entered in the Book of Entries of Judgments.8
On February 27, 1999, respondent filed with the court of origin a motion to
repurchase the lots with tender of payment, which was denied.9 Subsequently,
the trial court issued an Order granting respondent's motion for reconsideration
and allowing him to repurchase the lots within thirty days from finality thereof. 10
Thus, petitioner brought the instant petition for review.
On January 17, 2002, we rendered the assailed Decision reversing the Order of
the Regional Trial Court of Dumaguete City, in effect denying respondent the
right to repurchase the subject lots.
Respondent's claim of the right to repurchase the lots is anchored on the third
paragraph of Article 1606 of the Civil Code, which states:
However, the vendor may still exercise the right to repurchase within thirty days
from the time final judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase.
The above-quoted provision applies only where the nature and character of the
transaction – whether as a pacto de retro sale or as an equitable mortgage – was
put in issue before the court.11 In other words, it applies in a situation where, in a
case, one of the contending parties claims that the transaction was a sale with
right to repurchase and the other counters that the same was an equitable
mortgage, and the court declares in a final judgment that the transaction was
really a sale with pacto de retro.
In our Decision, we ruled that Article 1606 of the Civil Code does not apply to the
case at bar because the transaction between the parties was a pacto de
retro sale, citing the case of Vda. de Macoy v. Court of Appeals.12However, upon
a careful review and analysis of the antecedent facts, we are convinced that the
right granted under the third paragraph of Article 1606 may be invoked by
respondent.
In Vda. de Macoy,13 citing the earlier ruling in Felicen, Sr. v. Orias,14 we held:
The application of the third paragraph of Article 1606 is predicated upon the bona
fides of the vendor a retro.It must appear that there was a belief on his part,
founded on facts attendant upon the execution of the sale with pacto de
retro, honestly and sincerely entertained, that the agreement was in reality a
mortgage, one not intended to affect the title to the property ostensibly sold, but
merely to give it as security for a loan or other obligation. In that event, if the
matter of the real nature of the contract is submitted for judicial resolution, the
application of the rule is meet and proper; that the vendor a retro be allowed to
repurchase the property sold within 30 days from rendition of final judgment
declaring the contract to be a true sale with right to repurchase. Conversely, if it
should appear that the parties' agreement was really one of sale — transferring
ownership to the vendee, but accompanied by a reservation to the vendor of the
right to repurchase the property — and there are no circumstances that may
reasonably be accepted as generating some honest doubt as to the parties'
intention, the proviso is inapplicable. The reason is quite obvious. If the rule were
otherwise, it would be within the power of every vendor a retro to set at naught
a pacto de retro, or resurrect an expired right of repurchase, by simply instituting
an action to reform the contract — known to him to be in truth a sale with pacto
de retro — into an equitable mortgage. xxx xxx xxx. (Underscoring ours)
Therefore, the applicability of Article 1606 rests on the bona fide intent of the
vendor a retro, i.e., respondent in this case. If he honestly believed that the
transaction was an equitable mortgage, the said article applies and he can still
repurchase the property within thirty days from finality of the judgment declaring
the transaction as a sale with pacto de retro. Parenthetically, it matters not what
the vendee intended the transaction to be. As we stated above, we analyzed the
peculiar factual background of this case in order to determine the true intent of
respondent. We noted that his contractual relations with petitioner commenced
with a loan secured by a real estate mortgage over two parcels of registered
land. Said mortgage was cancelled by petitioner when respondent borrowed the
titles to the properties so that he can mortgage the same to the State Investment
House, Inc. Respondent applied for a loan with the said lending institution
precisely to settle his unpaid obligation to petitioner. However, respondent still
failed to settle his obligation to petitioner.
When petitioner lent the two titles to respondent, the loan he extended to
respondent became unsecured. Naturally, there was a need to secure
respondent's obligation after he reneged on his promise to pay the same out of
the loan proceeds from State Investment House. Thus, it may well be that the
deed of sale, together with the option to buy executed on the same day, was
meant to serve as security for the indebtedness of respondent which had
become long overdue. Said obligation would have been satisfied had respondent
exercised the option to buy within the stipulated period. These circumstances,
peculiar to the case at bar, make this case fall squarely within the situation
contemplated in the above-quoted doctrine – that there was a belief on the part
of the vendor a retro, founded on facts attendant upon the execution of the sale
with pacto de retro, honestly and sincerely entertained, that the agreement was
in reality a mortgage, one not intended to affect the title to the property ostensibly
sold, but merely to give it as security for a loan or other obligation. Consistently
therewith, respondent has maintained throughout the proceedings that
transaction between him and petitioner was really an equitable mortgage. As
such, respondent may avail of the third paragraph of Article 1606 of the Civil
Code and repurchase the lots affected by the deed of absolute sale and option to
buy.
The trial court, however, erred in holding that respondent shall be allowed to
repurchase the subject lots within thirty days from finality of its Order dated
January 14, 2001. Pursuant to Article 1606, third paragraph, of the Civil Code,
the thirty-day period shall be counted from the date of finality of the decision
declaring the transaction to be a pacto de retro sale, i.e., February 8,
1999.15 Consequently, the urgent motion to repurchase the lots with tender of
payment which respondent filed on February 27, 1999 was on time. Petitioners
should, therefore, be ordered to accept the tendered payment for the lots and to
execute the necessary deed of sale conveying the same to
respondents.1âwphi1.nêt
WHEREFORE, in view of the foregoing, the Decision dated January 17, 2002
is SET ASIDE. The instant petition is DENIED. Petitioners are ORDERED to
accept the payment tendered by respondents and to execute the necessary deed
of sale conveying the subject lots to respondents.
SO ORDERED.
Page | 24
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 194846 June 19, 2013
*HOSPICIO D. ROSAROSO, ANTONIO D. ROSAROSO, MANUEL D.
ROSAROSO, ALGERICA D. ROSAROSO, and CLEOFE R.
LABINDAO, Petitioners,
vs.
LUCILA LABORTE SORIA, SPOUSES HAM SOLUTAN and **LAILA
SOLUTAN, and MERIDIAN REALTY CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the December 4, 2009 Decision1 of the Court of Appeals (CA). in CA
G.R. CV No. 00351, which reversed and set aside the July 30, 2004 Decision2 of
the Regional Trial Court, Branch 8, 7th Judicial Region, Cebu City (RTC), in Civil
Case No. CEB-16957, an action for declaration of nullity of documents.
The Facts
Spouses Luis Rosaroso (Luis) and Honorata Duazo (Honorata) acquired several
real properties in Daan Bantayan, Cebu City, including the subject properties.
The couple had nine (9) children namely: Hospicio, Arturo, Florita, Lucila,
Eduardo, Manuel, Cleofe, Antonio, and Angelica. On April 25, 1952, Honorata
died. Later on, Luis married Lourdes Pastor Rosaroso (Lourdes).
On January 16, 1995, a complaint for Declaration of Nullity of Documents with
Damages was filed by Luis, as one of the plaintiffs, against his daughter, Lucila
R. Soria (Lucila); Lucila’s daughter, Laila S. Solutan (Laila); and Meridian Realty
Corporation (Meridian). Due to Luis’ untimely death, however, an amended
complaint was filed on January 6, 1996, with the spouse of Laila, Ham Solutan
(Ham); and Luis’ second wife, Lourdes, included as defendants.3
In the Amended Complaint, it was alleged by petitioners Hospicio D. Rosaroso,
Antonio D. Rosaroso (Antonio), Angelica D. Rosaroso (Angelica), and Cleofe R.
Labindao (petitioners) that on November 4, 1991, Luis, with the full knowledge
and consent of his second wife, Lourdes, executed the Deed of Absolute
Sale4 (First Sale) covering the properties with Transfer Certificate of Title (TCT)
No. 31852 (Lot No. 8); TCT. No. 11155 (Lot 19); TCT No. 10885 (Lot No. 22);
TCT No. 10886 (Lot No. 23); and Lot Nos. 5665 and 7967, all located at
Daanbantayan, Cebu, in their favor.5
They also alleged that, despite the fact that the said properties had already been
sold to them, respondent Laila, in conspiracy with her mother, Lucila, obtained
the Special Power of Attorney (SPA),6 dated April 3, 1993, from Luis (First SPA);
that Luis was then sick, infirm, blind, and of unsound mind; that Lucila and Laila
accomplished this by affixing Luis’ thumb mark on the SPA which purportedly
authorized Laila to sell and convey, among others, Lot Nos. 8, 22 and 23, which
had already been sold to them; and that on the strength of another SPA7 by Luis,
dated July 21, 1993 (Second SPA), respondents Laila and Ham mortgaged Lot
No. 19 to Vital Lending Investors, Inc. for and in consideration of the amount of
₱150,000.00 with the concurrence of Lourdes.8
Petitioners further averred that a second sale took place on August 23, 1994,
when the respondents made Luis sign the Deed of Absolute Sale9 conveying to
Meridian three (3) parcels of residential land for ₱960,500.00 (Second Sale); that
Meridian was in bad faith when it did not make any inquiry as to who were the
occupants and owners of said lots; and that if Meridian had only investigated, it
would have been informed as to the true status of the subject properties and
would have desisted in pursuing their acquisition.
Petitioners, thus, prayed that they be awarded moral damages, exemplary
damages, attorney’s fees, actual damages, and litigation expenses and that the
two SPAs and the deed of sale in favor of Meridian be declared null and void ab
initio.10
On their part, respondents Lucila and Laila contested the First Sale in favor of
petitioners. They submitted that even assuming that it was valid, petitioners were
estopped from questioning the Second Sale in favor of Meridian because they
failed not only in effecting the necessary transfer of the title, but also in
annotating their interests on the titles of the questioned properties. With respect
to the assailed SPAs and the deed of absolute sale executed by Luis, they
claimed that the documents were valid because he was conscious and of sound
mind and body when he executed them. In fact, it was Luis together with his wife
who received the check payment issued by Meridian where a big part of it was
used to foot his hospital and medical expenses.11
Respondent Meridian, in its Answer with Compulsory Counterclaim, averred that
Luis was fully aware of the conveyances he made. In fact, Sophia Sanchez
(Sanchez), Vice-President of the corporation, personally witnessed Luis affix his
thumb mark on the deed of sale in its favor. As to petitioners’ contention that
Meridian acted in bad faith when it did not endeavor to make some inquiries as to
the status of the properties in question, it countered that before purchasing the
properties, it checked the titles of the said lots with the Register of Deeds of
Cebu and discovered therein that the First Sale purportedly executed in favor of
the plaintiffs was not registered with the said Register of Deeds. Finally, it argued
that the suit against it was filed in bad faith.12
On her part, Lourdes posited that her signature as well as that of Luis appearing
on the deed of sale in favor of petitioners, was obtained through fraud, deceit and
trickery. She explained that they signed the prepared deed out of pity because
petitioners told them that it was necessary for a loan application. In fact, there
was no consideration involved in the First Sale. With respect to the Second Sale,
she never encouraged the same and neither did she participate in it. It was
purely her husband’s own volition that the Second Sale materialized. She,
however, affirmed that she received Meridian’s payment on behalf of her
husband who was then bedridden.13
RTC Ruling
After the case was submitted for decision, the RTC ruled in favor of petitioners. It
held that when Luis executed the second deed of sale in favor of Meridian, he
was no longer the owner of Lot Nos. 19, 22 and 23 as he had already sold them
to his children by his first marriage. In fact, the subject properties had already
been delivered to the vendees who had been living there since birth and so had
been in actual possession of the said properties. The trial court stated that
although the deed of sale was not registered, this fact was not prejudicial to their
interest. It was of the view that the actual registration of the deed of sale was not
necessary to render a contract valid and effective because where the vendor
delivered the possession of the parcel of land to the vendee and no superior
rights of third persons had intervened, the efficacy of said deed was not
destroyed. In other words, Luis lost his right to dispose of the said properties to
Meridian from the time he executed the first deed of sale in favor of petitioners.
The same held true with his alleged sale of Lot 8 to Lucila Soria. 14 Specifically,
the dispositive portion of the RTC decision reads:
IN VIEW OF THE FOREGOING, the Court finds that a preponderance of
evidence exists in favor of the plaintiffs and against the defendants. Judgment is
hereby rendered:
a. Declaring that the Special Power of Attorney, Exhibit "K," for the plaintiffs and
Exhibit "3" for the defendants null and void including all transactions subsequent
thereto and all proceedings arising therefrom;
b. Declaring the Deed of Sale marked as Exhibit "E" valid and binding;
c. Declaring the Deed of Absolute Sale of Three (3) Parcels of Residential Land
marked as Exhibit "F" null and void from the beginning;
d. Declaring the Deed of Sale, Exhibit "16" (Solutan) or Exhibit "FF," null and void
from the beginning;
e. Declaring the vendees named in the Deed of Sale marked as Exhibit "E" to be
the lawful, exclusive and absolute owners and possessors of Lots Nos. 8, 19, 22,
and 23;
f. Ordering the defendants to pay jointly and severally each plaintiff ₱50,000.00
as moral damages; and
g. Ordering the defendants to pay plaintiffs ₱50,000.00 as attorney’s fees; and
₱20,000.00 as litigation expenses.
The crossclaim made by defendant Meridian Realty Corporation against
defendants Soria and Solutan is ordered dismissed for lack of sufficient
evidentiary basis.
SO ORDERED."15
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC decision. The CA ruled that
the first deed of sale in favor of petitioners was void because they failed to prove
that they indeed tendered a consideration for the four (4) parcels of land. It relied
on the testimony of Lourdes that petitioners did not pay her husband. The price
or consideration for the sale was simulated to make it appear that payment had
been tendered when in fact no payment was made at all.16
With respect to the validity of the Second Sale, the CA stated that it was valid
because the documents were notarized and, as such, they enjoyed the
presumption of regularity. Although petitioners alleged that Luis was manipulated
into signing the SPAs, the CA opined that evidence was wanting in this regard.
Dr. Arlene Letigio Pesquira, the attending physician of Luis, testified that while
the latter was physically infirmed, he was of sound mind when he executed the
first SPA.17
With regard to petitioners’ assertion that the First SPA was revoked by Luis when
he executed the affidavit, dated November 24, 1994, the CA ruled that the
Second Sale remained valid. The Second Sale was transacted on August 23,
1994, before the First SPA was revoked. In other words, when the Second Sale
was consummated, the First SPA was still valid and subsisting. Thus, "Meridian
had all the reasons to rely on the said SPA during the time of its validity until the
time of its actual filing with the Register of Deeds considering that constructive
notice of the revocation of the SPA only came into effect upon the filing of the
Adverse Claim and the aforementioned Letters addressed to the Register of
Deeds on 17 December 1994 and 25 November 1994, respectively, informing the
Register of Deeds of the revocation of the first SPA."18 Moreover, the CA
observed that the affidavit revoking the first SPA was also revoked by Luis on
December 12, 1994.19
Furthermore, although Luis revoked the First SPA, he did not revoke the Second
SPA which authorized respondent Laila to sell, convey and mortgage, among
Page | 25
others, the property covered by TCT T-11155 (Lot No. 19). The CA opined that
had it been the intention of Luis to discredit the
Second Sale, he should have revoked not only the First SPA but also the Second
SPA. The latter being valid, all transactions emanating from it, particularly the
mortgage of Lot 19, its subsequent redemption and its second sale, were
valid.20 Thus, the CA disposed in this wise:
WHEREFORE, the appeal is hereby GRANTED. The Decision dated 30 July
2004 is hereby REVERSED AND SET ASIDE, and in its stead a new decision is
hereby rendered:
1. DECLARING the Special Power of Attorney, dated 21 July 1993, as valid;
2. DECLARING the Special Power of Attorney, dated 03 April 1993, as valid up
to the time of its revocation on 24 November 1994;
3. DECLARING the Deed of Absolute sale, dated 04 November 1991, as
ineffective and without any force and effect;
4. DECLARING the Deed of Absolute Sale of Three (3) Parcels of Residential
Land, dated 23 August 1994, valid and binding from the very beginning;
5. DECLARING the Deed of Absolute Sale, dated 27 September 1994, also valid
and binding from the very beginning;
6. ORDERING the substituted plaintiffs to pay jointly and severally the defendant-
appellant Meridian Realty Corporation the sum of Php100,000.00 as moral
damages, Php100,000.00 as attorney’s fee and Php100,000.00 as litigation
expenses; and
7. ORDERING the substituted plaintiffs to pay jointly and severally the defendant-
appellants Leila Solutan et al., the sum of Php50,000.00 as moral damages.
SO ORDERED.21
Petitioners filed a motion for reconsideration, but it was denied in the CA
Resolution,22 dated November 18, 2010. Consequently, they filed the present
petition with the following ASSIGNMENT OF ERRORS
I.
THE HONORABLE COURT OF APPEALS (19TH DIVISION) GRAVELY ERRED
WHEN IT DECLARED AS VOID THE FIRST SALE EXECUTED BY THE LATE
LUIS ROSAROSO IN FAVOR OF HIS CHILDREN OF HIS FIRST MARRIAGE.
II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT
SUSTAINING AND AFFIRMING THE RULING OF THE TRIAL COURT
DECLARING THE MERIDIAN REALTY CORPORATION A BUYER IN BAD
FAITH, DESPITE THE TRIAL COURT’S FINDINGS THAT THE DEED OF SALE
(First Sale), IS GENUINE AND HAD FULLY COMPLIED WITH ALL THE LEGAL
FORMALITIES.
III.
THE HONORABLE COURT OF APPEALS FURTHER ERRED IN NOT
HOLDING THE SALE (DATED 27 SEPTEMBER 1994), NULL AND VOID FROM
THE VERY BEGINNING SINCE LUIS ROSAROSO ON NOVEMBER 4, 1991
WAS NO LONGER THE OWNER OF LOTS 8, 19, 22 AND 23 AS HE HAD
EARLIER DISPOSED SAID LOTS IN FAVOR OF THE CHILDREN OF HIS
(LUIS ROSAROSO) FIRST MARRIAGE.23
Petitioners argue that the second deed of sale was null and void because Luis
could not have validly transferred the ownership of the subject properties to
Meridian, he being no longer the owner after selling them to his children. No less
than Atty. William Boco, the lawyer who notarized the first deed of sale, appeared
and testified in court that the said deed was the one he notarized and that Luis
and his second wife, Lourdes, signed the same before him. He also identified the
signatures of the subscribing witnesses.24 Thus, they invoke the finding of the
RTC which wrote:
In the case of Heirs of Joaquin Teves, Ricardo Teves versus Court of Appeals, et
al., G.R. No. 109963, October 13, 1999, the Supreme Court held that a public
document executed [with] all the legal formalities is entitled to a presumption of
truth as to the recitals contained therein. In order to overthrow a certificate of a
notary public to the effect that a grantor executed a certain document and
acknowledged the fact of its execution before him, mere preponderance of
evidence will not suffice. Rather, the evidence must (be) so clear, strong and
convincing as to exclude all reasonable dispute as to the falsity of the certificate.
When the evidence is conflicting, the certificate will be upheld x x x .
A notarial document is by law entitled to full faith and credit upon its face.
(Ramirez vs. Ner, 21 SCRA 207). As such it … must be sustained in full force
and effect so long as he who impugns it shall not have presented strong,
complete and conclusive proof of its falsity or nullity on account of some flaw or
defect provided against by law (Robinson vs. Villafuerte, 18 Phil. 171, 189-190).25
Furthermore, petitioners aver that it was erroneous for the CA to say that the
records of the case were bereft of evidence that they paid the price of the lots
sold to them. In fact, a perusal of the records would reveal that during the cross-
examination of Antonio Rosaroso, when asked if there was a monetary
consideration, he testified that they indeed paid their father and their payment
helped him sustain his daily needs.26
Petitioners also assert that Meridian was a buyer in bad faith because when its
representative visited the site, she did not make the necessary inquiries. The fact
that there were already houses on the said lots should have put Meridian on its
guard and, for said reason, should have made inquiries as to who owned those
houses and what their rights were over the same.27
Meridian’s assertion that the Second Sale was registered in the Register of
Deeds was a falsity. The subject titles, namely: TCT No. 11155 for Lot 19, TCT
No. 10885 for Lot 22, and TCT No. 10886 for Lot 23 were free from any
annotation of the alleged sale.28
After an assiduous assessment of the records, the Court finds for the petitioners.
The First Deed Of Sale Was Valid
The fact that the first deed of sale was executed, conveying the subject
properties in favor of petitioners, was never contested by the respondents. What
they vehemently insist, though, is that the said sale was simulated because the
purported sale was made without a valid consideration.
Under Section 3, Rule 131 of the Rules of Court, the following are disputable
presumptions: (1) private transactions have been fair and regular; (2) the
ordinary course of business has been followed; and (3) there was sufficient
consideration for a contract.29 These presumptions operate against an adversary
who has not introduced proof to rebut them. They create the necessity of
presenting evidence to rebut the prima facie case they created, and which, if no
proof to the contrary is presented and offered, will prevail. The burden of proof
remains where it is but, by the presumption, the one who has that burden is
relieved for the time being from introducing evidence in support of the averment,
because the presumption stands in the place of evidence unless rebutted.30
In this case, the respondents failed to trounce the said presumption. Aside from
their bare allegation that the sale was made without a consideration, they failed
to supply clear and convincing evidence to back up this claim. It is elementary in
procedural law that bare allegations, unsubstantiated by evidence, are not
equivalent to proof under the Rules of Court.31
The CA decision ran counter to this established rule regarding disputable
presumption. It relied heavily on the account of Lourdes who testified that the
children of Luis approached him and convinced him to sign the deed of sale,
explaining that it was necessary for a loan application, but they did not pay the
purchase price for the subject properties.32 This testimony, however, is self-
serving and would not amount to a clear and convincing evidence required by
law to dispute the said presumption. As such, the presumption that there was
sufficient consideration will not be disturbed.
Granting that there was no delivery of the consideration, the seller would have no
right to sell again what he no longer owned. His remedy would be to rescind the
sale for failure on the part of the buyer to perform his part of their obligation
pursuant to Article 1191 of the New Civil Code. In the case of Clara M. Balatbat
v. Court Of Appeals and Spouses Jose Repuyan and Aurora Repuyan, 33 it was
written:
The failure of the buyer to make good the price does not, in law, cause the
ownership to revest to the seller unless the bilateral contract of sale is first
rescinded or resolved pursuant to Article 1191 of the New Civil Code. Non-
payment only creates a right to demand the fulfillment of the obligation or to
rescind the contract. [Emphases supplied]
Meridian is Not a
Buyer in Good Faith
Respondents Meridian and Lucila argue that, granting that the First Sale was
valid, the properties belong to them as they acquired these in good faith and had
them first recorded in the Registry of Property, as they were unaware of the First
Sale.34
Again, the Court is not persuaded.
The fact that Meridian had them first registered will not help its cause. In case of
double sale, 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 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.
Otherwise stated, ownership of an immovable property which is the subject of a
double sale shall be transferred: (1) to the person acquiring it who in good faith
first recorded it in the Registry of Property; (2) in default thereof, to the person
who in good faith was first in possession; and (3) in default thereof, to the person
who presents the oldest title, provided there is good faith. The requirement of the
law then is two-fold: acquisition in good faith and registration in good faith. Good
Page | 26
faith must concur with the registration. If it would be shown that a buyer was in
bad faith, the alleged registration they have made amounted to no registration at
all.
The principle of primus tempore, potior jure (first in time, stronger in right) gains
greater significance in case of a double sale of immovable property. When the
thing sold twice is an immovable, the one who acquires it and first records it in
the Registry of Property, both made in good faith, shall be deemed the owner.
Verily, the act of registration must be coupled with good faith— that is, the
registrant must have no knowledge of the defect or lack of title of his vendor or
must not have been aware of facts which should have put him upon such inquiry
and investigation as might be necessary to acquaint him with the defects in the
title of his vendor.)35 [Emphases and underlining supplied]
When a piece of land is in the actual possession of persons other than the seller,
the buyer must be wary and should investigate the rights of those in possession.
Without making such inquiry, one cannot claim that he is a buyer in good faith.
When a man proposes to buy or deal with realty, his duty is to read the public
manuscript, that is, to look and see who is there upon it and what his rights are. A
want of caution and diligence, which an honest man of ordinary prudence is
accustomed to exercise in making purchases, is in contemplation of law, a want
of good faith. The buyer who has failed to know or discover that the land sold to
him is in adverse possession of another is a buyer in bad faith. 36 In the case of
Spouses Sarmiento v. Court of Appeals,37 it was written:
From the above testimony, it is clear that Meridian, through its agent, knew that
the subject properties were in possession of persons other than the seller.
Instead of investigating the rights and interests of the persons occupying the said
lots, however, it chose to just believe that Luis still owned them. Simply, Meridian
Realty failed to exercise the due diligence required by law of purchasers in
acquiring a piece of land in the possession of person or persons other than the
seller.
In this regard, great weight is accorded to the findings of fact of the RTC. Basic is
the rule that the trial court is in a better position to examine real evidence as well
as to observe the demeanor of witnesses who testify in the case.40
WHEREFORE, the petition is GRANTED. The December 4, 2009 Decision and
the November 18, 201 0 Resolution of the Court of Appeals, in CA-G.R. CV No.
00351, are REVERSED and SET ASIDE. The July 30, 2004 Decision of the
Regional Trial Court, Branch 8, 7th Judicial Region, Cebu City, in Civil Case No.
CEB-16957, is hereby REINSTATED.
SO ORDERED.

