G.R. No. L-5496 February 19, 1910

MERCEDES MARTINEZ Y FERNANDEZ, ET AL., plaintiffs-appellants, vs.THE HONGKONG & SHANGHAI BANKING CORPORATION, ET AL., defendants-appellants.

Bruce & Lawrence, for appellants.Haussermann & Cohn and Rosado, Sanz & Opisso, for appellees.

MORELAND, J.:

This is an action to set aside a contract on the ground that plaintiff's consent thereto was given under duress and undue influence. Alejandro S. Macleod is joined as plaintiff only for the reason that he is the husband of Mercedes Martinez and he takes no part in the action personally.

In the statement of facts and some of the legal propositions involved, we have made free use of the forms contained in the briefs of both parties.

Alejandro S. Macleod was for many years the managing partner of the house of Aldecoa & Co. in the city of Manila. He withdrew from the management on the 31st day of December, 1906, when Aldecoa & Co. went into liquidation. At the time that Aldecoa & Co. ceased active business the Hongkong & Shanghai banking Corporation was a creditor of that firm to the extent of several hundred thousand pesos and claimed to have a creditor's lien in the nature of a pledge over certain properties of the debtor. In April, 1907, the bank began a civil action against Alejandro S. Macleod, his wife, Mercedes Martinez, Aldecoa & Co., and the firm known as Viuda e Hijos de Escaño. In the bank's complaint it was alleged that a certain undertaking in favor of Aldecoa & Co. had been hypothecated to the bank to secure the indebtedness of Aldecoa & Co., but that this obligation had been wrongfully transferred by Alejandro S. Macleod into an obligation in favor in his wife, Mercedes Martinez, to the prejudice of the bank. In May, 1907, Aldecoa & Co. began a civil action against Alejandro S. Macleod and others for the recovery of certain shares of stock of the par value of P161.000 and for damages in the sum of P150,000, basing its right to recover upon alleged criminal misconduct of Mr. Macleod in his management of the firm's affairs.

When the two causes of action above referred to were discovered and the suits there mentioned commenced, Alejandro S. Macleod and Mercedes Martinez, his wife, engaged the services of Messrs. Del-Pan, Ortigas and Fisher, attorneys at law, to represent and defend them in the matter. Soon thereafter these attorneys made overtures to the liquidation of Aldecoa & Co, for the settlement of the latter's claims. While these negotiations were pending Aldecoa & Co. claimed that they had made discoveries of many frauds which Macleod had perpetrated against the company during the period of his management, whereby the company had been defrauded of many thousands of pesos.

On the 13th day of July, 1907, it becoming apparent that criminal proceedings would be instituted against him, Macleod went from Manila to the Portuguese colony of Macao, a territory not covered, it appears, by extradition treaty between the United States and the Portuguese Government. Four days thereafter, on the 17th day of July, Aldecoa & Co. filed a complaint against Mr. Macleod, charging him with the falsification of a commercial document, and a warrant for his arrest was issued by the Court of First Instance of Manila, and the executive department of the Philippine Government issued a formal request to the Portuguese authorities for the extradition of the accused. This request was denied. In the meantime the attorneys for the respective parties were engaged in negotiations for the settlement and compromise of the difference then pending and a clearance of Mr. Macleod from all claims and demands of his creditors. Aldecoa & Co. and the bank, as a consideration for such settlement, insisted upon the conveyance not only of all the property of Alejandro S. Macleod but also of at least a portion of the property claimed by his wife, the plaintiff herein. The settlement offered at that time was the same which was subsequently accepted and consummated on the 14th of August as shown by Exhibit A. There appears to have been little resistance to this demand on the part of the representatives of Mr. Macleod, but his wife, the plaintiff herein, stoutly objected to the conveyance required of her, maintaining that the property which she was asked to transfer was her separate and exlusive property and not liable for the debts of her husband. Her position was fully stated by her to her attorney, Mr. Fisher, and to her attorney-in-fact, Mr. William Macleod. An interview between her attorney and the attorney for Aldecoa & Co. followed this declaration on her part. Thereafter and on the night of August 4 another interview was had between the plaintiff and her counsel, Mr. Fisher, and others, at which a long list of claims against Mr. Macleod, prepared by Aldecoa & Co., was exhibited to the plaintiff and its contends explained to her by Mr. Fisher and her attorney-in-fact. Some of these claims involved criminal as well as civil liability. Mr. Fisher at that time favored a settlement in accordance with the terms proposed by Aldecoa & Co. The plaintiff, however, refused to accept such settlement.

This being the state of affairs, one of the attorneys for the bank, on the 7th of August, 1907, was called upon by counsel for both Aldecoa & Co. and the plaintiff in this action, who requested him to act as intermediary between the parties and to suggest means by which a settlement could be obtained. At that interview it was agreed that a full explanation of the condition of affairs should be made to Mr. Kingcome, a son-in-law of the plaintiff and a businessman. This explanation was made by Mr. Stephen, manager of the Hongkong & Shanghai Banking Corporation, one of the friends of Mr. Kingcome, at an interview arranged between them pursuant to the arrangements made by the attorneys for the parties. Whether or not Mr. Kingcome communicated the substance of that interview with Mr. Stephen to his mother-in-law, the plaintiff, before she signed the document in question is in dispute in this case. There is some doubt from the record as to the exact language used in this conversation between Kingcome and Stephen, but it appears that some reference was made tothe interest which the British colony in Manila, of which Messrs. Stephen, Kingcome, and Macleod were prominent members, would have in avoiding the scandal and disgrace to the latter which might be expected to ensue unless the differences between the parties to this action were amicably arranged. It seems at that interview that Mr. Stephen suggested to Mr. Kingcome that he advise his mother-in-law to act reasonably in negotiating the proposed settlement. It appears that Mr. Kingcome got the impression from that interview that Mr. Stephen thought unless

the settlement were consummated additional and mortifying misfortunes wound fall upon Mr. Macleod's family.

About the time that the inmterview between Kingcome and Stephen was celebrated Mr. Fisher was enlisting the services of Mr. William Macleod, a nephew and close friend of plaintiff and her husband, and plaintiff's attorney-in-fact, for a mission to plaintiff of a similar character to that of Mr. Kingcome. Mr. William Macleod, as well as Mr. Kingcome, seems to have been persuaded by what he was told that the consequences of plaintiff's continued refusal to make the settlement would be disastrous to Alejandro S. Macleod and his family and would be an exhibition of very bad judgment in every way.

On August 9, 1907, the prosecuting attorney filed a second complaint against Alejandro S. Macleod and his associate, Osorio, charging them with embezzlement and causing warrants of extradition to issue. The complaint was made at the instance of the prosecuting attorney because he had heard that Macleod and Osorio were about to leave for Europe and he wanted to intercept them in territory from which they could be extradited.

On the 11th of August a long conference was held between plaintiff, her attorney, Mr. Kingcome, her son-in-law, and William Macleod, her attorney-in-fact, at which she was informed in substance that if she assented to the requirements of Aldecoa & Co. and the bank the civil suits against herself and her husband would be dismissed and the criminal charges against him withdrawn, while if she refused her husband must either spend the rest of his life in Macao or be criminally prosecuted on the charged already filed and tobe filed. At that interview plaintiff refused to accede to the terms of settlement and that interview was terminated by a statement on the part of Mr. Fisher, which was "Gentlemen, it is evident that there can be no compromise or settlement, and the only thing left us to do is to defend Mr. Macleod in the best possible manner."

On the 12th of August, at an interview had between theplaintiff and her attorney-in-fact, Mr. William Macleod, the plaintiff acceded to the terms proposed by the defendants and authorized Mr. William Macleod to execute the contractof settlement on her behalf. The document of settlement was prepared and after certain corrections upon the part of the plaintiff's attorneys, making the same entirely satisfactory to them, it was signed by the plaintiff's attorney-in-fact on her behalf on the 14th of August. It was thereafter and on the same day ratified by the plaintiff, who executed the same in person.