Verily, 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.
Thus, the general rule is that a purchaser may be considered a purchaser in
good faith when he has examined the latest certificate of title. An exception to
this rule is when there exist important facts that would create suspicion in an
otherwise reasonable man to go beyond the present title and to investigate those
that preceded it. Thus, it has been said that a person who deliberately ignores a
significant fact which would create suspicion in an otherwise reasonable man is
not an innocent purchaser for value. A purchaser 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. As
we have held:

The failure of appellees to take the ordinary precautions which a prudent man
would have taken under the circumstances, specially in buying a piece of land in
the actual, visible and public possession of another person, other than the
vendor, constitutes gross negligence amounting to bad faith.

In this connection, it has been held that where, as in this case, the land sold is in
the possession of a person other than the vendor, the purchaser is required to go
beyond the certificate of title to make inquiries concerning the rights of the actual
possessor. Failure to do so would make him a purchaser in bad faith. (Citations
omitted).

One who purchases real property which is in the actual possession of another
should, at least make some inquiry concerning the right of those in possession.
The actual possession by other than the vendor should, at least put the
purchaser upon inquiry. He can scarely, in the absence of such inquiry, be
regarded as a bona fide purchaser as against such possessors. (Emphases
supplied)

Prescinding from the foregoing, the fact that private respondent RRC did not
investigate the Sarmiento spouses' claim over the subject land despite its
knowledge that Pedro Ogsiner, as their overseer, was in actual possession
thereof means that it was not an innocent purchaser for value upon said land.
Article 524 of the Civil Code directs that possession may be exercised in one's
name or in that of another. In herein case, Pedro Ogsiner had informed RRC that
he was occupying the subject land on behalf of the Sarmiento spouses. Being a
corporation engaged in the business of buying and selling real estate, it was
gross negligence on its part to merely rely on Mr. Puzon's assurance that the
occupants of the property were mere squatters considering the invaluable
information it acquired from Pedro Ogsiner and considering further that it had the
means and the opportunity to investigate for itself the accuracy of such
information. [Emphases supplied]

In another case, it was held that if a vendee in a double sale registers the sale
after he has acquired knowledge of a previous sale, the registration constitutes a
registration in bad faith and does not confer upon him any right. If the registration
is done in bad faith, it is as if there is no registration at all, and the buyer who has
first taken possession of the property in good faith shall be preferred.38

In the case at bench, the fact that the subject properties were already in the
possession of persons other than Luis was never disputed. Sanchez,
representative and witness for Meridian, even testified as follows:

x x x; that she together with the two agents, defendant Laila Solutan and
Corazon Lua, the president of Meridian Realty Corporation, went immediately to
site of the lots; that the agents brought with them the three titles of the lots and
Laila Solutan brought with her a special power of attorney executed by Luis B.
Rosaroso in her favor but she went instead directly to Luis Rosaroso to be sure;
that the lots were pointed to them and she saw that there were houses on it but
she did not have any interest of the houses because her interest was on the lots;
that Luis Rosaroso said that the houses belonged to him; that he owns the
property and that he will sell the same because he is very sickly and he wanted
to buy medicines; that she requested someone to check the records of the lots in
the Register of Deeds; that one of the titles was mortgaged and she told them to
redeem the mortgage because the corporation will buy the property; that the
registered owner of the lots was Luis Rosaroso; that in more or less three
months, the encumbrance was cancelled and she told the prospective sellers to
prepare the deed of sale; that there were no encumbrances or liens in the title;
that when the deed of absolute sale was prepared it was signed by the vendor
Luis Rosaroso in their house in Opra x x x.39 (Underscoring supplied)