After Adecoa & Co. and the bank had taken possession of the property of plaintiff and her husband, conveyed to them by Exhibit A, the civil suits were dismissed, the criminal charges withdrawn, and Mr. Macleod returned from macao to Manila. The plaintiff had a surveyor divide the property in Malate, of which she had conveyed a half interest, into two equal parts. She negotiated for apartition of the land on the basis of this survey. She joined in the motion for the dismissal of the civil action to which she had been a party and in the motion in the Court of Land Registration for the recording in the name of thegrantees of a half interest in the Malate land. All of these acts were in pursuance of Exhibit A.

On December 3, 1907, the plaintiff filed her complaint in the present action, and, after the joining of issue and thehearing of evidence, judgment was rendered in favor of defendants on the 29th day of May, 1909. From this judgment, after the usual motion for a new trial, its denial and exception to such denial, plaintiff appealed to this court.

The Civil Code in relation to the subject-matter in hand contains the following provisions:

ART. 1265. Consent given under error, violence, intimidation, or deceit shall be null.

ART. 1267. There is violence when, inorder to obtain the consent, irresistible force is used.

There is intimidation when one of the contracting parties gives his consent on account of a reasonable and well-grounded fear of suffering an imminent and serious injury to his person or property, or to the person or property of his spouse, descendants, or ascendants.

In determining whether or not there is intimidation the age, sex, and status of the person intimidated must be considered.

Fear of displeasing the persons to whom obedience and respect are due shall not annul the contract.

ART. 1268. Violence or intimidation shall annul the obligation, even though such violence or intimidation shall have been used by a third person who did not take part in the contract.

In order that this contract be annuled it must be shown that the plaintiff never gave her consent to the execution thereof. If a competent person has once assented to a contract freely and fairly, he is bound. Contracts which are declared void and of no force upon the ground that they were obtained by fraud, duress, or undue influence are so declared for the reason that the complaining party never really gave his consent thereto. The consent in such case is not in the eye of the law a consent at all. The person has not acted. He has done nothing he was in vinculis.

It is necessary to distinguish between real duress and the motive which is present when one gives his consent reluctantly. A contract is valid even though one of the parties entered into it against his wishes and desires or even against his better judgment. Contracts are also valid even though they are entered into by one of the parties without hope of advantage or profit. A contract whereby reparation is made by one party for injuries which he has willfully inflicted upon another is one which from its inherent nature is entered into reluctantly and against the strong desires of the party making the reparation. He is confronted with a situation in which he finds the necessityeither of making reparation or of taking the consequences, civil or criminal, of his unlawfull acts. Hemakes the contract of reparation with extreme reluctance and only by thecompelling

force of the punishment threatened. Nevertheless such contract is binding and enforceable. Such a contract differs entirely in its incidents from a contractentered into by a party for the purpose of gain. The latter contract is made with pleasure and its terms complied with gladly. The former is a contract the execution of which the party is very apt to repent and the terms of which he is very likely to evade if he can. It is not conclusive against them that Aldecoa & Co. demanded that the plaintiff do something upon pain of punishing her husband for his crimes. It is not conclusive that the plaintiff disliked exceedingly to do what they demanded. Neither is it conclusive that the plaintiff now regrets having performed at their demand instead of compelling a resort to judicial proceedings. It is not for these reasons that this contract may be declared null and void. If such a contract were illegal whereby pending litigation is settled by agreement of the parties rather than by decision of the court. If such a contract were null and void, then would be null and void every contract whereby a wrongdoer and he who assisted him made reparation for that which he had mis appropriated or misapplied. In legal effect there is no difference between a contract wherein one of the contracting parties exchanges one condition for another because he looks for greater gain or profit by reason of such change and an agreement wherein one of the contracting parties agrees to accept the lesser of two disadvantages. In either case he makes a choice free and untrammeled and must accordingly abide by it. These are evidence of duress, facts from which duress may be inferred, but they are not duress of themselves. In the absence of other proof and circumstances, they might very well be held to establish duress. But there is other proof and we do not believe that under all the facts of this case as disclosed by the record we can say that the court below erred when he refused to findthat the plaintiff entered into the contract in question by reason of duress and undue influence. We find lacking in this case amny of the essential elements usually found in cases of duress. The most that the facts disclose is that the plaintiff was loath to relinquish certain rights which she claimed to have in certain property to the end that she might be relieved from litigation then pending against her and that her husband might escape prosecution for crimes alleged to have been committed; and that she persisted for a considerable time in her refusal to relinquish such claimed rights. The fact that she did relinquish them upon such consideration and under such condition does not of itself constitute duress or intimidation, nor does it destroy the obligatory effect and force of her consent. In order to do so something more is needed. Such influence must havebeen exercised over her that she was deprived of her free will and choice. She must have acted from fear and not from judgment.

Not every contract made by a wife to relieve her husband from the consequences of his crimes is viodable. Subject to certain restrictions a wife may legally dispose of herproperty as she pleases; she may squander it; she may give it away; she may pledge or transfer it to keep her husband out of state prison. The question in each case is exactly the same as in all such relations, was she acting according to the dictates of her own judgment, whether good or bad, or from fear, force, or undue influence? If there are time and opportunity for judgment to take the place of fear, and if apart from the threat there are reasons disclosed which might lead one in the exercise of good judgment to perform the acts complained of, then the evidence as to duress and undue influence must be very clear in order that such acts may be recalled.

The appellant cites many cases in support of her contention that the contract of the 14th of August should be abrogated.

We have carefully examined not only all of the cases cited by the appellant but also substancially all of the cases within our reach relating to the questions before vs. Among them are the following: Adams vs. Irving National Bank (116 N.Y., 606); Allen vs Laflore County (76 Miss., 671); Bently vs. Ronson (11 Mich., 691; Burton vs McMillan (8 L. R. A., N.S., 991); Bell vs. Campbell (123 Mo., 1); Galusha vs Sherman (47 L. R. A., 417); MaMahon vs. Smith (47 Conn., 221, 36 Am Rep., 67); Gorringe vs Reed (23 Utah, 120, 90 Am St. Rep., 692); Bank vs Bryan (62 Ia., 42); Rau vs. Zedlitz (132 Mass., 164); Lomerson vs. Johnston (47 N. J. Eq., 312); McGrory vs. Reilly (14 Phila., 111); Foley vs. Greene (14 R.I., 618); Coffman vs. Lookout Bank (5 Lea., 232); Haynes vs. Rudd (102 N. Y., 372); Cribbs vs. Sowle (87 Mich., 340); Osborne vs. Robins (36 N.Y., 365); Rall vs. Raguet (4 Ohio, 400); Bank vs. Kirk (90 Pa. St., 49); Eadie vs. Slimmon (26 N.Y., 9); Harris vs. Carmody (131 Mass., 51; Taylor vs. Jacques (106 Mass., 291); Bryant vs. Peck & W. Co. (154 Mass., 460); Hesinger vs. Dyer (147 Mo., 219); Mack vs. Praug (104 Wis., 1); Benedict vs. Broome (106 Mich., 378); Williams vs Bayley (1 Eng. & Ir. App. Cas., 200); Central Bank vs. Copeland (18 Md., 305 , 81 Am. Dec., 597); Bradley vs. Irish (42 Ill. app., 85); Snyder vs. Willey (33 Mich., 483).

All of the above cases, except Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs. Bayley, are distinguishable from the case at bar in the following particulars:

1. In those cases there was no time within which to deliberate the matter as it should have been deliberated.

2. There was no time or opportunity to take the advice of friends or of disinterested persons.

3. There was no time or opportunity to take advice of counsel.

4. The treats made to secure the performance of the acts complained of were made directly to the complaining party by the person directly interested or by somene in his behalf who was working in his interest and who had no interest whatever in the welfare of the complaining party.

5. There was no consideration for the performance of the act complained of except immunity from the prosecution threatened.

6. The property transferred or incumbered by the act complained of was the separate property of the person performing the act in which the person for whome the act was performed claimed no interest whatever.