Page | 27
 Republic of the Philippines
SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 193787 April 7, 2014
SPOUSES JOSE C. ROQUE AND BEATRIZ DELA CRUZ ROQUE, with
deceased Jose C. Roque represented by his substitute heir JOVETTE
ROQUE-LIBREA, Petitioners,
vs.
MA. PAMELA P. AGUADO, FRUCTUOSO C. SABUG, JR., NATIONAL
COUNCIL OF CHURCHES IN THE PHILIPPINES (NCCP), represented by its
Secretary General SHARON ROSE JOY RUIZ-DUREMDES, LAND BANK OF
THE PHILIPPINES (LBP), represented by Branch Manager EVELYN M.
MONTERO, ATTY. MARIO S.P. DIAZ, in his Official Capacity as Register of
Deeds for Rizal, Morong Branch, and CECILIO U. PULAN, in his Official
Capacity as Sheriff, Office of the Clerk of Court, Regional Trial Court,
Binangonan, Rizal,Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated May 12,
2010 and the Resolution3 dated September 15, 2010 of the Court of Appeals
(CA) in CA G.R. CV No. 92113 which affirmed the Decision4 dated July 8, 2008
of the Regional Trial Court of Binangonan, Rizal, Branch 69 (RTC) that dismissed
Civil Case Nos. 03-022 and 05-003 for reconveyance, annulment of sale, deed of
real estate mortgage, foreclosure and certificate of sale, and damages.
The Facts
The property subject of this case is a parcel of land with an area of 20,862
square meters (sq. m.), located in Sitio Tagpos, Barangay Tayuman,
Binangonan, Rizal, known as Lot 18089.5
On July 21, 1977, petitioners-spouses Jose C. Roque and Beatriz dela Cruz
Roque (Sps. Roque) and the original owners of the then unregistered Lot 18089
– namely, Velia R. Rivero (Rivero), Magdalena Aguilar, Angela Gonzales,
Herminia R. Bernardo, Antonio Rivero, Araceli R. Victa, Leonor R. Topacio, and
Augusto Rivero (Rivero, et al.) – executed a Deed of Conditional Sale of Real
Property6 (1977 Deed of Conditional Sale) over a 1,231-sq. m. portion of Lot
18089 (subject portion) for a consideration of ₱30,775.00. The parties agreed
that Sps. Roque shall make an initial payment of ₱15,387.50 upon signing, while
the remaining balance of the purchase price shall be payable upon the
registration of Lot 18089, as well as the segregation and the concomitant
issuance of a separate title over the subject portion in their names. After the
deed’s execution, Sps. Roque took possession and introduced improvements on
the subject portion which they utilized as a balut factory.7
On August 12, 1991, Fructuoso Sabug, Jr. (Sabug, Jr.), former Treasurer of the
National Council of Churches in the Philippines (NCCP), applied for a free patent
over the entire Lot 18089 and was eventually issued Original Certificate of Title
(OCT) No. M-59558 in his name on October 21, 1991. On June 24, 1993, Sabug,
Jr. and Rivero, in her personal capacity and in representation of Rivero, et al.,
executed a Joint Affidavit9 (1993 Joint Affidavit), acknowledging that the subject
portion belongs to Sps. Roque and expressed their willingness to segregate the
same from the entire area of Lot 18089.
On December 8, 1999, however, Sabug, Jr., through a Deed of Absolute
Sale10 (1999 Deed of Absolute Sale), sold Lot 18089 to one Ma. Pamela P.
Aguado (Aguado) for ₱2,500,000.00, who, in turn, caused the cancellation of
OCT No. M-5955 and the issuance of Transfer Certificate of Title (TCT) No. M-
96692 dated December 17, 199911 in her name.
Thereafter, Aguado obtained an ₱8,000,000.00 loan from the Land Bank of the
Philippines (Land Bank) secured by a mortgage over Lot 18089.12 When she
failed to pay her loan obligation, Land Bank commenced extra-judicial
foreclosure proceedings and eventually tendered the highest bid in the auction
sale. Upon Aguado’s failure to redeem the subject property, Land Bank
consolidated its ownership, and TCT No. M-11589513 was issued in its name on
July 21, 2003.14
On June 16, 2003, Sps. Roque filed a complaint15 for reconveyance, annulment
of sale, deed of real estate mortgage, foreclosure, and certificate of sale, and
damages before the RTC, docketed as Civil Case No. 03-022, against Aguado,
Sabug, Jr., NCCP, Land Bank, the Register of Deeds of Morong, Rizal, and
Sheriff Cecilio U. Pulan, seeking to be declared as the true owners of the subject
portion which had been erroneously included in the sale between Aguado and
Sabug, Jr., and, subsequently, the mortgage to Land Bank, both covering Lot
18089 in its entirety.
In defense, NCCP and Sabug, Jr. denied any knowledge of the 1977 Deed of
Conditional Sale through which the subject portion had been purportedly
conveyed to Sps. Roque.16
For her part, Aguado raised the defense of an innocent purchaser for value as
she allegedly derived her title (through the 1999 Deed of Absolute Sale) from
Sabug, Jr., the registered owner in OCT No. M-5955, covering Lot 18089, which
certificate of title at the time of sale was free from any lien and/or encumbrances.
She also claimed that Sps. Roque’s cause of action had already prescribed
because their adverse claim was made only on April 21, 2003, or four (4) years
from the date OCT No. M-5955 was issued in Sabug, Jr.’s name on December
17, 1999.17
On the other hand, Land Bank averred that it had no knowledge of Sps. Roque’s
claim relative to the subject portion, considering that at the time the loan was
taken out, Lot 18089 in its entirety was registered in Aguado’s name and no lien
and/or encumbrance was annotated on her certificate of title.18
Meanwhile, on January 18, 2005, NCCP filed a separate complaint19 also for
declaration of nullity of documents and certificates of title and damages,
docketed as Civil Case No. 05-003. It claimed to be the real owner of Lot 18089
which it supposedly acquired from Sabug, Jr. through an oral contract of sale 20 in
the early part of 1998, followed by the execution of a Deed of Absolute Sale on
December 2, 1998 (1998 Deed of Absolute Sale).21 NCCP also alleged that in
October of the same year, it entered into a Joint Venture Agreement (JVA) with
Pilipinas Norin Construction Development Corporation (PNCDC), a company
owned by Aguado’s parents, for the development of its real properties, including
Lot 18089, into a subdivision project, and as such, turned over its copy of OCT
No. M-5955 to PNCDC.22 Upon knowledge of the purported sale of Lot 18089 to
Aguado, Sabug, Jr. denied the transaction and alleged forgery. Claiming that the
Aguados23 and PNCDC conspired to defraud NCCP, it prayed that PNCDC’s
corporate veil be pierced and that the Aguados be ordered to pay the amount of
₱38,092,002.00 representing the unrealized profit from the JVA.24 Moreover,
NCCP averred that Land Bank failed to exercise the diligence required to
ascertain the true owners of Lot 18089. Hence, it further prayed that: (a) all acts
of ownership and dominion over Lot 18089 that the bank might have done or
caused to be done be declared null and void; (b) it be declared the true and real
owners of Lot 18089; and (c) the Register of Deeds of Morong, Rizal be ordered
to cancel any and all certificates of title covering the lot, and a new one be issued
in its name.25 In its answer, Land Bank reiterated its stance that Lot 18089 was
used as collateral for the ₱8,000,000.00 loan obtained by the Countryside Rural
Bank, Aguado, and one Bella Palasaga. There being no lien and/ or
encumbrance annotated on its certificate of title, i.e., TCT No. M-115895, it
cannot be held liable for NCCP’s claims. Thus, it prayed for the dismissal of
NCCP’s complaint.26
On September 7, 2005, Civil Case Nos. 02-022 and 05-003 were ordered
consolidated.27
The RTC Ruling
After due proceedings, the RTC rendered a Decision28 dated July 8, 2008,
dismissing the complaints of Sps. Roque and NCCP.
With respect to Sps. Roque’s complaint, the RTC found that the latter failed to
establish their ownership over the subject portion, considering the following: (a)
the supposed owners-vendors, i.e., Rivero, et al., who executed the 1977 Deed
of Conditional Sale, had no proof of their title over Lot 18089; (b) the 1977 Deed
of Conditional Sale was not registered with the Office of the Register of
Deeds;29 (c) the 1977 Deed of Conditional Sale is neither a deed of conveyance
nor a transfer document, as it only gives the holder the right to compel the
supposed vendors to execute a deed of absolute sale upon full payment of the
consideration; (d) neither Sps. Roque nor the alleged owners-vendors, i.e.,
Rivero, et al., have paid real property taxes in relation to Lot 18089; and (e) Sps.
Roque’s occupation of the subject portion did not ripen into ownership that can
be considered superior to the ownership of Land Bank.30 Moreover, the RTC
ruled that Sps. Roque’s action for reconveyance had already prescribed, having
been filed ten (10) years after the issuance of OCT No. M-5955.31
On the other hand, regarding NCCP’s complaint, the RTC observed that while it
anchored its claim of ownership over Lot 18089 on the 1998 Deed of Absolute
Sale, the said deed was not annotated on OCT No. M-5955. Neither was any
certificate of title issued in its name nor did it take possession of Lot 18089 or
paid the real property taxes therefor. Hence, NCCP’s claim cannot prevail
against Land Bank’s title, which was adjudged by the RTC as an innocent
purchaser for value. Also, the RTC disregarded NCCP’s allegation that the
signature of Sabug, Jr. on the 1999 Deed of Absolute Sale in favor of Aguado
was forged because his signatures on both instruments bear semblances of
similarity and appear genuine. Besides, the examiner from the National Bureau
of Investigation, who purportedly found that Sabug, Jr.’s signature thereon was
spurious leading to the dismissal of a criminal case against him, was not
presented as a witness in the civil action.32
Finally, the RTC denied the parties’ respective claims for damages.33
The CA Ruling
On appeal, the Court of Appeals (CA) affirmed the foregoing RTC findings in a
Decision34 dated May 12, 2010. While Land Bank was not regarded as a
mortgagee/purchaser in good faith with respect to the subject portion considering
Sps. Roque’s possession thereof,35 the CA did not order its reconveyance or
segregation in the latter’s favor because of Sps. Roque’s failure to pay the
remaining balance of the purchase price. Hence, it only directed Land Bank to
respect Sps. Roque’s possession with the option to appropriate the
improvements introduced thereon upon payment of compensation.36
As regards NCCP, the CA found that it failed to establish its right over Lot 18089
for the following reasons: (a) the sale to it of the lot by Sabug, Jr. was never
registered; and (b) there is no showing that it was in possession of Lot 18089 or
any portion thereof from 1998. Thus, as far as NCCP is concerned, Land Bank is
a mortgagee/purchaser in good faith.37
Aggrieved, both Sps. Roque38 and NCCP39 moved for reconsideration but were
denied by the CA in a Resolution40dated September 15, 2010, prompting them to
seek further recourse before the Court.
The Issue Before the Court
The central issue in this case is whether or not the CA erred in not ordering the
reconveyance of the subject portion in Sps. Roque’s favor.
Page | 28
Sps. Roque maintain that the CA erred in not declaring them as the lawful
owners of the subject portion despite having possessed the same since the
execution of the 1977 Deed of Conditional Sale, sufficient for acquisitive
prescription to set in in their favor.41 To bolster their claim, they also point to the
1993 Joint Affidavit whereby Sabug, Jr. and Rivero acknowledged their
ownership thereof.42 Being the first purchasers and in actual possession of the
disputed portion, they assert that they have a better right over the 1,231- sq. m.
portion of Lot 18089 and, hence, cannot be ousted therefrom by Land Bank,
which was adjudged as a ortgagee/purchaser in bad faith, pursuant to Article
1544 of the Civil Code.43
In opposition, Land Bank espouses that the instant petition should be dismissed
for raising questions of fact, in violation of the proscription under Rule 45 of the
Rules of Court which allows only pure questions of law to be raised.44 Moreover,
it denied that ownership over the subject portion had been acquired by Sps.
Roque who admittedly failed to pay the remaining balance of the purchase
price.45 Besides, Land Bank points out that Sps. Roque’s action for
reconveyance had already prescribed.46
Instead of traversing the arguments of Sps. Roque, NCCP, in its
Comment47 dated December 19, 2011, advanced its own case, arguing that the
CA erred in holding that it failed to establish its claimed ownership over Lot
18089 in its entirety. Incidentally, NCCP’s appeal from the CA Decision dated
May 12, 2010 was already denied by the Court,48 and hence, will no longer be
dealt with in this case.
The Court’s Ruling
The petition lacks merit.
The essence of an action for reconveyance is to seek the transfer of the property
which was wrongfully or erroneously registered in another person’s name to its
rightful owner or to one with a better right.49 Thus, it is incumbent upon the
aggrieved party to show that he has a legal claim on the property superior to that
of the registered owner and that the property has not yet passed to the hands of
an innocent purchaser for value.50
Sps. Roque claim that the subject portion covered by the 1977 Deed of
Conditional Sale between them and Rivero, et al. was wrongfully included in the
certificates of title covering Lot 18089, and, hence, must be segregated therefrom
and their ownership thereof be confirmed. The salient portions of the said deed
state:
DEED OF CONDITIONAL SALE OF REAL PROPERTY
KNOW ALL MEN BY THESE PRESENTS:
xxxx
That for and in consideration of the sum of THIRTY THOUSAND SEVEN
HUNDRED SEVENTY FIVE PESOS (₱30,775.00), Philippine Currency, payable
in the manner hereinbelow specified, the VENDORS do hereby sell, transfer and
convey unto the VENDEE, or their heirs, executors, administrators, or assignors,
that unsegregated portion of the above lot, x x x.
That the aforesaid amount shall be paid in two installments, the first installment
which is in the amount of __________ (₱15,387.50) and the balance in the
amount of __________ (₱15,387.50), shall be paid as soon as the described
portion of the property shall have been registered under the Land Registration
Act and a Certificate of Title issued accordingly;
That as soon as the total amount of the property has been paid and the
Certificate of Title has been issued, an absolute deed of sale shall be executed
accordingly;
x x x x51
Examining its provisions, the Court finds that the stipulation above-highlighted
shows that the 1977 Deed of Conditional Sale is actually in the nature of a
contract to sell and not one of sale contrary to Sps. Roque’s belief.52 In this
relation, it has been consistently ruled that where the seller promises to execute
a deed of absolute sale upon the completion by the buyer of the payment of the
purchase price, the contract is only a contract to sell even if their agreement is
denominated as a Deed of Conditional Sale,53 as in this case. This treatment
stems from the legal characterization of a contract to sell, that is, a bilateral
contract whereby the prospective seller, while expressly reserving the ownership
of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the subject property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, such as, the full payment of the purchase
price.54 Elsewise stated, in a contract to sell, ownership is retained by the vendor
and is not to pass to the vendee until full payment of the purchase
price.55 Explaining the subject matter further, the Court, in Ursal v. CA,56 held
that:
[I]n contracts to sell the obligation of the seller to sell becomes demandable only
upon the happening of the suspensive condition, that is, the full payment of the
purchase price by the buyer. It is only upon the existence of the contract of sale
that the seller becomes obligated to transfer the ownership of the thing sold to
the buyer. Prior to the existence of the contract of sale, the seller is not obligated
to transfer the ownership to the buyer, even if there is a contract to sell between
them.
Here, it is undisputed that Sps. Roque have not paid the final installment of the
purchase price.57 As such, the condition which would have triggered the parties’
obligation to enter into and thereby perfect a contract of sale in order to
effectively transfer the ownership of the subject portion from the sellers (i.e.,
Rivero et al.) to the buyers (Sps. Roque) cannot be deemed to have been
fulfilled. Consequently, the latter cannot validly claim ownership over the subject
portion even if they had made an initial payment and even took possession of the
same.58
The Court further notes that Sps. Roque did not even take any active steps to
protect their claim over the disputed portion. This remains evident from the
following circumstances appearing on record: (a) the 1977 Deed of Conditional
Sale was never registered; (b) they did not seek the actual/physical segregation
of the disputed portion despite their knowledge of the fact that, as early as 1993,
the entire Lot 18089 was registered in Sabug, Jr.’s name under OCT No. M-
5955; and (c) while they signified their willingness to pay the balance of the
purchase price,59Sps. Roque neither compelled Rivero et al., and/or Sabug, Jr. to
accept the same nor did they consign any amount to the court, the proper
application of which would have effectively fulfilled their obligation to pay the
purchase price.60 Instead, Sps. Roque waited 26 years, reckoned from the
execution of the 1977 Deed of Conditional Sale, to institute an action for
reconveyance (in 2003), and only after Lot 18089 was sold to Land Bank in the
foreclosure sale and title thereto was consolidated in its name. Thus, in view of
the foregoing, Sabug, Jr. – as the registered owner of Lot 18089 borne by the
grant of his free patent application – could validly convey said property in its
entirety to Aguado who, in turn, mortgaged the same to Land Bank. Besides, as
aptly observed by the RTC, Sps. Roque failed to establish that the parties who
sold the property to them, i.e., Rivero, et al., were indeed its true and lawful
owners.61 In fine, Sps. Roque failed to establish any superior right over the
subject portion as against the registered owner of Lot 18089, i.e., Land Bank,
thereby warranting the dismissal of their reconveyance action, without prejudice
to their right to seek damages against the vendors, i.e., Rivero et al.62 As applied
in the case of Coronel v. CA:63
It is essential to distinguish between a contract to sell and a conditional contract
of sale specially in cases where the subject property is sold by the owner not to
the party the seller contracted with, but to a third person, as in the case at bench.
In a contract to sell, there being no previous sale of the property, a third person
buying such property despite the fulfilment of the suspensive condition such as
the full payment of the purchase price, for instance, cannot be deemed a buyer in
bad faith and the prospective buyer cannot seek the relief of reconveyance of the
property.
There is no double sale in such case.1âwphi1 Title to the property will transfer to
the buyer after registration because there is no defect in the owner-seller’s title
per se, but the latter, of course, may be sued for damages by the intending
buyer. (Emphasis supplied)
On the matter of double sales, suffice it to state that Sps. Roque’s reliance64 on
Article 154465 of the Civil Code has been misplaced since the contract they base
their claim of ownership on is, as earlier stated, a contract to sell, and not one of
sale. In Cheng v. Genato,66 the Court stated the circumstances which must
concur in order to determine the applicability of Article 1544, none of which are
obtaining in this case, viz.:
(a) The two (or more) sales transactions in issue must pertain to exactly the
same subject matter, and must be valid sales transactions;
(b) The two (or more) buyers at odds over the rightful ownership of the subject
matter must each represent conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the subject
matter must each have bought from the same seller.
Finally, regarding Sps. Roque’s claims of acquisitive prescription and
reimbursement for the value of the improvements they have introduced on the
subject property,67 it is keenly observed that none of the arguments therefor were
raised before the trial court or the CA.68 Accordingly, the Court applies the well-
settled rule that litigants cannot raise an issue for the first time on appeal as this
would contravene the basic rules of fair play and justice. In any event, such
claims appear to involve questions of fact which are generally prohibited under a
Rule 45 petition.69
With the conclusions herein reached, the Court need not belabor on the other
points raised by the parties, and ultimately finds it proper to proceed with the
denial of the petition.
WHEREFORE, the petition is DENIED. The Decision dated May 12, 2010 and
the Resolution dated September 15, 2010 of the Court of Appeals in CAG.R. CV
No. 92113 are hereby AFFIRMED.
SO ORDERED.
Page | 29
 Republic of the Philippines
SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 193787 April 7, 2014
SPOUSES JOSE C. ROQUE AND BEATRIZ DELA CRUZ ROQUE, with
deceased Jose C. Roque represented by his substitute heir JOVETTE
ROQUE-LIBREA, Petitioners,
vs.
MA. PAMELA P. AGUADO, FRUCTUOSO C. SABUG, JR., NATIONAL
COUNCIL OF CHURCHES IN THE PHILIPPINES (NCCP), represented by its
Secretary General SHARON ROSE JOY RUIZ-DUREMDES, LAND BANK OF
THE PHILIPPINES (LBP), represented by Branch Manager EVELYN M.
MONTERO, ATTY. MARIO S.P. DIAZ, in his Official Capacity as Register of
Deeds for Rizal, Morong Branch, and CECILIO U. PULAN, in his Official
Capacity as Sheriff, Office of the Clerk of Court, Regional Trial Court,
Binangonan, Rizal,Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated May 12,
2010 and the Resolution3 dated September 15, 2010 of the Court of Appeals
(CA) in CA G.R. CV No. 92113 which affirmed the Decision4 dated July 8, 2008
of the Regional Trial Court of Binangonan, Rizal, Branch 69 (RTC) that dismissed
Civil Case Nos. 03-022 and 05-003 for reconveyance, annulment of sale, deed of
real estate mortgage, foreclosure and certificate of sale, and damages.
The Facts
The property subject of this case is a parcel of land with an area of 20,862
square meters (sq. m.), located in Sitio Tagpos, Barangay Tayuman,
Binangonan, Rizal, known as Lot 18089.5
On July 21, 1977, petitioners-spouses Jose C. Roque and Beatriz dela Cruz
Roque (Sps. Roque) and the original owners of the then unregistered Lot 18089
– namely, Velia R. Rivero (Rivero), Magdalena Aguilar, Angela Gonzales,
Herminia R. Bernardo, Antonio Rivero, Araceli R. Victa, Leonor R. Topacio, and
Augusto Rivero (Rivero, et al.) – executed a Deed of Conditional Sale of Real
Property6 (1977 Deed of Conditional Sale) over a 1,231-sq. m. portion of Lot
18089 (subject portion) for a consideration of ₱30,775.00. The parties agreed
that Sps. Roque shall make an initial payment of ₱15,387.50 upon signing, while
the remaining balance of the purchase price shall be payable upon the
registration of Lot 18089, as well as the segregation and the concomitant
issuance of a separate title over the subject portion in their names. After the
deed’s execution, Sps. Roque took possession and introduced improvements on
the subject portion which they utilized as a balut factory.7
On August 12, 1991, Fructuoso Sabug, Jr. (Sabug, Jr.), former Treasurer of the
National Council of Churches in the Philippines (NCCP), applied for a free patent
over the entire Lot 18089 and was eventually issued Original Certificate of Title
(OCT) No. M-59558 in his name on October 21, 1991. On June 24, 1993, Sabug,
Jr. and Rivero, in her personal capacity and in representation of Rivero, et al.,
executed a Joint Affidavit9 (1993 Joint Affidavit), acknowledging that the subject
portion belongs to Sps. Roque and expressed their willingness to segregate the
same from the entire area of Lot 18089.
On December 8, 1999, however, Sabug, Jr., through a Deed of Absolute
Sale10 (1999 Deed of Absolute Sale), sold Lot 18089 to one Ma. Pamela P.
Aguado (Aguado) for ₱2,500,000.00, who, in turn, caused the cancellation of
OCT No. M-5955 and the issuance of Transfer Certificate of Title (TCT) No. M-
96692 dated December 17, 199911 in her name.
Thereafter, Aguado obtained an ₱8,000,000.00 loan from the Land Bank of the
Philippines (Land Bank) secured by a mortgage over Lot 18089.12 When she
failed to pay her loan obligation, Land Bank commenced extra-judicial
foreclosure proceedings and eventually tendered the highest bid in the auction
sale. Upon Aguado’s failure to redeem the subject property, Land Bank
consolidated its ownership, and TCT No. M-11589513 was issued in its name on
July 21, 2003.14
On June 16, 2003, Sps. Roque filed a complaint15 for reconveyance, annulment
of sale, deed of real estate mortgage, foreclosure, and certificate of sale, and
damages before the RTC, docketed as Civil Case No. 03-022, against Aguado,
Sabug, Jr., NCCP, Land Bank, the Register of Deeds of Morong, Rizal, and
Sheriff Cecilio U. Pulan, seeking to be declared as the true owners of the subject
portion which had been erroneously included in the sale between Aguado and
Sabug, Jr., and, subsequently, the mortgage to Land Bank, both covering Lot
18089 in its entirety.
In defense, NCCP and Sabug, Jr. denied any knowledge of the 1977 Deed of
Conditional Sale through which the subject portion had been purportedly
conveyed to Sps. Roque.16
For her part, Aguado raised the defense of an innocent purchaser for value as
she allegedly derived her title (through the 1999 Deed of Absolute Sale) from
Sabug, Jr., the registered owner in OCT No. M-5955, covering Lot 18089, which
certificate of title at the time of sale was free from any lien and/or encumbrances.
She also claimed that Sps. Roque’s cause of action had already prescribed
because their adverse claim was made only on April 21, 2003, or four (4) years
from the date OCT No. M-5955 was issued in Sabug, Jr.’s name on December
17, 1999.17
On the other hand, Land Bank averred that it had no knowledge of Sps. Roque’s
claim relative to the subject portion, considering that at the time the loan was
taken out, Lot 18089 in its entirety was registered in Aguado’s name and no lien
and/or encumbrance was annotated on her certificate of title.18
Meanwhile, on January 18, 2005, NCCP filed a separate complaint19 also for
declaration of nullity of documents and certificates of title and damages,
docketed as Civil Case No. 05-003. It claimed to be the real owner of Lot 18089
which it supposedly acquired from Sabug, Jr. through an oral contract of sale20 in
the early part of 1998, followed by the execution of a Deed of Absolute Sale on
December 2, 1998 (1998 Deed of Absolute Sale).21 NCCP also alleged that in
October of the same year, it entered into a Joint Venture Agreement (JVA) with
Pilipinas Norin Construction Development Corporation (PNCDC), a company
owned by Aguado’s parents, for the development of its real properties, including
Lot 18089, into a subdivision project, and as such, turned over its copy of OCT
No. M-5955 to PNCDC.22 Upon knowledge of the purported sale of Lot 18089 to
Aguado, Sabug, Jr. denied the transaction and alleged forgery. Claiming that the
Aguados23 and PNCDC conspired to defraud NCCP, it prayed that PNCDC’s
corporate veil be pierced and that the Aguados be ordered to pay the amount of
₱38,092,002.00 representing the unrealized profit from the JVA.24 Moreover,
NCCP averred that Land Bank failed to exercise the diligence required to
ascertain the true owners of Lot 18089. Hence, it further prayed that: (a) all acts
of ownership and dominion over Lot 18089 that the bank might have done or
caused to be done be declared null and void; (b) it be declared the true and real
owners of Lot 18089; and (c) the Register of Deeds of Morong, Rizal be ordered
to cancel any and all certificates of title covering the lot, and a new one be issued
in its name.25 In its answer, Land Bank reiterated its stance that Lot 18089 was
used as collateral for the ₱8,000,000.00 loan obtained by the Countryside Rural
Bank, Aguado, and one Bella Palasaga. There being no lien and/ or
encumbrance annotated on its certificate of title, i.e., TCT No. M-115895, it
cannot be held liable for NCCP’s claims. Thus, it prayed for the dismissal of
NCCP’s complaint.26
On September 7, 2005, Civil Case Nos. 02-022 and 05-003 were ordered
consolidated.27
The RTC Ruling
After due proceedings, the RTC rendered a Decision28 dated July 8, 2008,
dismissing the complaints of Sps. Roque and NCCP.
With respect to Sps. Roque’s complaint, the RTC found that the latter failed to
establish their ownership over the subject portion, considering the following: (a)
the supposed owners-vendors, i.e., Rivero, et al., who executed the 1977 Deed
of Conditional Sale, had no proof of their title over Lot 18089; (b) the 1977 Deed
of Conditional Sale was not registered with the Office of the Register of
Deeds;29 (c) the 1977 Deed of Conditional Sale is neither a deed of conveyance
nor a transfer document, as it only gives the holder the right to compel the
supposed vendors to execute a deed of absolute sale upon full payment of the
consideration; (d) neither Sps. Roque nor the alleged owners-vendors, i.e.,
Rivero, et al., have paid real property taxes in relation to Lot 18089; and (e) Sps.
Roque’s occupation of the subject portion did not ripen into ownership that can
be considered superior to the ownership of Land Bank.30 Moreover, the RTC
ruled that Sps. Roque’s action for reconveyance had already prescribed, having
been filed ten (10) years after the issuance of OCT No. M-5955.31
On the other hand, regarding NCCP’s complaint, the RTC observed that while it
anchored its claim of ownership over Lot 18089 on the 1998 Deed of Absolute
Sale, the said deed was not annotated on OCT No. M-5955. Neither was any
certificate of title issued in its name nor did it take possession of Lot 18089 or
paid the real property taxes therefor. Hence, NCCP’s claim cannot prevail
against Land Bank’s title, which was adjudged by the RTC as an innocent
purchaser for value. Also, the RTC disregarded NCCP’s allegation that the
signature of Sabug, Jr. on the 1999 Deed of Absolute Sale in favor of Aguado
was forged because his signatures on both instruments bear semblances of
similarity and appear genuine. Besides, the examiner from the National Bureau
of Investigation, who purportedly found that Sabug, Jr.’s signature thereon was
spurious leading to the dismissal of a criminal case against him, was not
presented as a witness in the civil action.32
Finally, the RTC denied the parties’ respective claims for damages.33
The CA Ruling
On appeal, the Court of Appeals (CA) affirmed the foregoing RTC findings in a
Decision34 dated May 12, 2010. While Land Bank was not regarded as a
mortgagee/purchaser in good faith with respect to the subject portion considering
Sps. Roque’s possession thereof,35 the CA did not order its reconveyance or
segregation in the latter’s favor because of Sps. Roque’s failure to pay the
remaining balance of the purchase price. Hence, it only directed Land Bank to
respect Sps. Roque’s possession with the option to appropriate the
improvements introduced thereon upon payment of compensation.36
As regards NCCP, the CA found that it failed to establish its right over Lot 18089
for the following reasons: (a) the sale to it of the lot by Sabug, Jr. was never
registered; and (b) there is no showing that it was in possession of Lot 18089 or
any portion thereof from 1998. Thus, as far as NCCP is concerned, Land Bank is
a mortgagee/purchaser in good faith.37
Aggrieved, both Sps. Roque38 and NCCP39 moved for reconsideration but were
denied by the CA in a Resolution40dated September 15, 2010, prompting them to
seek further recourse before the Court.
The Issue Before the Court
The central issue in this case is whether or not the CA erred in not ordering the
reconveyance of the subject portion in Sps. Roque’s favor.
Page | 30
Sps. Roque maintain that the CA erred in not declaring them as the lawful
owners of the subject portion despite having possessed the same since the
execution of the 1977 Deed of Conditional Sale, sufficient for acquisitive
prescription to set in in their favor.41 To bolster their claim, they also point to the
1993 Joint Affidavit whereby Sabug, Jr. and Rivero acknowledged their
ownership thereof.42 Being the first purchasers and in actual possession of the
disputed portion, they assert that they have a better right over the 1,231- sq. m.
portion of Lot 18089 and, hence, cannot be ousted therefrom by Land Bank,
which was adjudged as a ortgagee/purchaser in bad faith, pursuant to Article
1544 of the Civil Code.43
In opposition, Land Bank espouses that the instant petition should be dismissed
for raising questions of fact, in violation of the proscription under Rule 45 of the
Rules of Court which allows only pure questions of law to be raised.44 Moreover,
it denied that ownership over the subject portion had been acquired by Sps.
Roque who admittedly failed to pay the remaining balance of the purchase
price.45 Besides, Land Bank points out that Sps. Roque’s action for
reconveyance had already prescribed.46
Instead of traversing the arguments of Sps. Roque, NCCP, in its
Comment47 dated December 19, 2011, advanced its own case, arguing that the
CA erred in holding that it failed to establish its claimed ownership over Lot
18089 in its entirety. Incidentally, NCCP’s appeal from the CA Decision dated
May 12, 2010 was already denied by the Court,48 and hence, will no longer be
dealt with in this case.
The Court’s Ruling
The petition lacks merit.
The essence of an action for reconveyance is to seek the transfer of the property
which was wrongfully or erroneously registered in another person’s name to its
rightful owner or to one with a better right.49 Thus, it is incumbent upon the
aggrieved party to show that he has a legal claim on the property superior to that
of the registered owner and that the property has not yet passed to the hands of
an innocent purchaser for value.50
Sps. Roque claim that the subject portion covered by the 1977 Deed of
Conditional Sale between them and Rivero, et al. was wrongfully included in the
certificates of title covering Lot 18089, and, hence, must be segregated therefrom
and their ownership thereof be confirmed. The salient portions of the said deed
state:
DEED OF CONDITIONAL SALE OF REAL PROPERTY
KNOW ALL MEN BY THESE PRESENTS:
xxxx
That for and in consideration of the sum of THIRTY THOUSAND SEVEN
HUNDRED SEVENTY FIVE PESOS (₱30,775.00), Philippine Currency, payable
in the manner hereinbelow specified, the VENDORS do hereby sell, transfer and
convey unto the VENDEE, or their heirs, executors, administrators, or assignors,
that unsegregated portion of the above lot, x x x.
That the aforesaid amount shall be paid in two installments, the first installment
which is in the amount of __________ (₱15,387.50) and the balance in the
amount of __________ (₱15,387.50), shall be paid as soon as the described
portion of the property shall have been registered under the Land Registration
Act and a Certificate of Title issued accordingly;
That as soon as the total amount of the property has been paid and the
Certificate of Title has been issued, an absolute deed of sale shall be executed
accordingly;
x x x x51
Examining its provisions, the Court finds that the stipulation above-highlighted
shows that the 1977 Deed of Conditional Sale is actually in the nature of a
contract to sell and not one of sale contrary to Sps. Roque’s belief. 52 In this
relation, it has been consistently ruled that where the seller promises to execute
a deed of absolute sale upon the completion by the buyer of the payment of the
purchase price, the contract is only a contract to sell even if their agreement is
denominated as a Deed of Conditional Sale,53 as in this case. This treatment
stems from the legal characterization of a contract to sell, that is, a bilateral
contract whereby the prospective seller, while expressly reserving the ownership
of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the subject property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, such as, the full payment of the purchase