7. There was no dispute as to the title of the property transferred or incumbered, no claim made to it by anybody, no suits pending to recover it or any portion of it, and no pretension that it could be taken for the debts of the husband or of any other person.

In the cases of Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs. Bayley, above excepted, the complainant had the benefit of legal advice and the advice of some friend but in none of those were there present any of the other circumstances just enumerated.

In the case of Hesinger and another vs. Dyer (147 Mo., 219), it appeared that the plaintiffs were the tenants of the defendant on defendant's farm. During the last year that they had occupied this farm they raised some 500 bushels of corn upon which the defendant claimed to have a lien under the statue. The plaintiff Hesinger sold the corn and applied the proceeds to his own use. Dyer threatened to institute criminal proceedings against Hesinger for embezzling the corn if he and his wife did not execute to him their note for its value, secured by a deed of trust upon the land of Mrs. Hesinger. They testified that because of this threat and in fear of said prosecution they executed the note and deed of trust as required. Shortly before the papers were executed the defendant's home, taking with him a notary public to take the acknowledgement of the deed of trust in the event that he succeeded in getting the plaintiffs to execute it. This was one of the occasions upon which the defendant threatened to prosecute Hesinger if he and his wife did not execute the deed of trust as required. Mrs. Hesinger had all the time refused and still refused to execute the deed; but upon the afternoon of that day plaintiffs went to Sedalia to consult with their son and with their attorney and thereafter went to J.M. Bailer's office and there executed the papers in question. The court held that the note and deed of trust were voidable as having been executed under duress.

It is at once apparent, however, that the facts differ materially from those in the case at bar. In that case the plaintiffs contended against the personal presence of the defendant and all of the influence which that presence implies. In that case there was absolutely no consideration moving to Mrs. Hesinger inducing the execution of the papers in question except the release of her husband from prosecution. There was lacking in that case everything, every consideration which would appeal to the judgment or reason of the complaining party.

The same may be said of the other two cases, Harris vs. Carmody and Williams vs. Bayley.

The plaintiff cites also the case of Jalbuena vs. Ledesma et al. (8 Phil. Rep., 601). In that case it appeared, as stated by the court, that —

Ildefonso Doronila, having been the tutor of the Ledesma minor children, was cited in August, 1900, before the provost court of Iloilo on the petition of the defendant Lopez, to show cause why he should not surrender the papers, securities, and money in his charge, and he was in the course of the proceeding ordered to render his accounts as tutor, and it is to be inferred from the testimony of the defendant Ledesma that the accounts were in fact rendered. On December 3 he came to an agreement with the defendant Lopez, as representative of the children, whereby his accounts were allowed and accepted and the value of the missing papers, claimed to have been lost in the bombardment of Iloilo, was fixed at P12,000, and a certain obligation of the estate to Juan Casells to the amount of P4,000 was assumed by him. Subsequently this agreement was ratified by the family council, which

imposed, however, an additional condition that security should be given by Doronila for the payment of P16,000 in case the missing papers should not be produced within six months and the novation of the debt of Juan Casells accepted by the debtor. Thereafter he was brought before the provost judge in the pending proceeding and was ordered to give additional security, and failing to do so was committed to jail, where he had already been once confined on the institution of the proceeding. As all of his property was already bound to the estate for the performance of his duty as guardian, it became expedient to find a surety for him, and the plaintiff (wife of Doronila), who had accompanied him to the court, was thereupon induced to join with him in this undertaking. As to the preceedings in court, the testimony of the plaintiff, reduced to narrative form, is as follows:

"I remeber having been in the office of the provost judge of Iloilo in December, 1900. I went there to visit my husband, who was in jail. While there I was summoned before the provost judge by a soldier, and I went up before the provost and requested him to set my husband free, he not being guilty of anything. I asked him, crying, to put my husmand at liberty, but the provost did not listen to me; on the contrary, he asked me to file security for what was lost in my house during the bombardment, and he told me that he was going to put my husband in jail if I did not obligate my property as security. Fearing that he was going to be put in jail again, I was compelled to sign, it being a time when we and others were under fear and I was afraid that he would be punished and that they would deport him. In the fear that I was then under I did not know any other remedy but to sign. He told me that my husband would be sent again to jail if I did not sign."

This communication was carried on through the medium of an interpreter, one Pedro Regalado, who testified:

"The provost judge told Sra. Vicenta . . . in these terms: "You sign a document guaranteeing with your property the obligation contracted by Sr. Doronila, your husband." She answered to these words that her husband was not guilty of the loss of the documents, as when the bombardment came the documents were in a trunk and were lost during the bombardment. When she said that she could not respond, then the provost said: "You sign this document; you either sign this document or I will send you husband back to jail." More or less I remember that he said: "Interpreter, tell her to either sign this document or I will have her husband sent again to jail."

In this case the wife sued to set aside the obligation upon the ground that it was obtained from her by duress and undue influence. She justly succeded.

A mere reading of the facts in that case discloses that it can not be used as an authority in the case at bar. It is widely different in its facts.

A careful analysis of this case discloses the following pecularities:

In the first place, the undisputed evidence demostrates that the first offers of compromise were made by the plaintiff herself through her representatives. It appears that from first to last the effort and anxiety to compromise the claims of the defendants were on the part of the plaintiff through her representatives. The position of Aldecoa & Co. throughout the negotiations, as it appears from the testimony in the case, was that a settlement of their claims against the plaintiffs would not result in any peculiar or especial benefit to them inasmuch as by the actions already commenced against the plaintiff and her husband the defendants would be able, so they contended, to secure exactly the same property that they would obtain by the settlement proposed. The soundness of this contention was admitted by the attorneys for the plaintiff. It was the desire on the part of at least one of the persons especially interested in Aldecoa & Co. that Alejandro S. Macleod should suffer criminally for the acts which he had committed against that company and such person did not hesitate to say so repeatedly. There seems to have been throughout the negotations a fear of the part of the attornets for the plaintiff that, partly, at least, by reason of this especial desire of said person, the negotiations would be broken off by Aldecoa & Co. before a settlement could be consummated. The defendants never urged the ultimatum laid down by the defendants. They simply stated to the attorneys for the plaintiffs that they must claims, and it appeared from the position assumed that it was immaterial to them whether they obtained those properties through the courts or by means of a settlement. They left Macleod and his wife to choose foir themselves, upon their own judgment and upon the advice of their attorneys and relatives, the course to be by them pursued. That the defendants were not especially urging the settlement in question is demonstrated by the fact that Mr. Fisher, the attorney for the plaintiffs, was doubtful about securing the participation of Aldecoa & Co. in the agreement up to the very moment of its execution, and it appears from the evidence of Mr. Cohn that Mr. Fisher, laboring under such apprehension, actually withheld important information from Aldecoa & Co. for fear such information would deter them at the last moment from giving their assent to the arrangement.

In the secon place, there were at no time during the course of these negotiations for settlement any direct personal relations or communications between the parties to this action. During the whole course of the negotiations no person communicated with the plaintiffs on behalf of the defendants alone. The offers, proposition, or treats, if any, made by the defendants were filtered to her through the personality, mind, and judgment of her own attorneys or relatives, all of them being persons who had her welfare and the welfare of her family deeply at heart and who were acting for her and her husband and not for the defendants. That personal presence of threatening party and the influence springing therefrom, factors so potent in duress and undue influence, were wholly lacking.