price.54 Elsewise stated, in a contract to sell, ownership is retained by the vendor
and is not to pass to the vendee until full payment of the purchase
price.55 Explaining the subject matter further, the Court, in Ursal v. CA,56 held
that:
[I]n contracts to sell the obligation of the seller to sell becomes demandable only
upon the happening of the suspensive condition, that is, the full payment of the
purchase price by the buyer. It is only upon the existence of the contract of sale
that the seller becomes obligated to transfer the ownership of the thing sold to
the buyer. Prior to the existence of the contract of sale, the seller is not obligated
to transfer the ownership to the buyer, even if there is a contract to sell between
them.
Here, it is undisputed that Sps. Roque have not paid the final installment of the
purchase price.57 As such, the condition which would have triggered the parties’
obligation to enter into and thereby perfect a contract of sale in order to
effectively transfer the ownership of the subject portion from the sellers (i.e.,
Rivero et al.) to the buyers (Sps. Roque) cannot be deemed to have been
fulfilled. Consequently, the latter cannot validly claim ownership over the subject
portion even if they had made an initial payment and even took possession of the
same.58
The Court further notes that Sps. Roque did not even take any active steps to
protect their claim over the disputed portion. This remains evident from the
following circumstances appearing on record: (a) the 1977 Deed of Conditional
Sale was never registered; (b) they did not seek the actual/physical segregation
of the disputed portion despite their knowledge of the fact that, as early as 1993,
the entire Lot 18089 was registered in Sabug, Jr.’s name under OCT No. M-
5955; and (c) while they signified their willingness to pay the balance of the
purchase price,59Sps. Roque neither compelled Rivero et al., and/or Sabug, Jr. to
accept the same nor did they consign any amount to the court, the proper
application of which would have effectively fulfilled their obligation to pay the
purchase price.60 Instead, Sps. Roque waited 26 years, reckoned from the
execution of the 1977 Deed of Conditional Sale, to institute an action for
reconveyance (in 2003), and only after Lot 18089 was sold to Land Bank in the
foreclosure sale and title thereto was consolidated in its name. Thus, in view of
the foregoing, Sabug, Jr. – as the registered owner of Lot 18089 borne by the
grant of his free patent application – could validly convey said property in its
entirety to Aguado who, in turn, mortgaged the same to Land Bank. Besides, as
aptly observed by the RTC, Sps. Roque failed to establish that the parties who
sold the property to them, i.e., Rivero, et al., were indeed its true and lawful
owners.61 In fine, Sps. Roque failed to establish any superior right over the
subject portion as against the registered owner of Lot 18089, i.e., Land Bank,
thereby warranting the dismissal of their reconveyance action, without prejudice
to their right to seek damages against the vendors, i.e., Rivero et al.62 As applied
in the case of Coronel v. CA:63
It is essential to distinguish between a contract to sell and a conditional contract
of sale specially in cases where the subject property is sold by the owner not to
the party the seller contracted with, but to a third person, as in the case at bench.
In a contract to sell, there being no previous sale of the property, a third person
buying such property despite the fulfilment of the suspensive condition such as
the full payment of the purchase price, for instance, cannot be deemed a buyer in
bad faith and the prospective buyer cannot seek the relief of reconveyance of the
property.
There is no double sale in such case.1âwphi1 Title to the property will transfer to
the buyer after registration because there is no defect in the owner-seller’s title
per se, but the latter, of course, may be sued for damages by the intending
buyer. (Emphasis supplied)
On the matter of double sales, suffice it to state that Sps. Roque’s reliance64 on
Article 154465 of the Civil Code has been misplaced since the contract they base
their claim of ownership on is, as earlier stated, a contract to sell, and not one of
sale. In Cheng v. Genato,66 the Court stated the circumstances which must
concur in order to determine the applicability of Article 1544, none of which are
obtaining in this case, viz.:
(a) The two (or more) sales transactions in issue must pertain to exactly the
same subject matter, and must be valid sales transactions;
(b) The two (or more) buyers at odds over the rightful ownership of the subject
matter must each represent conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the subject
matter must each have bought from the same seller.
Finally, regarding Sps. Roque’s claims of acquisitive prescription and
reimbursement for the value of the improvements they have introduced on the
subject property,67 it is keenly observed that none of the arguments therefor were
raised before the trial court or the CA.68 Accordingly, the Court applies the well-
settled rule that litigants cannot raise an issue for the first time on appeal as this
would contravene the basic rules of fair play and justice. In any event, such
claims appear to involve questions of fact which are generally prohibited under a
Rule 45 petition.69
With the conclusions herein reached, the Court need not belabor on the other
points raised by the parties, and ultimately finds it proper to proceed with the
denial of the petition.
WHEREFORE, the petition is DENIED. The Decision dated May 12, 2010 and
the Resolution dated September 15, 2010 of the Court of Appeals in CAG.R. CV
No. 92113 are hereby AFFIRMED.
SO ORDERED.
Page | 31
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 195975, September 05, 2016
TAINA MANIGQUE-STONE, Petitioner, v. CATTLEYA LAND, INC., AND
SPOUSES TROADIO B. TECSON AND ASUNCION ORTALIZ-
TECSON, Respondents.
DECISION
DEL CASTILLO, J.:
The sale of Philippine land to an alien or foreigner, even if titled in the name of
his Filipino spouse, violates the Constitution and is thus, void.
Assailed in this Petition for Review on Certiorari1 are the August 16, 2010
Decision2 of the Court of Appeals (CA) which dismissed the appeal by Taina
Manigque-Stone (Taina) in CA-G.R. CV No. 02352, and its February 22, 2011
Resolution,3 which denied Taina's motion for reconsideration4 thereon.
Factual Antecedents
Sometime in July 1992, Cattleya Land, Inc. (Cattleya) sent its legal counsel, Atty.
Federico C. Cabilao, Jr. (Atty. Cabilao, Jr.), to Tagbilaran City to investigate at
the Office of the Register of Deeds in that city the status of the properties of
spouses Col. Troadio B. Tecson (Col. Tecson) and Asuncion Tecson
(collectively, Tecson spouses), which Cattleya wanted to purchase. One of these
properties, an 8,805-square meter parcel of land located at Doljo, Panglao,
Bohol, is registered in the name of the Tecson spouses, and covered by Transfer
Certificate of Title (TCT) No. 17655 (henceforth, the subject property). Atty.
Cabilao, Jr. found that no encumbrances or liens on the subject property had
been annotated on the TCT thereof, except for an attachment issued in
connection with Civil Case No. 3399 entitled "Tantrade Corporation vs. Bohol
Resort Hotel, Inc., et al."5
On November 6, 1992, Cattleya entered into a Contract of Conditional Sale with
the Tecson spouses covering nine parcels of land, including the subject property.
In this transaction the Tecson spouses were represented by Atty. Salvador S.
Pizarras (Atty. Pizarras). The Contract of Conditional Sale was entered in the
Primary Book of the Office of the Register of Deeds of Bohol that same day, per
Entry No. 83422. On August 30, 1993, the parties executed a Deed of Absolute
Sale covering the subject property. This Deed of Absolute Sale was also entered
in the Primary Book on October 4, 1993, per Entry No. 87549. However, neither
the Contract of Conditional Sale nor the Deed of Absolute Sale could be
annotated on the certificate of title covering the subject property because the
then Register of Deeds of Bohol, Atty. Narciso S. De la Serna (Atty. De la Serna)
refused to annotate both deeds. According to Atty. De la Serna it was improper to
do so because of the writ of attachment that was annotated on the certificate of
title of the subject property, in connection with the said Civil Case No. 3399.6
On December 1, 1993, Atty. Cabilao, Jr. and Atty. Pizarras, in representation of
their respective clients, again requested Atty. De la Serna to annotate the Deed
of Absolute Sale and all other pertinent documents on the original certificate of
title covering the subject property. But Atty. De la Serna refused anew – this time
saying that he would accede to the request only if he was presented with a court
order to that effect. Atty. De la Serna still refused the request to annotate, even
after Atty. Cabilao, Jr. had told him that all that he (Atty. Cabilao, Jr.) was asking
was for the Deed of Absolute Sale to be annotated on the original certificate of
title, and not for Atty. De la Serna to issue a new transfer of title to the subject
property.7
The writ of attachment on the certificate of title to the subject property was,
however, lifted, after the parties in Civil Case No. 3399 reached an amicable
settlement or compromise agreement. Even then, however, Cattleya did not still
succeed in having the aforementioned Deed of Absolute Sale registered, and in
having title to the subject property transferred to its name, because it could not
surrender the owner's copy of TCT No. 17655, which was in possession of the
Tecson spouses. According to Cattleya, the Tecson spouses could not deliver
TCT No. 17655 to it, because according to the Tecson spouses this certificate of
title had been destroyed in a fire which broke out in Sierra Bullones, Bohol.8
This claim by the Tecson spouses turned out to be false, however, because Atty.
Cabilao, Jr. came to know, while following up the registration of the August 30,
1993 Deed of Absolute Sale at the Office of the Register of Deeds of Bohol, that
the owner's copy of TCT No. 17655 had in fact been presented by Taina at the
Office of the Register of Deeds of Bohol, along with the Deed of Sale that was
executed by the Tecson spouses, in favor of Taina covering the subject
property.9
It appears that when Taina's then common-law husband, Michael (Mike) Stone,
visited Bohol sometime in December 1985, he fell in love with the place and
decided to buy a portion of the beach lot in Doljo, Panglao, Bohol. They met with
Col. Tecson, and the latter agreed to sell them a portion of the beach lot for
US$8,805.00. Mike and Taina made an initial downpayment of US$1,750.00 (or
equivalent P35,000.00 at that time) for a portion of a beach lot, but did not ask for
a receipt for this initial downpayment. On June 1, 1987, a Deed of Absolute Sale
covering the subject portion was executed by Col. Tecson in Taina's favor.
Subsequent payments were made by Mike totalling P40,000.00, as of August 29,
1986, although another payment of P5,000.00 was made sometime in August
1987. The last payment in the amount of P32,000.00, was made in September
1987.10 In 1990, Troadio Tecson, Jr., the son of Col. Tecson and Taina's brother-
in-law, delivered to Taina the owner's copy of TCT No. 17655.11
In the meantime, in October 1986, Taina and Mike got married.
On April 25, 1994, Taina filed a Notice of Adverse Claim covering the subject
portion, after she learned that Col. Tecson and his lawyer had filed a petition for
the issuance of a second owner's copy over TCT No. 17655.12
On February 8, 1995, Taina sought to have her Deed of Absolute Sale registered
with the Office of the Register of Deeds of Bohol, and on that occasion presented
the owner's copy of TCT No. 17655. Taina also caused a Memorandum of
Encumbrance to be annotated on this certificate of title. The result was that on
February 10, 1995, a new certificate of title, TCT No. 21771, was issued in the
name of Taina, in lieu of TCT No. 17655, in the name of the Tecson
spouses.13 The subject property is described in TCT No. 21771 as follows:
A parcel of Land (Lot 5 of the consolidation-subdivision plan Pcs-07-000907,
being a portion of lots I-A and I-B, Psd-07-02-12550, LRC. Rec. No. ___),
situated in the Barrio of Doljo, Municipality of Panglao, Province of Bohol, Island
of Bohol. Bounded on the North, along lines 15-16-1 by Bohol Strait; on the East
and Southeast, along line 1-2 by Lot 4 of the consolidation-subdividion plan;
along line 3-4 by Primitivo Hora; and along line 4-5 by Lot 6 of the consolidation-
subdivision plan; on the South and Southwest, along line 5-6-7-8 by Andres
Guimalan; along line 8-9 by [Bienvenido] Biosino; along lines 9-10-11-12-13-14
by Angel Hora; and on the West, along lines 14-15 by Lot 7 of the consolidation-
subdivision plan. Beginning at a point marked "1" on plan, being S. 83 deg. 08'E.,
1045.79 m. from triangulation point TIP, USCGS, 1908, Doljo, Panglao, Bohol;
containing an area of EIGHT THOUSAND EIGHT HUNDRED AND FIVE (8,805)
SQUARE METERS, more or less.14
Whereupon, Cattleya instituted against Taina a civil action for quieting of title
and/or recovery of ownership and cancellation of title with damages.15 Docketed
as Civil Case No. 5782 of the Regional Trial Court (RTC) of Bohol at Tagbilaran
City, Cattleya therein initially impleaded Atty. De la Serna as party defendant; but
as the latter had already retired as Register of Deeds of Bohol, both parties
agreed to drop his name from the case.16
Taina likewise filed a motion for leave to admit a third-party complaint against the
Tecson spouses; this motion was granted by the RTC.17
After due proceedings, the RTC of Bohol gave judgment18 for Cattleya, thus:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor
of the plaintiff and against the defendant in the main case as follows:
1. Quieting the title or ownership of the plaintiff in Lot 5 by declaring the sale in its
favor as valid and enforceable by virtue of a prior registration of the sale in
accordance with the provisions of Presidential Decree No. 1529 otherwise known
as the Property Registration Decree;
2. Ordering the cancellation of Transfer Certificate of Title No. 21771 in the name
of defendant TAINA MANIGQUE-STONE and the issuance of a new title in favor
of the plaintiff after payment of the required fees; and
3. Ordering the defendant to desist from claiming ownership and possession
thereof. Without pronouncement as to costs.
As to defendant's third[-]party complaint against spouses x x x Tecson[,] x x x
judgment is hereby rendered as follows:
1. Ordering the return of the total amount of Seventy-seven Thousand
(P77,000.00) Pesos to the third[-]party plaintiff with legal rate of interest from the
time of the filing of the third[-]party complaint on June 28, 2004 until the time the
same shall have been fully satisfied; and
2. Ordering the payment of P50,000.00 by way of moral and exemplary damages
and x x x of attorney's fees in the amount of P30,000.00 and to pay the costs.
SO ORDERED.19
In finding for Cattleya, the RTC held that the sale entered by the Tecson spouses
with Cattleya and with Taina involving one and the same property was a double
sale, and that Cattleya had a superior right to the lot covered thereby, because
Cattleya was the first to register the sale in its favor in good faith; that although at
the time of the sale the TCT covering the subject property could not yet be
issued, and the deed of sale could not be annotated thereon due to a pending
case between the vendors-spouses (Tecson spouses) and Tantrade, Inc., the
evidence convincingly showed nonetheless that it was Cattleya that was the first
to register the sale in its favor with the Office of the Provincial Registry of Deeds
of Bohol on October 4, [1993] as shown in Entry No. 87549.20 Furthermore, the
RTC found that Cattleya had no notice, nor was it aware, of Taina's claim to the
subject property, and that the only impediment it (Cattleya) was aware of was the
pending case (Civil Case No. 3399) between Tantrade Corporation and Bohol
Resort Hotel, Inc.21
On the other hand, the RTC found Taina's position untenable because: First, the
June 1, 1987 sale between Col. Tecson and Mike, Taina's then common-law
husband, was a patent nullity, an absolutely null and void sale, because under
the Philippine Constitution a foreigner or alien cannot acquire real property in the
Philippines. Second, at the time of the sale, Taina was only Mike's dummy, and
their subsequent marriage did not validate or legitimize the constitutionally
proscribed sale earlier made in Mike's favor. And third, no less than Taina herself
admitted that at the time she caused the sale to be registered and title thereto
issued to her, she knew or was otherwise aware that the very same lot had
already been sold to Cattleya, or at least claimed by the latter – and this is a
state of affairs constitutive of bad faith on her part.22
Page | 32
The RTC likewise held that neither parties in the main case was entitled to
damages, because they failed to substantiate their respective claims thereto.23
As regards Taina's third-party complaint against the Tecson spouses, the RTC
ordered the return or restitution to her of the sum of P77,000.00, plus legal
interest. Likewise awarded by the RTC in Taina's favor were moral and
exemplary damages in the amount of P50,000.00 and attorney's fees in the
amount of P30,000.00 plus costs.24
Dissatisfied with this judgment, Taina appealed to the CA.
Ruling of the Court of Appeals
On August 16, 2010, the CA handed down the assailed
Decision,25cralawred which contained the following decretal portion:
WHEREFORE, the challenged Decision of the Regional Trial Court dated
[August 10, 2007] is hereby AFFIRMED with MODIFICATIONS; to wit:
1. Quieting the title of ownership of the plaintiff-appellee, CATTLEYA LAND, INC.
in the above-described property by declaring the sale in its favor as valid and
enforceable;
2. Ordering the cancellation of Transfer Certificate of Title No. 21771 in the name
of defendant-appellant TAINA MANIGQUE-STONE;