On the trial an attempt was made to show that the defendants had attempted to influence the plaintiff, Mercedes Martinez, by acting upon her through her son-in-law, Mr. Kingcome. As stated above, Mr. Stephen was asked by the attorneys for the plaintiff, as well as the attorneys for the defendants, to see Mr. Kingcome and ask him to explain to his mother-in-law the facts and circumstances which were the cause of the attempts at settlement for the purpose of inducing her to act reasonably in the premises. There was

some dispute as to whether or not Mr. Kingcome actually communicated the substance of the interview to his mother-in-law prior to her signing the contract in question. Mr. Kingcome in his testimony states that according to his best recollection he communicated the substance of that interview to his mother-in-law on the 11th day of August. In considering this matter it must be remembered that the interview between Mr. Stephen and Mr. Kingcome was not brought about by Aldecoa & Co. or its representative. It was brought about by Mr. Cohn acting as mediary between Mr. Fisher and Mr. Rosado, the one the attorney for the plaintiffs and the other the attorney for the defendant company, upon the request and with the express approval of both of them. The interview which followed between Mr. Stephen and Mr. Kingcome was the direct act of plaintiff in exactly the same manner and in exactly the same degree as it was the act of Aldecoa & Co.

In the third place, the plaintiff by means of the negotiations and settlement in question was engaged partly at least in the settlement of her own suits and controversies. The plaintiff, Mercedes Martinez, together with Aldecoa & Co. and Viuda e Hijos de F. Escaño were sued in April, 1907, by the Hongkong & Shanghai Banking Corporation in relation to P45,000 worth of notes claimed to have been fraudulently taken from the assets of Aldecoa & Co. and transferred into the name and possessio of the plaintiff, Mercedes Martinez. This was one of the actions settled and terminated by the contract in question. In this property the plaintiff released her rights under the settlement. The only other property to which she released her rights was a half interest in property in Malate. As to the legality of her claim that this property was her own individual property there was a serious question, so serious in fact that she was formally and reapetedly advised by her attorneys that such claim was in their judgment unfounded. These are the only interest which the plaintiff, Mercedes Martinez, released or gave over in the settlement complainted of. Both of the claims were substantially in litigation and the legality of both was seriously questioned and strongly doubted by her own attorneys. While it is not necessary to decide and we do not decide whether her claim to either of those properties was valid or invalid, still the fact that the validity of her claims thereto was denied by her own attorneys strongly tends to impeach the claim that she released those properties by reason of duress and undue influence, rather that as a result of her own deliberate judgment.

In the fourt place, it must be remembered that the plaintiff, Mercedes Martinez, never at any time stood alone in the negotiations. There was never a moment when she did not have interposed between her and the defendants the counsel of skilled attorneys and of interested relatives. Whatever came to her from the defendants, their demands or their threats, if any, reached her through the medium of her friends and advisers. She had the assistance of legal learning and business intelligence and experience. She had the careful and thoughtful advice of her family. She was as far as possible relieved from all fear, stress, or influence except such as were inherent in the circumstances themselves. It appears undisputed that she and her relatives and lawyers considered throughout the negotiations and down to and including the time of the execution of the agreement of settlement that her best interest would be subserved by acceding to the terms laid down by the defendants. From the evidence in the case it is difficult to arrive at a conclusion other that that the acts which she performed in making the settlement in question were acts which contributed to her welfare and the welfare of her whole family. While this fact may not be conclusive in the present case, it nevertheless is of very importance and

significance in determining the question whether duress and undue influence were exercised or weighing the reasons pro and con.

In the fifth place, we must bot overlook the fact that the plaintiff took advantage of said contract after its execution and required the complete fulfilling of every one of its provisions favorable to herself. She negotiated with Aldecoa & Co. for a partition of the Malate property and to that end caused a survey and a division thereof to be made. She demanded of Aldecoa & Co. payment of the P2,000 provided for by the contract, which said sum she received. She caused one-half of said Malate property to be assessed against said company. She caused a change to be made in the proceedings to register the title to said Malate lands, previously begun by her, so as to register her title to only one-half thereof. She caused to be dismissed the action pending against her on account of the Escaño notes, which dismissal occured after this present action was commenced.

These acts are mentioned not to show a ratification of the contract in the sence that those acts estopped her from thereafter questioning the same, but rather as confirmatory of the theory that in the execution of the contract complained of she acted accroding to the dictates of good business judgment rather that from duress and undue influence.

As we have already stated, not every contract executed by a wife, even though made solely to save her husband from the consequences of his crimes, is voidable. Solicitation, importunity, argument, and persuasion are not undue influence and a contract is not to be set aside merely because one party used these means to obtain the consent of the other. Influence obtained by persuation or argument or by appeals to the affection is not prohibited either in law or morals and is not obnoxious even in courts of equity. Such may be termed "due influence." The line between due and undue influence, when drawn, must be with full recognition of the liberty due every true owner to obey the voice of justice, the dictates of friendship, of gratitude and of benevolence, as well as the claims of kindred, and, when not hindered by personal incapacity or particular regulation, to dispose of his own property according to his own free choice. (9 Cyc. 455, and cases there cited.)

On the other hand contracts entered into by a wife whereby she conveys property unquestionably hers, the sole and only consideration for which contract is the obtaining for her husband immunity from criminal prosecution, are always justly the objects of suspicion, and it is a wise jurisprudence which holds that, where she defends upon the ground that she was duressed, the party enforcing such contract must expect the very closest scrunity of the transaction with the presumptions all against him. Where, however, as in this case, there is a real question as to the validity of claims laid by the wife to the property transferred, some of which claimed rights are involved in actual litigation in which she is a party, while the remainder are alleged by opposing claimants to be subject to seizure and sale under judgements against the husband; and competent and honorable counsel, after careful and extended consideration of the facts and the law, advise her that the rights so claimed by her in the property transferred are fictitious, unreal, and defeasible, having no foundation in law, and she, after abundant opportunity for deliberate consideration, release such claimed rights and thereby not only secures immunity for her husband, but also quiets litigation against herself, a very different question is presented. It is undisputed that the attorneys for the plaintiff in this case

advised her that, from the facts which they had before them, facts of which she was fully informed, her husband had been guilty of embezzlement and misappropriation in the management of the business of Aldecoa & Co. and that, in their judgment, if prosecuted therefor, he would be convicted. They further advised her that the P45,000 worth of notes claimed by her and to recover which was part of the purpose of the action against her and her husband by the Hongkong & Shanghai Banking Corporation were a part of the property of which her husband had criminally deprived the said company. They advised her that she would not be able to hold such notes as her own. They further advised her that from the facts before them Aldecoa & Co. would have no difficulty in getting a judgment for a very large amount against her husband, and, in that event, the interest which she claimed in the Malate property would be liable in their judgment ganancial. They informed her that all that Aldecoa & Co. required of here was the transfer of her claims rights in said property. They further advised her that if she did not so transfer such property, Aldecoa & Co. would nevertheless obtain it by means of the actions already commenced and to be commenced; that if she did transfer it she would lose no more than she would lose by means of said action and she would gain in addition the immunity of her husband from criminal prosecution. In other words, under the advice of her counsel, the situation was so presented to her that it was evidenct that in signing the agreement of the 14th of August she had all to gain and nothing to lose, whereas, in refusing to sign said agreement, she had all to lose and nothing to gain. In the one case she would lose her property and save her husband. In the other, she would lose her property and her husband too. The argument thus presented to her by her attorneys addressed itself to judgment and not to fear. It appealed to reason and not to passion. It asked her to be moved by common sense and not by love of family. It spoke to her own interest as much as to those of her husband. The argument went to her financial interest as well as to those of the defendants. It spoke to her business judgment as well as to her wifely affections. From the opinions of her attorneys, as they were presented to her upon facts assumed by all to be true, we do not well see how she could reasonably have reached a conclusion other than that which she did reach. It is of no consequence here whether or not her lawyers, as matter of law, she would have been deprived of her alleged interests in the properties mentioned in the manner described and advised by her attorneys. The important thing is that she believed and accepted their judicial and acted upon it. The question is not did he make a mistake, but did she consent; not was she wrongly advised, but was she coerced; not was she wise, but was she duressed.

From the whole case we are of the opinion that the finding of the court below that the plaintiff executed the contract in suit of her own free will and choice and not from duress is fully sustained by the evidence.

The judgment of the court below, is therefore, affirmed with costs against the appellant. So ordered.

Arellano, C.J., Torres, Mapa and Johnson, JJ., concur.

G.R. No. L-48194 March 15, 1990

JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners, vs.COURT OF APPEALS and LEONARDO TIRO, respondents.Eddie Tamondong for petitioners.Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.

REGALADO, J.:

Petitioners pray for the reversal of the decision of respondent Court of Appeals in CA-G.R. No. 52296-R, dated March 6, 1978, 1 the dispositive portion whereof decrees:

WHEREFORE, the judgment appealed from is hereby set aside and another one entered ordering the defendants-appellees, jointly and solidarily, to pay plaintiff-appellant the sum of P79,338.15 with legal interest thereon from the filing of the complaint, plus attorney's fees in the amount of P8,000.00. Costs against defendants-appellees. 2

As found by respondent court or disclosed by the records, 3 this case was generated by the following antecedent facts.

Private respondent is a holder of an ordinary timber license issued by the Bureau of Forestry covering 2,535 hectares in the town of Medina, Misamis

Oriental. On February 15, 1966 he executed a "Deed of Assignment" 4 in favor of herein petitioners the material parts of which read as follows:

xxx xxx xxx

I, LEONARDO A. TIRO, of legal age, married and a resident ofMedina, Misamis Oriental, for and in consideration of the sum ofONE HUNDRED TWENTY THOUSAND PESOS(P120,000.00), Philippine Currency, do by these presents,ASSIGN, TRANSFER AND CONVEY, absolutely and forever unto JOSE M. JAVIER and ESTRELLA F. JAVIER, spouses, of legal age and a resident (sic) of 2897 F.B. Harrison, Pasay City, my shares of stocks in the TIMBERWEALTH CORPORATION in the total amount of P120,000.00, payment of which shall be made in the following manner:

1. Twenty thousand (P20,000.00) Pesos upon signing of this contract;

2. The balance of P100,000.00 shall be paid P10,000.00 every shipment of export logs

actually produced from the forest concession of Timberwealth Corporation.

That I hereby agree to sign and endorse the stock certificate in favor of Mr. & Mrs. Jose M. Javier, as soon as stock certificates are issued.

xxx xxx xxx

At the time the said deed of assignment was executed, private respondent had a pending application, dated October 21, 1965, for an additional forest concession covering an area of 2,000 hectares southwest of and adjoining the area of the concession subject of the deed of assignment. Hence, on February 28, 1966, private respondent and petitioners entered into another "Agreement" 5 with the following stipulations:

xxx xxx xxx

1. That LEONARDO TIRO hereby agrees and binds himself to transfer, cede and convey whatever rights he may acquire, absolutely and forever, to TIMBERWEALTH CORPORATION, a corporation duly organized and existing under the laws of the Philippines, over a forest concession which is now pending application and approval as additional area to his existing licensed area under O.T. License No. 391-103166, situated at Medina, Misamis Oriental;

2. That for and in consideration of the aforementioned transfer of rights over said additional area to TIMBERWEALTH CORPORATION, ESTRELLA F. JAVIER and JOSE M. JAVIER, both directors and stockholders of said corporation, do hereby undertake to pay LEONARDO TIRO, as soon as said additional area is approved and transferred to TIMBERWEALTH CORPORATION the sum of THIRTY THOUSAND PESOS (P30,000.00), which amount of money shall form part of their paid up capital stock in TIMBERWEALTH CORPORATION;

3. That this Agreement is subject to the approval of the members of the Board of Directors of the TIMBERWEALTH CORPORATION.

xxx xxx xxx

On November 18, 1966, the Acting Director of Forestry wrote private respondent that his forest concession was renewed up to May 12, 1967 under O.T.L. No.391-51267, but since the concession consisted of only 2,535 hectares, he was therein informed that:

In pursuance of the Presidential directive of May 13, 1966, you are hereby given until May 12, 1967 to form an organization such as a cooperative, partnership or corporation with other adjoining licensees so as to have a total holding area of not less than 20,000 hectares of contiguous and compact territory and an aggregate allowable annual cut of not less than 25,000 cubic meters,

otherwise, your license will not be further renewed. 6

Consequently, petitioners, now acting as timber license holders by virtue of the deed of assignment executed by private respondent in their favor, entered into a Forest Consolidation Agreement 7 on April 10, 1967 with other ordinary timber license holders in Misamis Oriental, namely, Vicente L. De Lara, Jr., Salustiano R. Oca and Sanggaya Logging Company. Under this consolidation agreement, they all agreed to pool together and merge their respective forest concessions into a working unit, as envisioned by the aforementioned directives. This consolidation agreement was approved by the Director of Forestry on May 10, 1967. 8 The working unit was subsequently incorporated as the North Mindanao Timber Corporation, with the petitioners and the other signatories of the aforesaid Forest Consolidation Agreement as incorporators. 9

On July 16, 1968, for failure of petitioners to pay the balance due under the two deeds of assignment, private respondent filed an action against petitioners, based on the said contracts, for the payment of the amount of P83,138.15 with interest at 6% per annum from April 10, 1967 until full payment, plus P12,000.00 for attorney's fees and costs.

On September 23, 1968, petitioners filed their answer admitting the due execution of the contracts but interposing the special defense of nullity thereof since private respondent failed to comply with his contractual obligations and, further, that the conditions for the enforceability of the obligations of the parties failed to materialize. As a counterclaim, petitioners sought the return ofP55,586.00 which private respondent had received from them pursuant to an alleged management agreement, plus attorney's fees and costs.

On October 7, 1968, private respondent filed his reply refuting the defense of nullity of the contracts in this wise:

What were actually transferred and assigned to the defendants were plaintiff's rights and interest in a logging concession described in the deed of assignment, attached to the complaint and marked as Annex A, and agreement Annex E; that the"shares of stocks" referred to in paragraph II of the complaint are terms used therein merely to designate or identify those rights and interests in said logging concession. The defendants actually made use of or enjoyed not the "shares of stocks" but the logging concession itself; that since the proposedTimberwealth Corporation was owned solely and entirely by defendants, the personalities of the former and the latter are

one and the same. Besides, before the logging concession of the plaintiff or the latter's rights and interests therein were assigned or transferred to defendants, they never became the property or assets of the Timberwealth Corporation which is at most only an association of persons composed of the defendants. 10

and contending that the counterclaim of petitioners in the amount of P55,586.39 is actually only a part of the sum of P69,661.85 paid by the latter to the former in partial satisfaction of the latter's claim. 11

After trial, the lower court rendered judgment dismissing private respondent's complaint and ordering him to pay petitioners the sum of P33,161.85 with legal interest at six percent per annum from the date of the filing of the answer until complete payment. 12

As earlier stated, an appeal was interposed by private respondent to the Court of Appeals which reversed the decision of the court of a quo.

On March 28, 1978, petitioners filed a motion in respondent court for extension of time to file a motion for reconsideration, for the reason that they needed to change counsel. 13 Respondent court, in its resolution dated March 31, 1978, gave petitioners fifteen (15) days from March 28, 1978 within which to file said motion for reconsideration, provided that the subject motion for extension was filed on time. 14 On April 11, 1978, petitioners filed their motion for reconsideration in the Court of Appeals. 15 On April 21, 1978, private respondent filed a consolidated opposition to said motion for reconsideration on the ground that the decision of respondent court had become final on March 27, 1978, hence the motion for extension filed on March 28, 1978 was filed out of time and there was no more period to extend. However, this was not acted upon by theCourt of Appeals for the reason that on April 20, 1978, prior to its receipt of said opposition, a resolution was issued denying petitioners' motion for reconsideration, thus:

The motion for reconsideration filed on April 11, 1978 by counsel for defendants-appellees is denied. They did not file any brief in this case. As a matter of fact this case was submitted for decision without appellees' brief. In their said motion, they merely tried to refute the rationale of the Court in deciding to reverse the appealed judgment. 16

Petitioners then sought relief in this Court in the present petition for review on certiorari. Private respondent filed his comment, reiterating his stand that the decision of the Court of Appeals under review is already final and executory.