3. Ordering the registration of the Deed of Absolute Sale involving the subject
property executed in favor of CATTLEYA LAND, INC. and the issuance x x x of a
new title in favor of the plaintiff-appellee CATTLEYA LAND, INC. ate payment of
the required fees; and
4. Ordering the defendant-appellant, TAINA MANIGQUE-STONE to desist from
claiming ownership and possession thereof. Without pronouncement as to cost.
As to the third-party defendants-appellees, the spouses Troadio B. Tecson and
Asuncion Ortaliz Tecson, judgment is hereby rendered as follows:
1. Ordering third-party defendants-appellees, spouses TROADIO B. TECSON
and ASUNCION ORTALIZ TECSON, [to] return x x x the total amount of
Seventy-seven Thousand (P77,000.00) Pesos to the defendant-appellant, TAINA
MANIGQUE-STONE, with legal rate of interest from the time of filing of the third[-
]party complaint on June 28, 2004 until the time the same shall have been fully
satisfied; and
2. Ordering third-party defendants-appellees, spouses TROADIO B. TECSON
and ASUNCION ORTALIZ TECSON [to pay] P50,000.00 to the defendant-
appellant, TAINA MANIGQUE-STONE by way of moral and exemplary damages
and [to pay] attorney's fees in the amount of P30,000.00 x x x.
No pronouncement as to cost.
SO ORDERED.26
In support of its Decision, the CA ratiocinated —
Article 1498 of the Civil Code provides that, as a rule, the execution of a
notarized deed of sale is equivalent to the delivery of a thing sold. In this case,
the notarization of the deed of sale of TAINA is defective. TAINA testified that the
deed of sale was executed and signed by Col. Troadio Tecson in Bohol but was
notarized in Manila without the vendors appearing personally before the notary
public.
Additionally, Article 1477 of the Civil Code provides that the ownership of the
thing sold is transferred upon the actual or constructive delivery thereof;
however, the delivery of the owner's copy of TCT 17655 to TAINA is dubious. It
was not the owner, Col. Troadio Tecson, himself who delivered the same but his
son who also happens to be TAINA's brother-in-law. Hence, the foregoing
circumstances negate the fact that there was indeed an absolute delivery or
transfer of ownership.
Anent the issue on validity of the sale to Taina Manigque-Stone, the fundamental
law is perspicuous in its prohibition against aliens from holding title or acquiring
private lands, except only by way of legal succession or if the acquisition was
made by a former natural-born citizen.
A scrutiny of the records would show that the trial court aptly held that the
defendant-appellant was only a dummy for Mike Stone who is a foreigner. Even if
the Deed of Absolute Sale is in the name of Taina Manigque-Stone that does not
change the fact that the real buyer was Mike Stone, a foreigner. The appellant
herself had admitted in court that the buyer was Mike Stone and at the time of
the negotiation she was not yet legally married to Mike Stone. They cannot do
indirectly what is prohibited directly by the law.
To further militate against her stand, the appellant herself testified during the
cross examination:
Q: Now, the Deed of Sale states that the buyer is Taina Manigque-Stone?
A: Yes.
Q: And not Mike Stone who according to you was the one who paid the entire
consideration and was the one who negotiated with Colonel Tecson. Will
you kindly tell the Court how come it was your name who placed [sic] in the
Deed of Sale?
A: Because an American, foreign national cannot buy land here.
Q: Yes because an American national, foreigner cannot own land here.
A: Yes.
Q: And so the Deed of Sale was placed in your name, correct?
A: Yes.
The above testimony is a clear admission against interest. An admission against
interest is the best evidence which affords the greatest certainty of the facts in
dispute. The rationale for the rule is based on the presumption that no man would
declare anything against himself unless such declaration is true. Accordingly, it is
rational to presume that the testimony corresponds with the truth, and she bears
the burden if it does not.
Moreover, TAINA asserts in the brief that 'ownership of the lot covered by TCT
21771 is held by her, a Filipino. As long as the lot is registered in the name of a
Filipino, the trial court is barred from inquiring [into] its legality.' Such assertion is
bereft of merit.
The Honorable Supreme Court, in identifying the true ownership of a property
registered in the name of a Filipina who was married to a foreign national,
pronounced in Borromeo vs. Descallar that:
'It is settled that registration is not a mode of acquiring ownership. It is only a
means of confirming the fact of its existence with notice to the world at large.
Certificates of title are not a source of right. The mere possession of a title does
not make one the true owner of the property. Thus, the mere fact that respondent
has the titles of the disputed properties in her name does not necessarily,
conclusively and absolutely make her the owner [thereof]. The rule on
indefeasibility of title likewise does not apply to respondent. A certificate of title
implies that the title is quiet, and that it is perfect, absolute and indefeasible.
However, there are well-defined exceptions to this rule, as when the transferee is
not a holder in good faith and did not acquire the subject properties for a valuable
consideration. This is the situation in the instant case. Respondent did not
contribute a single centavo in the acquisition of the properties. She had no
income of her own at that time, nor did she have any savings. x x x'27
Taina moved for reconsideration28 of the CA's Decision, but the CA thumbed
down this motion in its February 22, 2011 Resolution.29 Hence, the present
Petition.
Issues
Before this Court, petitioner puts forward the following questions of law for
resolution:
1. Whether the assailed Decision is legally correct in holding that petitioner is a
mere dummy of Mike.
2. Whether the assailed Decision is legally correct in considering that the verbal
contract of sale between spouses Tecson and Mike transferred ownership to a
foreigner, which falls within the constitutional ban on sales of land to foreigners.
3. Whether the assailed Decision is legally correct in not considering that,
assuming that the sale of land to Mike violated the Constitution, the same has
been cured by the subsequent marriage of petitioner to Mike and by the
registration of the land in the name of petitioner, a Filipino citizen.
4. Whether the assailed Decision is legally correct in not applying the rules on
double sale, which clearly favor petitioner Taina.30
In amplification thereof, petitioner advances these arguments:
I
The trial court and the Court of Appeals departed from the clear provisions of the
law and established jurisprudence when it failed to consider that the Filipino wife
of Mike Stone, petitioner Taina Manigque-Stone[,] has the legal capacity and the
conjugal partnership interests to enter into a contract of deed of absolute sale
with respondent Sps. Troadio B. Tecson and Asuncion Ortaliz Tecson.
II
The trial court and the Court of Appeals departed from the provisions of the law
and established jurisprudence when it failed to consider that the verbal contract
of sale of land to Mike Stone was unenforceable and did not transfer ownership
Page | 33
to him, to fall within the constitutional ban on foreigners owning lands in the
Philippines.
III
The trial court and the Court of Appeals departed from established jurisprudence,
when it failed to consider that, assuming arguendo that the sale of land to Mike
Stone violated the Constitutional ban on foreign ownership of lands, the same
has been cured by the subsequent marriage of petitioner and Mike Stone, and
[the subsequent issuance of title] in the name of petitioner.
IV
The Court of Appeals gravely erred and departed from established rules of
evidence when it ruled that the delivery of the owner's copy of TCT 17655 to
petitioner Taina is dubious.
V supplied)
The trial court and the Court of Appeals gravely erred when it departed from
provisions of the law and established jurisprudence when it did not apply the
rules on double sale which clearly favor petitioner Taina.31
The fundamental issue for resolution in the case at bench is whether the sale of
land by the Tecson spouses to Michael Stone a.k.a. Mike, a foreigner or alien,
although ostensibly made in Taina's name, was valid, despite the constitutional
prohibition against the sale of lands in the Philippines to foreigners or aliens. A
collateral or secondary issue is whether Article 1544 of the Civil Code, the article
which governs double sales, controls this case.
Petitioner's Arguments
In praying that the CA Decision be overturned Taina posits that while Mike's legal
capacity (to own or acquire real property in the Philippines) was not entirely
unassailable, there was nevertheless no actual violation of the constitutional
prohibition against the acquisition or purchase by aliens or foreigners of lands in
the Philippines, because in this case no real transfer of ownership had been
effected in favor of Mike, from Col. Tecson;32 that all payments made by Mike to
Col. Tecson must be presumed to have come from the community property he
had with Taina, because Mike had been her (Taina's) common-law-husband from
1982 up to the day they were married, in 1986; hence, in this context, she (Taina)
was not exactly Mike's dummy at all, but his active partner;33 that it is of no
consequence that she (Taina) had knowledge that Cattleya had likewise
purchased or acquired the subject lot because the deed of sale in favor of
Cattleya was executed subsequent to the deed of sale that she and Mike had
entered into with the Tecson spouses, thus, she was the first to acquire
ownership of the subject lot in good faith;34 that assuming for argument's sake
that neither she nor Cattleya was a purchaser in good faith, still she was the first
one to acquire constructive possession of the subject lot pursuant to Article 1544
3rd paragraph of the Civil Code, and for this reason she had acquired lawful title
thereto.35
Respondent Cattleya Land's arguments
Cattleya counters that there could not have been a double sale in the instant
case because the earlier sale between Col. Tecson and Mike was absolutely null
and void, as this was a flagrant violation of the constitutional provision barring or
prohibiting aliens or foreigners from acquiring or purchasing land in the
Philippines; hence, there was only one valid sale in this case, and that was the
sale between Col. Tecson and Cattleya.36
Court's Resolution with respect to Respondents-Spouses Tecson
This Court's Resolution dated June 20, 2012 noted, amongst others, the
Manifestation filed by Cattleya, which inter alia stated: (1) that Col. Tecson died
on December 7, 2004; (2) that Taina instituted a third-party complaint against the
Tecson spouses; (3) that in this third-party complaint the Tecson spouses were
declared in default by the trial court; (4) that this default order was not appealed
by the Tecson spouses; (5) that the present appeal by Taina from the CA
Decision will in no way affect or prejudice the Tecson spouses, given the fact that
these spouses did not appeal from the default order, and (6) that the instant
Petition be submitted for resolution without the Comment of the Tecson
spouses.37 In the Resolution of February 26, 2014, this Court noted that since
Asuncion Tecson had failed to submit to this Court the name of the legal
representative of her deceased husband Col. Tecson within the period which
expired on October 3, 2013, this Court was dispensing with the Comment of the
Tecson spouses in the instant Petition.38
Our Ruling
This Petition is bereft of merit.
Section 7, Article XII of the 1987 Constitution states that:
Save in cases of hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire
or hold lands of the public domain.
Given the plain and explicit language of this constitutional mandate, it has been
held that "[a]liens, whether individuals or corporations, are disqualified from
acquiring lands of the public domain. Hence, they are also disqualified from
acquiring private lands. The primary purpose of the constitutional provision
is the conservation of the national patrimony."39
In the case at bench, Taina herself admitted that it was really Mike who paid with
his own funds the subject lot; hence, Mike was its real purchaser or buyer. More
than that, it bears stressing that if the deed of sale at all proclaimed that she
(Taina) was the purchaser or buyer of the subject property and this subject
property was placed under her name, it was simply because she and Mike
wanted to skirt or circumvent the constitutional prohibition barring or outlawing
foreigners or aliens from acquiring or purchasing lands in the Philippines. Indeed,
both the CA and the RTC exposed and laid bare Taina's posturing and pretense
for what these really are: that in the transaction in question, she was a mere
dummy, a spurious stand-in, for her erstwhile common-law husband, who was
not a Filipino then, and never attempted to become a naturalized Filipino citizen
thereafter. The CA put things in correct perspective, thus —
A scrutiny of the records would show that the trial court aptly held that the
defendant-appellant was only a dummy for Mike Stone who is a foreigner. Even if
the Deed of Absolute Sale is in the name of Taina Manigque-Stone that
does not change the fact that the real buyer was Mike Stone, a foreigner. The
appellant herself had admitted in court that the buyer was Mike Stone and at the
time of the negotiation she was not yet legally married to Mike Stone. They
cannot do indirectly what is prohibited directly by the law.40 (Emphasis
Citing the RTC's proceedings of December 7, 2004, the CA adverted to the
following testimony by the petitioner during her cross-examination thus –
(Atty. Monteclar)
Q: Now, the Deed of Sale states that the buyer is Taina Manigque-Stone?
A: Yes.
Q: And not Mike Stone who according to you was the one who paid the entire
consideration and was the one who negotiated with Colonel Tecson. Will
you kindly tell the Court how come it was your name who placed [sic] in the
Deed of Sale?
Because an American, foreign national cannot buy land here.
A:
Q: Yes because an American national, foreigner cannot own land here.
A: Yes.
Q: And so the Deed of Sale was placed in your name, correct?
A: Yes.41 (Emphasis supplied)
It is axiomatic, of course, that this Court is not a trier of facts. Subject to well-
known exceptions, none of which obtains in the instant case, this Court is bound
by the factual findings of the CA, especially where such factual findings, as in this
case, accorded in the main with the RTC's own findings.42
Given the fact that the sale by the Tecson spouses to Taina as Mike's dummy
was totally abhorrent and repugnant to the Philippine Constitution, and is thus,
void ab initio, it stands to reason that there can be no double sale to speak of
here. In the case of Fudot v. Cattleya Land, Inc.,43 which fortuitously also
involved the Tecson spouses and Cattleya, we held thus —
The petition is bereft of merit.
Petitioner's arguments, which rest on the assumption that there was a double
sale, must fail.
In the first place, there is no double sale to speak of. Art. 1544 of the Civil Code,
which provides the rule on double sale, applies only to a situation where the
same property is validly sold to different vendees. In this case, there is only one
sale to advert to, that between the spouses Tecson and respondent.
In Remalante v. Tibe, this Court ruled that the Civil Law provision on double sale
is not applicable where there is only one valid sale, the previous sale having
been found to be fraudulent. Likewise, in Espiritu and Apostol v. Valerio, where
the same parcel of land was purportedly sold to two different parties, the Court
held that despite the fact that one deed of sale was registered ahead of the other,
Art. 1544 of the Civil Code will not apply where said deed is found to be
a forgery, the result of this being that the right of the other vendee should
prevail.
The trial court declared that the sale between the spouses Tecson and petitioner
is invalid, as it bears the forged signature of Asuncion. x x x44 (Citations
omitted; Emphasis supplied)
In view of the fact that the sale in the case at bench is worse off (because it
is constitutionally infirm) than the sale in the Fudot case, which merely involves
a violation of the pertinent provisions of the Civil Code, this Court must affirm, as
it hereby affirms the CA's ruling that, "there is only one sale to reckon with, that
is, the sale to Cattleya.45
Page | 34
Again, our holding in Muller v. Muller,46 which is almost on all fours with the case
at bench, can only strengthen and reinforce our present stance. In Muller, it
appears that German national Helmut Muller (Helmut), alien or foreigner husband
of the Filipina Elena Buenaventura Muller (Elena), bought with his capital funds a
parcel of land in Antipolo City and also paid for the construction of a house
thereon. This Antipolo property was registered under the name of Elena under
TCT No. 219438. Subsequently, Helmut instituted a petition for separation of
properties with the RTC of Quezon City. After due proceedings, the RTC of
Quezon City rendered judgment terminating the regime of absolute community of
property between Helmut and Elena. The RTC also decreed the separation of
properties between the spouses. With respect to the Antipolo property, the RTC
held that although it was acquired with the use of Helmut's capital funds,
nevertheless the latter could not recover his investment because the property
was purchased in violation of Section 7, Article XII of the Constitution.
Dissatisfied with the RTC's judgment, Helmut appealed to the CA which upheld
his appeal. The CA ruled that: (1) Helmut merely prayed for reimbursement of the
purchase price of the Antipolo property, and not that he be declared the owner
thereof; (2) Elena's ownership over this property was considered as ownership-
in-trust for Helmut; (3) there is nothing in the Constitution which prohibits Helmut
from acquiring ownership of the house.