Petitioners countered in their reply that their petition for review presents substantive and fundamental questions of law that fully merit judicial

determination, instead of being suppressed on technical and insubstantial reasons. Moreover, the aforesaid one (1) day delay in the filing of their motion for extension is excusable, considering that petitioners had to change their former counsel who failed to file their brief in the appellate court, which substitution of counsel took place at a time when there were many successive intervening holidays.

On July 26, 1978, we resolved to give due course to the petition.

The one (1) day delay in the filing of the said motion for extension can justifiably be excused, considering that aside from the change of counsel, the last day for filing the said motion fell on a holiday following another holiday, hence, under such circumstances, an outright dismissal of the petition would be too harsh. Litigations should, as much as possible, be decided on their merits and not on technicalities. In a number of cases, this Court, in the exercise of equity jurisdiction, has relaxed the stringent application of technical rules in order to resolve the case on its merits. 17 Rules of procedure are intended to promote, not to defeat, substantial justice and, therefore, they should not be applied in a very rigid and technical sense.

We now proceed to the resolution of this case on the merits.

The assignment of errors of petitioners hinges on the central issue of whether the deed of assignment dated February 15, 1966 and the agreement of February 28, 1966 are null and void, the former for total absence of consideration and the latter for non-fulfillment of the conditions stated therein.

Petitioners contend that the deed of assignment conveyed to them the shares of stocks of private respondent in Timberwealth Corporation, as stated in the deed itself. Since said corporation never came into existence, no share of stocks was ever transferred to them, hence the said deed is null and void for lack of cause or consideration.

We do not agree. As found by the Court of Appeals, the true cause or consideration of said deed was the transfer of the forest concession of private respondent to petitioners for P120,000.00. This finding is supported by the following considerations, viz:

1. Both parties, at the time of the execution of the deed of assignment knew that the Timberwealth Corporation stated therein was non-existent. 18

2. In their subsequent agreement, private respondent conveyed to petitioners his inchoate right over a forest concession covering an additional area for his existing forest concession, which area he had applied for, and his application was then pending in the Bureau of Forestry for approval.

3. Petitioners, after the execution of the deed of assignment, assumed the operation of the logging concessions of private respondent. 19

4. The statement of advances to respondent prepared by petitioners stated: "P55,186.39 advances to L.A. Tiro be applied to succeeding shipments. Based on the agreement, we pay P10,000.00 every after (sic) shipment. We had only 2 shipments" 20

5. Petitioners entered into a Forest Consolidation Agreement with other holders of forest concessions on the strength of the questioned deed of assignment. 21

The aforesaid contemporaneous and subsequent acts of petitioners and private respondent reveal that the cause stated in the questioned deed of assignment is false. It is settled that the previous and simultaneous and subsequent acts of the parties are properly cognizable indica of their true intention. 22 Where the parties to a contract have given it a practical construction by their conduct as by acts in partial performance, such construction may be considered by the court in construing the contract, determining its meaning and ascertaining the mutual intention of the parties at the time of contracting. 23 The parties' practical construction of their contract has been characterized as a clue or index to, or as evidence of, their intention or meaning and as an important, significant, convincing, persuasive, or influential factor in determining the proper construction of the agreement. 24

The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false cause or consideration, or one where the parties conceal their true agreement. 25 A contract with a false consideration is not null and void per se. 26 Under Article 1346 of the Civil Code, a relatively simulated contract, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.

The Court of Appeals, therefore, did not err in holding petitioners liable under the said deed and in ruling that —

. . . In view of the analysis of the first and second assignment of errors, the defendants-appellees are liable to the plaintiff-appellant for the sale and transfer in their favor of the latter's forest concessions. Under the terms of the contract, the parties agreed on a consideration of P120,000.00. P20,000.00 of which was paid, upon the signing of the contract and the balance ofP100,000.00 to be paid at the rate of P10,000.00 for every shipment of export logs actually produced from the forest concessions of the appellant sold to the appellees. Since plaintiff-appellant's forest concessions were consolidated or merged with those of the other timber license holders by appellees' voluntary act under the Forest Consolidation Agreement (Exhibit D), approved by the Bureau of Forestry

(Exhibit D-3), then the unpaid balance of P49,338.15 (the amount of P70,661.85 having been received by the plaintiff-appellant from the defendants-appellees) became due and demandable. 27

As to the alleged nullity of the agreement dated February 28, 1966, we agree with petitioners that they cannot be held liable thereon. The efficacy of said deed of assignment is subject to the condition that the application of private respondent for an additional area for forest concession be approved by the Bureau of Forestry. Since private respondent did not obtain that approval, said deed produces no effect. When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled. 28 If the suspensive condition does not takeplace, the parties would stand as if the conditional obligation had never existed.29

The said agreement is a bilateral contract which gave rise to reciprocal obligations, that is, the obligation of private respondent to transfer his rights in the forest concession over the additional area and, on the other hand, the obligation of petitioners to pay P30,000.00. The demandability of the obligation of one party depends upon the fulfillment of the obligation of the other. In this case, the failure of private respondent to comply with his obligation negates his right to demand performance from petitioners. Delivery and payment in a contract of sale, are so interrelated and intertwined with each other that without delivery of the goods there is no corresponding obligation to pay. The two complement each other. 30

Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. In this case, since private respondent never acquired any right over the additional area for failure to secure the approval of the Bureau of Forestry, the agreement executed therefor, which had for its object the transfer of said right to petitioners, never became effective or enforceable.

WHEREFORE, the decision of respondent Court of Appeals is herebyMODIFIED. The agreement of the parties dated February 28, 1966 is declared without force and effect and the amount of P30,000.00 is hereby ordered to be deducted from the sum awarded by respondent court to private respondent. In all other respects, said decision of respondent court is affirmed.

SO ORDERED.

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

G.R. No. 135634 May 31, 2000

HEIRS OF JUAN SAN ANDRES (VICTOR S. ZIGA) and SALVACION S. TRIA, petitioners,vs.VICENTE RODRIGUEZ, respondent.

MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals 1 reversing the decision of the Regional Trial Court, Naga City, Branch 19, in Civil Case No. 87-1335, as well as the appellate court's resolution denying reconsideration.

The antecedent facts are as follows:

Juan San Andres was the registered owner of Lot No. 1914-B-2 situated in Liboton, Naga City. On September 28, 1964, he sold a portion thereof, consisting of 345 square meters, to respondent Vicente S. Rodriguez for P2,415.00. The sale is evidenced by a Deed of Sale. 2

Upon the death of Juan San Andres on May 5, 1965, Ramon San Andres was appointed judicial administrator of the decedent's estate in Special Proceedings No. R-21, RTC, Branch 19, Naga City. Ramon San Andres engaged the services of a geodetic engineer, Jose Peñero, to prepare a consolidated plan (Exh. A) of the estate. Engineer Peñero also prepared a sketch plan of the 345-square meter lot sold to respondent. From the result of the survey, it was found that respondent had enlarged the areawhich he purchased from the late Juan San Andres by 509 square meters.3

Accordingly, the judicial administrator sent a letter, 4 dated July 27, 1987, to respondent demanding that the latter vacate the portion allegedly encroached by him. However, respondent refused to do so, claiming he had purchased the same from the late Juan San Andres. Thereafter, on November 24, 1987, the judicial administrator brought an action, in behalf of the estate of Juan San Andres, for recovery of possession of the 509-square meter lot.

In his Re-amended Answer filed on February 6, 1989, respondent alleged that apart from the 345-square meter lot which had been sold to him by Juan San Andres on September 28, 1964, the latter likewise sold to him the following day the remaining portion of the lot consisting of 509 square meters, with both parties treating the two lots as one whole parcel with a total area of 854 square meters. Respondent alleged that the full payment of the 509-square meter lot would be effected within five (5) years from the execution of a formal deed of sale after a survey is conducted over said property. He further alleged that with the consent of the former owner, Juan San Andres, he took possession of the same and introduced improvements thereon as early as 1964.

As proof of the sale to him of 509 square meters, respondent attached to his answer a receipt (Exh. 2) 5 signed by the late Juan San Andres, which reads in full as follows:

Received from Vicente Rodriguez the sum of Five Hundred (P500.00) Pesos representing an advance payment for a residential lot adjoining his previously paid lot on three sides excepting on the frontage with the agreed price of Fifteen (15.00) Pesos per square meter and the payment of the full consideration based on a survey shall be due and payable in five (5) years period from the execution of the formal deed of sale; and it is agreed that the expenses of survey and its approval by the Bureau of Lands shall be borne by Mr. Rodriguez.

Naga City, September 29, 1964.

Noted:

(Sgd.)

VICENTE RODRIGUEZ

Vendee

Respondent also attached to his answer a letter of judicial administrator Ramon San Andres (Exh. 3), 6 asking payment of the balance of the purchase price. The letter reads:

Dear Inting,

Please accommodate my request for Three Hundred (P300.00) Pesos as I am in need of funds as I intimated to you the other day.

We will just adjust it with whatever balance you have payable to the subdivision.

R Thanks..

SAN

ANDRES

V e n d o r

Vicente Rodriguez

Penafrancia Subdivision, Naga City

P.S.

You can let bearer Enrique del Castillo sign for the amount.

Received One Hundred Only

(Sgd.)

RAMON SAN ANDRES

3/30/66

Respondent deposited in court the balance of the purchase price amounting to P7,035.00 for the aforesaid 509-square meter lot.

While the proceedings were pending, judicial administrator Ramon San Andres died and was substituted by his son Ricardo San Andres. On the other band, respondent Vicente Rodriguez died on August 15, 1989 and was substituted by his heirs. 7

Petitioner, as plaintiff, presented two witnesses. The first witness, Engr. Jose Peñero, 8 testified that based on his survey conducted sometime between 1982 and 1985, respondent had enlarged the area which he purchased from the late Juan San Andres by 509 square meters belonging to the latter's estate. According to Peñero, the titled property (Exh. A-5) of respondent was enclosed with a fence with metal holes and barbed wire, while the expanded area was fenced with barbed wire and bamboo and light materials.

The second witness, Ricardo San Andres, 9 administrator of the estate, testified that respondent had not filed any claim before Special Proceedings No. R-21 and denied knowledge of Exhibits 2 and 3. However, he recognized the signature in Exhibit 3 as similar to that of the former administrator, Ramon San Andres. Finally, he declared that the expanded portion occupied by the family of respondent is now enclosed with barbed wire fence unlike before where it was found without fence.

On the other hand, Bibiana B. Rodriguez, 10 widow of respondent Vicente Rodriguez, testified that they had purchased the subject lot from Juan San Andres, who was their compadre, on September 29, 1964, at P15.00 per

square meter. According to her, they gave P500.00 to the late Juan San Andres who later affixed his signature to Exhibit 2. She added that on March 30, 1966; Ramon San Andres wrote them a letter asking for P300.00 as partial payment for the subject lot, but they were able to give him only P100.00. She added that they had paid the total purchase price of P7,035.00 on November 21, 1988 by depositing it in court. Bibiana B. Rodriquez stated that they had been in possession of the 509-square meter lot since 1964 when the late Juan San Andres signed the receipt. (Exh. 2) Lastly, she testified that they did not know at that time the exact area sold to them because they were told that the same would be known after the survey of the subject lot.

On September 20, 1994, the trial court 11 rendered judgment in favor of petitioner. It ruled that there was no contract of sale to speak of for lack of a valid object because there was no sufficient indication in Exhibit 2 to identify the property subject of the sale, hence, the need to execute a new contract.

Respondent appealed to the Court of Appeals, which on April 21, 1998 rendered a decision reversing the decision of the trial court. The appellate court held that the object of the contract was determinable, and that there was a conditional sale with the balance of the purchase price payable within five years from the execution of the deed of sale. The dispositive portion of its decision's reads:

IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the complaint and rendering judgment against the plaintiff-appellee:

1. to accept the P7,035.00 representing the balance of the purchase price of the portion and which is deposited in court under Official Receipt No. 105754 (page 122, Records);

2. to execute the formal deed of sale over the said 509 square meter portion of Lot 1914-B-2 in favor of appellant Vicente Rodriguez;

3. to pay the defendant-appellant the amount of P50,000.00 as damages and P10,000.00 attorney's fees as stipulated by them during the trial of this case; and

4. to pay the costs of the suit.

SO ORDERED.

Hence, this petition. Petitioner assigns the following errors as having been allegedly committed by the trial court:

I. THE HON. COURT OF APPEALSERRED IN HOLDING THAT THEDOCUMENT (EXHIBIT "2") IS ACONTRACT TO SELL DESPITE ITSLACKING ONE OF THE ESSENTIALELEMENTS OF A CONTRACT,NAMELY, OBJECT CERTAIN ANDSUFFICIENTLY DESCRIBED.

II. THE HON. COURT OF APPEALSERRED IN HOLDING THATPETITIONER IS OBLIGED TO HONORTHE PURPORTED CONTRACT TOSELL DESPITE NON-FULFILLMENTBY RESPONDENT OF THE CONDITIONTHEREIN OF PAYMENT OF THEBALANCE OF THE PURCHASE PRICE.

III. THE HON. COURT OF APPEALSERRED IN HOLDING THATCONSIGNATION WAS VALID DESPITENON-COMPLIANCE WITH THEMANDATORY REQUIREMENTSTHEREOF.

IV. THE HON. COURT OF APPEALSERRED IN HOLDING THAT LACHESAND PRESCRIPTION DO NOT APPLYTO RESPONDENT WHO SOUGHTINDIRECTLY TO ENFORCE THE

PURPORTED CONTRACT AFTER THELAPSE OF 24 YEARS.

The petition has no merit.

First. Art. 1458 of the Civil Code provides:

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

A contract of sale may be absolute or conditional.

As thus defined, the essential elements of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b) Determinate subject matter; and,

c) Price certain in money or its equivalent. 12

As shown in the receipt, dated September 29, 1964, the late Juan San Andres received P500.00 from respondent as "advance payment for the residential lot adjoining his previously paid lot on three sides excepting on the frontage; the agreed purchase price was P15.00 per square meter; and the full amount of the purchase price was to be based on the results of a survey and would be due and payable in five (5) years from the execution of a deed of sale.

Petitioner contends, however, that the "property subject of the sale was not described with sufficient certainty such that there is a necessity of another agreement between the parties to finally ascertain the identity; size and purchase price of the property which is the object of the alleged sale." 1 He argues that the "quantity of the object is not determinate as in fact a survey is needed to determine its exact size and the full purchase price therefor" 14 In support of his contention, petitioner cites the following provisions of the Civil Code:

Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinable shall not be an obstacle to the existence of a contract, provided it is possible to determine the same without the need of a new contract between the parties.

Art. 1460. . . . The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new and further agreement between the parties.

Petitioner's contention is without merit. There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This portion is located in the middle of Lot 1914-B-2, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the "previously paid lot." Since the lot subsequently sold to respondent is said to adjoin the "previously paid lot" on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey does not detract from the fact that they are determinate or determinable. As the Court of

Appeals explained: 15

Concomitantly, the object of the sale is certain and determinate. Under Article 1460 of the New Civil Code, a thing sold is determinate if at the time the contract is entered into, the thing is capable of being determinate without necessity of a new or further agreement between the parties. Here, this definition finds realization.

Appellee's Exhibit "A" (page 4, Records) affirmingly shows that the original 345 sq. m. portion earlier sold lies at the middle of Lot 1914-B-2 surrounded by the remaining portion of the said Lot 1914-B-2 on three (3) sides, in the east, in the west and in the north. The northern boundary is a 12 meter road. Conclusively, therefore, this is the only remaining 509 sq. m. portion of Lot 1914-B-2 surrounding the 345 sq. m. lot initially purchased by Rodriguez. It is quite difined, determinate and certain. Withal, this is the same portion adjunctively occupied and possessed by Rodriguez since September 29, 1964,

unperturbed by anyone for over twenty (20) years until appellee instituted this suit.