However, on a Petition for Review on Certiorari, this Court reversed the CA and
reinstated the RTC's ruling. In sustaining the RTC, this Court once again
stressed the absolute character of the constitutional prohibition against
ownership of lands in this country by foreigners or aliens:

The Court of Appeals erred in holding that an implied trust was created and
resulted by operation of law in view of petitioner's marriage to respondent. Save
for the exception provided in cases of hereditary succession, respondent's
disqualification from owning lands in the Philippines is absolute. Not even an
ownership in trust is allowed. Besides, where the purchase is made in violation of
an existing statute and in evasion of its express provision, no trust can result in
favor of the party who is guilty of the fraud. To hold otherwise would allow
circumvention of the constitutional prohibition.47 (Citation omitted; Emphasis
supplied)

The same absolute constitutional proscription was reiterated anew in the

comparatively recent case of Matthews v. Taylor,48 erroneously invoked by
Taina. Taina claims that this case supports her position in the case at bench
allegedly because, like her case, the alien or foreigner husband in
the Matthews case (Benjamin A. Taylor, a British subject) likewise provided the
funds for the purchase of real property by his Filipino wife (Joselyn C. Taylor) and
this Court allegedly sustained said wife's ownership over the property.49 That
Taina's claim is a clear misapprehension of the thrust and purport of the ruling
enunciated in the Matthews case is put to rest by what this Court said there —

In light of the foregoing jurisprudence, we find and so hold that Benjamin has no
right to nullify the Agreement of Lease between Joselyn and
petitioner. Benjamin, being an alien, is absolutely prohibited from acquiring
private and public lands in the Philippines. Considering that Joselyn
appeared to be the designated 'vendee' in the Deed of Sale of said property, she
acquired sole ownership there[of]. This is true even if we sustain Benjamin's
claim that he provided the funds for such acquisition. By entering into such
contract knowing that it was illegal, no implied trust was created in his
favor; no reimbursement for his expenses can be allowed; and no
declaration can be made that the subject property was part of the
conjugal/community property of the spouses. In any event, he had and has
no capacity or personality to question the subsequent lease of the Boracay
property by his wife on the theory that in so doing, he was merely exercising the
prerogative of a husband in respect [to] conjugal property. To sustain such a
theory would countenance indirect controversion of the constitutional
prohibition. If the property were to be declared conjugal, this would accord
the alien husband a substantial interest and right over the land, as he
would then have a decisive vote as to its transfer or disposition. This is a
right that the Constitution does not permit him to have.(Citation omitted;
emphasis and underscoring supplied)50

The other points raised by petitioner in the present Petition for Review are
collateral or side issues and need not detain this Court any further. Suffice it to
say that the chief or main constitutional issue that has been addressed and
resolved in the present Petition has effectively subsumed or relegated to
inconsequence the other collateral or side issues raised herein.

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals

dated August 16, 2010 and its Resolution dated February 22, 2011 in CA-G.R.
CV No. 02352 being in conformity with the law and with this Court's
jurisprudential teachings, are hereby AFFIRMED in toto.

SO ORDERED.

Page | 35
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 142618 July 12, 2007
PCI LEASING AND FINANCE, INC., Petitioner,
vs.
GIRAFFE-X CREATIVE IMAGING, INC., Respondent.
DECISION
GARCIA, J.:
On a pure question of law involving the application of Republic Act (R.A.) No.
5980, as amended by R.A. No. 8556¸ in relation to Articles 1484 and 1485 of the
Civil Code, petitioner PCI Leasing and Finance, Inc. (PCI LEASING, for short)
has directly come to this Court via this petition for review under Rule 45 of the
Rules of Court to nullify and set aside the Decision and Resolution dated
December 28, 1998 and February 15, 2000, respectively, of the Regional Trial
Court (RTC) of Quezon City, Branch 227, in its Civil Case No. Q-98-34266, a suit
for a sum of money and/or personal property with prayer for a writ of replevin,
thereat instituted by the petitioner against the herein respondent, Giraffe-X
Creative Imaging, Inc. (GIRAFFE, for brevity).
The facts:
On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE
entered into a Lease Agreement,1whereby the former leased out to the latter one
(1) set of Silicon High Impact Graphics and accessories worth ₱3,900,00.00 and
one (1) unit of Oxberry Cinescan 6400-10 worth ₱6,500,000.00. In connection
with this agreement, the parties subsequently signed two (2) separate
documents, each denominated as Lease Schedule.2Likewise forming parts of the
basic lease agreement were two (2) separate documents denominated
Disclosure Statements of Loan/Credit Transaction (Single Payment or Installment
Plan)3 that GIRAFFE also executed for each of the leased equipment. These
disclosure statements inter alia described GIRAFFE, vis-à-vis the two
aforementioned equipment, as the "borrower" who acknowledged the "net
proceeds of the loan," the "net amount to be financed," the "financial charges,"
the "total installment payments" that it must pay monthly for thirty-six (36)
months, exclusive of the 36% per annum "late payment charges." Thus, for the
Silicon High Impact Graphics, GIRAFFE agreed to pay ₱116,878.21 monthly,
and for Oxberry Cinescan, ₱181.362.00 monthly. Hence, the total amount
GIRAFFE has to pay PCI LEASING for 36 months of the lease, exclusive of
monetary penalties imposable, if proper, is as indicated below:
P116,878.21 @ month (for the Silicon High
Impact Graphics) x 36 months = P 4,207,615.56
-- PLUS--
P181,362.00 @ month (for the Oxberry
Cinescan) x 36 months = P 6,529,032.00
Total Amount to be paid by GIRAFFE
(or the NET CONTRACT AMOUNT) P 10,736,647.56
By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the
amount of ₱3,120,000.00 by way of "guaranty deposit," a sort of performance
and compliance bond for the two equipment. Furthermore, the same agreement
embodied a standard acceleration clause, operative in the event GIRAFFE fails
to pay any rental and/or other accounts due.
A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly
rental-payment obligations. And following a three-month default, PCI LEASING,
through one Atty. Florecita R. Gonzales, addressed a formal pay-or-surrender-
equipment type of demand letter4 dated February 24, 1998 to GIRAFFE.
The demand went unheeded.
Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the
instant case against GIRAFFE. In its complaint,5 docketed in said court as Civil
Case No. 98-34266 and raffled to Branch 2276 thereof, PCI LEASING prayed for
the issuance of a writ of replevin for the recovery of the leased property, in
addition to the following relief:
2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and
against the defendant [GIRAFFE], as follows:
a. Declaring the plaintiff entitled to the possession of the subject properties;
b. Ordering the defendant to pay the balance of rental/obligation in the total
amount of ₱8,248,657.47 inclusive of interest and charges thereon;
c. Ordering defendant to pay plaintiff the expenses of litigation and cost of suit….
(Words in bracket added.)
Upon PCI LEASING’s posting of a replevin bond, the trial court issued a writ of
replevin, paving the way for PCI LEASING to secure the seizure and delivery of
the equipment covered by the basic lease agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss,
therein arguing that the seizure of the two (2) leased equipment stripped PCI
LEASING of its cause of action. Expounding on the point, GIRAFFE argues that,
pursuant to Article 1484 of the Civil Code on installment sales of personal
property, PCI LEASING is barred from further pursuing any claim arising from the
lease agreement and the companion contract documents, adding that the
agreement between the parties is in reality a lease of movables with option to
buy. The given situation, GIRAFFE continues, squarely brings into applicable
play Articles 1484 and 1485 of the Civil Code, commonly referred to as the Recto
Law. The cited articles respectively provide:
ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance
of the price. Any agreement to the contrary shall be void. (Emphasis added.)
ART. 1485. The preceding article shall be applied to contracts purporting to be
leases of personal property with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.
It is thus GIRAFFE’s posture that the aforequoted Article 1484 of the Civil Code
applies to its contractual relation with PCI LEASING because the lease
agreement in question, as supplemented by the schedules documents, is really a
lease with option to buy under the companion article, Article 1485. Consequently,
so GIRAFFE argues, upon the seizure of the leased equipment pursuant to the
writ of replevin, which seizure is equivalent to foreclosure, PCI LEASING has no
further recourse against it. In brief, GIRAFFE asserts in its Motion to Dismiss that
the civil complaint filed by PCI LEASING is proscribed by the application to the
case of Articles 1484 and 1485, supra, of the Civil Code.
In its Opposition to the motion to dismiss, PCI LEASING maintains that its
contract with GIRAFFE is a straight lease without an option to buy. Prescinding
therefrom, PCI LEASING rejects the applicability to the suit of Article 1484 in
relation to Article 1485 of the Civil Code, claiming that, under the terms and
conditions of the basic agreement, the relationship between the parties is one
between an ordinary lessor and an ordinary lessee.
In a decision7 dated December 28, 1998, the trial court granted GIRAFFE’s
motion to dismiss mainly on the interplay of the following premises: 1) the lease
agreement package, as memorialized in the contract documents, is akin to the
contract contemplated in Article 1485 of the Civil Code, and 2) GIRAFFE’s loss of
possession of the leased equipment consequent to the enforcement of the writ of
replevin is "akin to foreclosure, … the condition precedent for application of
Articles 1484 and 1485 [of the Civil Code]." Accordingly, the trial court dismissed
Civil Case No. Q-98-34266, disposing as follows:
WHEREFORE, premises considered, the defendant [GIRAFFE] having
relinquished any claim to the personal properties subject of replevin which are
now in the possession of the plaintiff [PCI LEASING], plaintiff is DEEMED fully
satisfied pursuant to the provisions of Articles 1484 and 1485 of the New Civil
Code. By virtue of said provisions, plaintiff is DEEMED estopped from further
action against the defendant, the plaintiff having recovered thru (replevin) the
personal property sought to be payable/leased on installments, defendants being
under protection of said RECTO LAW. In view thereof, this case is hereby
DISMISSED.
With its motion for reconsideration having been denied by the trial court in its
resolution of February 15, 2000,8petitioner has directly come to this Court via this
petition for review raising the sole legal issue of whether or not the underlying
Lease Agreement, Lease Schedules and the Disclosure Statements that embody
the financial leasing arrangement between the parties are covered by and
subject to the consequences of Articles 1484 and 1485 of the New Civil Code.
As in the court below, petitioner contends that the financial leasing arrangement
it concluded with the respondent represents a straight lease covered by R.A. No.
5980, the Financing Company Act, as last amended by R.A. No. 8556, otherwise
known as Financing Company Act of 1998, and is outside the application and
coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines and
authorizes its existence and business.
The recourse is without merit.
R.A. No. 5980, in its original shape and as amended, partakes of a supervisory
or regulatory legislation, merely providing a regulatory framework for the
organization, registration, and regulation of the operations of financing
companies. As couched, it does not specifically define the rights and obligations
of parties to a financial leasing arrangement. In fact, it does not go beyond
defining commercial or transactional financial leasing and other financial leasing
concepts. Thus, the relevancy of Article 18 of the Civil Code which reads:
Article 18. - In matters which are governed by … special laws, their deficiency
shall be supplied by the provisions of this [Civil] Code.
Page | 36
Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions
on installment sales of movable property, does not apply to a financial leasing
agreement because such agreement, by definition, does not confer on the lessee
the option to buy the property subject of the financial lease. To the petitioner, the
absence of an option-to-buy stipulation in a financial leasing agreement, as
understood under R.A. No. 8556, prevents the application thereto of Articles
1484 and 1485 of the Civil Code.
We are not persuaded.
The Court can allow that the underlying lease agreement has the earmarks or
made to appear as a financial leasing,9 a term defined in Section 3(d) of R.A. No.
8556 as -
a mode of extending credit through a non-cancelable lease contract under which
the lessor purchases or acquires, at the instance of the lessee, machinery,
equipment, … office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of money
sufficient to amortize at least seventy (70%) of the purchase price or acquisition
cost, including any incidental expenses and a margin of profit over an obligatory
period of not less than two (2) years during which the lessee has the right to hold
and use the leased property … but with no obligation or option on his part to
purchase the leased property from the owner-lessor at the end of the lease
contract.
In its previous holdings, however, the Court, taking into account the following
mix: the imperatives of equity, the contractual stipulations in question and the
actuations of parties vis-à-vis their contract, treated disguised transactions
technically tagged as financing lease, like here, as creating a different contractual
relationship. Notable among the Court’s decisions because of its parallelism with
this case is BA Finance Corporation v. Court of Appeals10 which involved a motor
vehicle. Thereat, the Court has treated a purported financial lease as actually a
sale of a movable property on installments and prevented recovery beyond the
buyer’s arrearages. Wrote the Court in BA Finance:
The transaction involved … is one of a "financial lease" or "financial leasing,"
where a financing company would, in effect, initially purchase a mobile
equipment and turn around to lease it to a client who gets, in addition, an option
to purchase the property at the expiry of the lease period. xxx.
xxx xxx xxx
The pertinent provisions of [RA] 5980, thus implemented, read:
"'Financing companies,' … are primarily organized for the purpose of extending
credit facilities to consumers … either by … leasing of motor vehicles, … and
office machines and equipment, … and other movable property."
"'Credit' shall mean any loan, … any contract to sell, or sale or contract of sale of
property or service, … under which part or all of the price is payable subsequent
to the making of such sale or contract; any rental-purchase contract; ….;"
The foregoing provisions indicate no less than a mere financing scheme
extended by a financing company to a client in acquiring a motor vehicle and
allowing the latter to obtain the immediate possession and use thereof pending
full payment of the financial accommodation that is given.
In the case at bench, xxx. [T]he term of the contract [over a motor vehicle] was
for thirty six (36) months at a "monthly rental" … (P1,689.40), or for a total
amount of P60,821.28. The contract also contained [a] clause [requiring the
Lessee to give a guaranty deposit in the amount of P20,800.00] xxx
After the private respondent had paid the sum of P41,670.59, excluding the
guaranty deposit of P20,800.00, he stopped further payments. Putting the two
sums together, the financing company had in its hands the amount of P62,470.59
as against the total agreed "rentals" of P60,821.28 or an excess of P1,649.31.
The respondent appellate court considered it only just and equitable for the
guaranty deposit made by the private respondent to be applied to his arrearages
and thereafter to hold the contract terminated. Adopting the ratiocination of the
court a quo, the appellate court said:
xxx In view thereof, the guaranty deposit of P20,800.00 made by the defendant
should and must be credited in his favor, in the interest of fairness, justice and
equity. The plaintiff should not be allowed to unduly enrich itself at the expense of
the defendant. xxx This is even more compelling in this case where although the
transaction, on its face, appear ostensibly, to be a contract of lease, it is actually
a financing agreement, with the plaintiff financing the purchase of defendant's
automobile …. The Court is constrained, in the interest of truth and justice, to go
into this aspect of the transaction between the plaintiff and the defendant … with
all the facts and circumstances existing in this case, and which the court must
consider in deciding the case, if it is to decide the case according to all the facts.
xxx.
xxx xxx xxx
Considering the factual findings of both the court a quo and the appellate court,
the only logical conclusion is that the private respondent did opt, as he has
claimed, to acquire the motor vehicle, justifying then the application of the
guarantee deposit to the balance still due and obligating the petitioner to
recognize it as an exercise of the option by the private respondent. The result
would thereby entitle said respondent to the ownership and possession of the
vehicle as the buyer thereof. We, therefore, see no reversible error in the ultimate
judgment of the appellate court.11(Italics in the original; underscoring supplied
and words in bracket added.)
In Cebu Contractors Consortium Co. v. Court of Appeals,12 the Court viewed and
thus declared a financial lease agreement as having been simulated to disguise
a simple loan with security, it appearing that the financing company purchased
equipment already owned by a capital-strapped client, with the intention of
leasing it back to the latter.
In the present case, petitioner acquired the office equipment in question for their
subsequent lease to the respondent, with the latter undertaking to pay a monthly
fixed rental therefor in the total amount of ₱292,531.00, or a total of
₱10,531,116.00 for the whole 36 months. As a measure of good faith,
respondent made an up-front guarantee deposit in the amount of ₱3,120,000.00.
The basic agreement provides that in the event the respondent fails to pay any
rental due or is in a default situation, then the petitioner shall have cumulative
remedies, such as, but not limited to, the following:13
1. Obtain possession of the property/equipment;
2. Retain all amounts paid to it. In addition, the guaranty deposit may be applied
towards the payment of "liquidated damages";
3. Recover all accrued and unpaid rentals;
4. Recover all rentals for the remaining term of the lease had it not been
cancelled, as additional penalty;
5. Recovery of any and all amounts advanced by PCI LEASING for GIRAFFE’s
account xxx;
6. Recover all expenses incurred in repossessing, removing, repairing and
storing the property; and,
7. Recover all damages suffered by PCI LEASING by reason of the default.
In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit
shall be forfeited in the event the respondent, for any reason, returns the
equipment before the expiration of the lease.
At bottom, respondent had paid the equivalent of about a year’s lease rentals, or
a total of ₱3,510,372.00, more or less. Throw in the guaranty deposit
(₱3,120,000.00) and the respondent had made a total cash outlay of
₱6,630,372.00 in favor of the petitioner. The replevin-seized leased equipment
had, as alleged in the complaint, an estimated residual value of ₱6,900.000.00 at
the time Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding all
cash advances thus made to the residual value of the equipment, the total value
which the petitioner had actually obtained by virtue of its lease agreement with
the respondent amounts to ₱13,530,372.00 (₱3,510,372.00 + ₱3,120,000.00 +
₱6,900.000.00 = ₱13,530,372.00).
The acquisition cost for both the Silicon High Impact Graphics equipment and the
Oxberry Cinescan was, as stated in no less than the petitioner’s letter to the
respondent dated November 11, 199614 approving in the latter’s favor a lease
facility, was ₱8,100,000.00. Subtracting the acquisition cost of ₱8,100,000.00
from the total amount, i.e., ₱13,530,372.00, creditable to the respondent, it would
clearly appear that petitioner realized a gross income of ₱5,430,372.00 from its
lease transaction with the respondent. The amount of ₱5,430,372.00 is not yet a
final figure as it does not include the rentals in arrears, penalties thereon, and
interest earned by the guaranty deposit.
As may be noted, petitioner’s demand letter15 fixed the amount of ₱8,248,657.47
as representing the respondent’s "rental" balance which became due and
demandable consequent to the application of the acceleration and other clauses
of the lease agreement. Assuming, then, that the respondent may be compelled
to pay ₱8,248,657.47, then it would end up paying a total of ₱21,779,029.47
(₱13,530,372.00 + ₱8,248,657.47 = ₱21,779,029.47) for its use - for a year and
two months at the most - of the equipment. All in all, for an investment of
₱8,100,000.00, the petitioner stands to make in a year’s time, out of the
transaction, a total of ₱21,779,029.47, or a net of ₱13,679,029.47, if we are to
believe its outlandish legal submission that the PCI LEASING-GIRAFFE Lease
Agreement was an honest-to-goodness straight lease.
A financing arrangement has a purpose which is at once practical and salutary.
R.A. No. 8556 was, in fact, precisely enacted to regulate financing companies’
operations with the end in view of strengthening their critical role in providing
credit and services to small and medium enterprises and to curtail acts and
practices prejudicial to the public interest, in general, and to their clienteles, in
particular.16 As a regulated activity, financing arrangements are not meant to
quench only the thirst for profit. They serve a higher purpose, and R.A. No. 8556
has made that abundantly clear.
We stress, however, that there is nothing in R.A. No. 8556 which defines the
rights and obligations, as between each other, of the financial lessor and the
lessee. In determining the respective responsibilities of the parties to the
agreement, courts, therefore, must train a keen eye on the attendant facts and
circumstances of the case in order to ascertain the intention of the parties, in
relation to the law and the written agreement. Likewise, the public interest and
policy involved should be considered. It may not be amiss to state that, normally,
financing contracts come in a standard prepared form, unilaterally thought up and
written by the financing companies requiring only the personal circumstances
and signature of the borrower or lessee; the rates and other important covenants
in these agreements are still largely imposed unilaterally by the financing
companies. In other words, these agreements are usually one-sided in favor of
such companies. A perusal of the lease agreement in question exposes the
many remedies available to the petitioner, while there are only the standard
contractual prohibitions against the respondent. This is characteristic of standard
printed form contracts.
Page | 37
There is more. In the adverted February 24, 1998 demand letter17 sent to the
respondent, petitioner fashioned its claim in the alternative: payment of the full
amount of ₱8,248,657.47, representing the unpaid balance for the entire 36-
month lease period or the surrender of the financed asset under pain of legal
action. To quote the letter:
Demand is hereby made upon you to pay in full your outstanding balance in the
amount of P8,248,657.47 on or before March 04, 1998 OR to surrender to us the
one (1) set Silicon High Impact Graphics and one (1) unit Oxberry Cinescan
6400-10…
We trust you will give this matter your serious and preferential attention.
(Emphasis added).
unpaid rentals on the said leased items. Paragraph (3), Article 1484 in relation to
Article 1485 of the Civil Code, which we are hereunder re-reproducing, cannot be
any clearer.
ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following remedies:
xxx xxx xxx
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance
of the price. Any agreement to the contrary shall be void.

Evidently, the letter did not make a demand for the payment of the
₱8,248,657.47 AND the return of the equipment; only either one of the two was
required. The demand letter was prepared and signed by Atty. Florecita R.
Gonzales, presumably petitioner’s counsel. As such, the use of "or" instead of
"and" in the letter could hardly be treated as a simple typographical error, bearing
in mind the nature of the demand, the amount involved, and the fact that it was
made by a lawyer. Certainly Atty. Gonzales would have known that a world of
difference exists between "and" and "or" in the manner that the word was
employed in the letter.
A rule in statutory construction is that the word "or" is a disjunctive term signifying
dissociation and independence of one thing from other things enumerated unless
the context requires a different interpretation.18
In its elementary sense, "or", as used in a statute, is a disjunctive article
indicating an alternative. It often connects a series of words or propositions
indicating a choice of either. When "or" is used, the various members of the
enumeration are to be taken separately.19
ART. 1485. The preceding article shall be applied to contracts purporting to be
leases of personal property with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.
As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals,23 the
remedies provided for in Article 1484 of the Civil Code are alternative, not
cumulative. The exercise of one bars the exercise of the others. This limitation
applies to contracts purporting to be leases of personal property with option to
buy by virtue of the same Article 1485. The condition that the lessor has deprived
the lessee of possession or enjoyment of the thing for the purpose of applying
Article 1485 was fulfilled in this case by the filing by petitioner of the complaint for
a sum of money with prayer for replevin to recover possession of the office
equipment.24 By virtue of the writ of seizure issued by the trial court, the petitioner
has effectively deprived respondent of their use, a situation which, by force of the
Recto Law, in turn precludes the former from maintaining an action for recovery
of "accrued rentals" or the recovery of the balance of the purchase price plus
interest. 25

The imperatives of honest dealings given prominence in the Civil Code under the
The word "or" is a disjunctive term signifying disassociation and independence of heading: Human Relations, provide another reason why we must hold the
one thing from each of the other things enumerated.20 petitioner to its word as embodied in its demand letter. Else, we would witness a
situation where even if the respondent surrendered the equipment voluntarily, the
petitioner can still sue upon its claim. This would be most unfair for the
The demand could only be that the respondent need not return the equipment if it respondent. We cannot allow the petitioner to renege on its word. Yet more than
paid the ₱8,248,657.47 outstanding balance, ineluctably suggesting that the that, the very word "or" as used in the letter conveys distinctly its intention not to
respondent can keep possession of the equipment if it exercises its option to claim both the unpaid balance and the equipment. It is not difficult to discern why:
acquire the same by paying the unpaid balance of the purchase price. Stated if we add up the amounts paid by the respondent, the residual value of the
otherwise, if the respondent was not minded to exercise its option of acquiring property recovered, and the amount claimed by the petitioner as sued upon
the equipment by returning them, then it need not pay the outstanding balance. herein (for a total of ₱21,779,029.47), then it would end up making an instant
This is the logical import of the letter: that the transaction in this case is a lease in killing out of the transaction at the expense of its client, the respondent. The
name only. The so-called monthly rentals are in truth monthly amortizations of Recto Law was precisely enacted to prevent this kind of aberration. Moreover,
the price of the leased office equipment. due to considerations of equity, public policy and justice, we cannot allow this to
happen.1avvphil.zw+ Not only to the respondent, but those similarly situated who
may fall prey to a similar scheme.
On the whole, then, we rule, as did the trial court, that the PCI LEASING-
GIRAFFE lease agreement is in reality a lease with an option to purchase the
equipment. This has been made manifest by the actions of the petitioner itself, WHEREFORE, the instant petition is DENIED and the trial court’s decision is
foremost of which is the declarations made in its demand letter to the AFFIRMED.
respondent. There could be no other explanation than that if the respondent paid
the balance, then it could keep the equipment for its own; if not, then it should
return them. This is clearly an option to purchase given to the respondent. Being Costs against petitioner.
so, Article 1485 of the Civil Code should apply.
SO ORDERED.
The present case reflects a situation where the financing company can withhold
and conceal - up to the last moment - its intention to sell the property subject of
the finance lease, in order that the provisions of the Recto Law may be
circumvented. It may be, as petitioner pointed out, that the basic "lease
agreement" does not contain a "purchase option" clause. The absence, however,
does not necessarily argue against the idea that what the parties are into is not a
straight lease, but a lease with option to purchase. This Court has, to be sure,
long been aware of the practice of vendors of personal property of denominating
a contract of sale on installment as one of lease to prevent the ownership of the
object of the sale from passing to the vendee until and unless the price is fully
paid. As this Court noted in Vda. de Jose v. Barrueco:21

Sellers desirous of making conditional sales of their goods, but who do not wish
openly to make a bargain in that form, for one reason or another, have frequently
resorted to the device of making contracts in the form of leases either with
options to the buyer to purchase for a small consideration at the end of term,
provided the so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the lessee. It is obvious
that such transactions are leases only in name. The so-called rent must
necessarily be regarded as payment of the price in installments since the due
payment of the agreed amount results, by the terms of the bargain, in the transfer
of title to the lessee.

In another old but still relevant case of U.S. Commercial v. Halili,22 a lease
agreement was declared to be in fact a sale of personal property by installments.
Said the Court:

. . . There can hardly be any question that the so-called contracts of lease on
which the present action is based were veritable leases of personal property with
option to purchase, and as such come within the purview of the above article [Art.
1454-A of the old Civil Code on sale of personal property by installment]. xxx

Being leases of personal property with option to purchase as contemplated in the

above article, the contracts in question are subject to the provision that when the
lessor in such case "has chosen to deprive the lessee of the enjoyment of such
personal property," "he shall have no further action" against the lessee "for the
recovery of any unpaid balance" owing by the latter, "agreement to the contrary
being null and void."

In choosing, through replevin, to deprive the respondent of possession of the

leased equipment, the petitioner waived its right to bring an action to recover

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