Thus, all of the essential elements of a contract of sale are present, i.e., that there was a meeting of the minds between the parties, by virtue of which the late Juan San Andres undertook to transfer ownership of and to deliver a determinate thing for a price certain in money. As Art. 1475 of the Civil Code provides:

The 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. . . .

That the contract of sale is perfected was confirmed by the former administrator of the estates, Ramon San Andres, who wrote a letter to respondent on March 30, 1966 asking for P300.00 as partial payment for the subject lot. As the Court of Appeals observed:

Without any doubt, the receipt profoundly speaks of a meeting of the mind between San Andres and Rodriguez for the sale of the property adjoining the 345 square meter portion previously sold to Rodriguez on its three (3) sides excepting the frontage. The price is certain, which is P15.00 per square meter. Evidently, this is a perfected contract of sale on a deferred payment of the purchase price. All the pre-requisite elements for a valid purchase transaction are present. Sale does not require any formal document for its existence and validity. And delivery of possession of land sold is a consummation of the sale (Galar vs. Husain, 20 SCRA 186 [1967]). A private deed of sale is a valid contract between the parties (Carbonell v. CA, 69 SCRA 99 [1976]).

In the same vein, after the late Juan R. San Andres received the P500.00 downpayment on March 30, 1966, Ramon R. San Andres wrote a letter to Rodriguez and received from Rodriguez the amount of P100.00 (although P300.00 was being requested) deductible from the purchase price of the subject portion. Enrique del Castillo, Ramon's authorized agent, correspondingly signed the receipt for the P100.00. Surely, this is explicitly a veritable

proof of he sale over the remaining portion of Lot 1914-B-2 and a confirmation by Ramon San Andres of the existence thereof. 16

There is a need, however, to clarify what the Court of Appeals said is a conditional contract of sale. Apparently, the appellate court considered as a "condition" the stipulation of the parties that the full consideration, based on a survey of the lot, would be due and payable within five (5) years from the execution of a formal deed of sale. It is evident from the stipulations in the receipt that the vendor Juan San Andres sold the residential lot in question to respondent and undertook to transfer the ownership thereof to respondent without any qualification, reservation or

condition. In Ang Yu Asuncion v. Court of Appeals, 17 we held:

In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code).

Thus, in. one case, when the sellers declared in a "Receipt of Down Payment" that they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property. 18 In People's Industrial Commercial Corporation v. Court of Appeals, 19 it was stated:

A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve

the contract the moment the buyer fails to pay within a fixed period.

Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. 20 Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.

The stipulation that the "payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale" is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. Consequently, the contention that the absence of a formal deed of sale stipulated in the receipt prevents the happening of a sale has no merit.

Second. With respect to the contention that the Court of Appeals erred in upholding the validity of a consignation of P7,035.00 representing the balance of the purchase price of the lot, nowhere in the decision of the appellate court is there any mention of consignation. Under Art. 1257 of this Civil Code, consignation is proper only in cases where an existing obligation is due. In this case, however, the contracting parties agreed that full payment of purchase price shall be due and payable within five (5) years from the execution of a formal deed of sale. At the time respondent deposited the amount of P7,035.00 in the court, no formal deed of sale had yet been executed by the parties, and, therefore, the five-year period during which the purchase price should be paid had not commenced. In short, the purchase price was not yet due and payable.

This is not to say, however, that the deposit of the purchase price in the court is erroneous. The Court of Appeals correctly ordered the execution of a deed of sale and petitioners to accept the amount deposited by respondent.

Third. The claim of petitioners that the price of P7,035.00 is iniquitous is untenable. The amount is based on the agreement of the parties as

evidenced by the receipt (Exh. 2). Time and again, we have stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such contract so long as they are not contrary to law, morals, good customs or public policy. Otherwise, court would be interfering with the freedom of contract of the parties. Simply put, courts cannot stipulate for the parties nor amend the latter's agreement, for to do so would be to alter the real intentions of the contracting parties when the contrary function of courts is to give force and effect to the intentions of the parties.

Fourth. Finally, petitioners argue that respondent is barred by prescription and laches from enforcing the contract. This contention is likewise untenable. The contract of sale in this case is perfected, and the delivery of the subject lot to respondent effectively transferred ownership to him. For this reason, respondent seeks to comply with his obligation to pay the full purchase price, but because the deed of sale is yet to be executed, he deemed it appropriate to deposit the balance of the purchase price in court. Accordingly, Art. 1144 of the Civil Code has no application to the instant

case. 21 Considering that a survey of the lot has already been conducted and approved by the Bureau of Lands, respondent's heirs, assign or successors-in-interest should reimburse the expenses incurred by herein petitioners, pursuant to the provisions of the contract.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that respondent is ORDERED to reimburse petitioners for the expenses of the survey.

SO ORDERED.

Bellosillo and Buena, JJ., concur.

Quisumbing and De Leon, Jr., JJ., are on leave.

G.R. No. L-23276 November 29, 1968

MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC., plaintiffs-appellees,vs.FIELDMEN'S INSURANCE CO., INC., defendant-appellant.

Antonio de Venecia for plaintiffs-appellees.Rufino Javier for defendant-appellant.

CONCEPCION, C.J.:

This is an appeal from a decision of the Court of First Instance of Manila, certified to us by the Court of Appeals, only questions of law being involved therein. Indeed, the pertinent facts have been stipulated and/or, admitted by the parties at the hearing of the case in the trial court, to dispense with the presentation of evidence therein.

It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc. — hereinafter referred to as the Company — issued, in favor of the Manila Yellow Taxicab Co., Inc. — hereinafter referred to as the Insured — a common carrier accident insurance policy, covering the period from December 1, 1961 to December 1, 1962. It was stipulated in said policy that:

The Company will, subject to the Limits of Liability and under the Terms of this Policy, indemnify the Insured in the event of accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury to any fare-paying passenger including the Driver, Conductor and/or Inspector who is riding in the Motor Vehicle insured at the time of accident or

injury. 1

While the policy was in force, or on February 10, 1962, a taxicab of the Insured, driven by Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinan, in consequence of which Carlito died. The Insured filed therefor a claim for P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of compromise. The Insured rejected the same and made a counter-offer for P4,000.00, but the Company did not accept it. Hence, on September 18, 1962, the Insured and Carlito's

parents, namely, Melecio Coquia and Maria Espanueva — hereinafter referred to as the Coquias — filed a complaint against the Company to collect the proceeds of the aforementioned policy. In its answer, the Company admitted the existence thereof, but pleaded lack of cause of action on the part of the plaintiffs.

After appropriate proceedings, the trial court rendered a decision sentencing the Company to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the Company, which contends that plaintiffs have no cause of action because: 1) the Coquias have no contractual relation with the Company; and 2) the Insured has not complied with the provisions of the policy concerning arbitration.

As regards the first defense, it should be noted that, although, in general, only parties to a contract may bring an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the Philippines, reading:

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a

favor upon a third person.2

This is but the restatement of a well-known principle concerning contracts pour autrui, the enforcement of which may be demanded by a third party for whose benefit it was made, although not a party to the contract, before the stipulation in his favor has been revoked by the contracting parties. Does the policy in question belong to such class of contracts pour autrui?

In this connection, said policy provides, inter alia:

Section I — Liability to Passengers. 1. The Company will, subject to the Limits of Liability and under the Terms of this Policy, indemnify the Insured in the event of accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury to any fare-paying passenger including the Driver ... who is

riding in the Motor Vehicle insured at the time of accident or injury.

Section II — Liability to the Public

xxx xxx xxx

3. In terms of and subject to the limitations of and for the purposes of this Section, the Company will indemnify any authorized Driver who is driving the Motor Vehicle....

Conditions

xxx xxx xxx

7. In the event of death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability incurred by such person, indemnify his personal representatives in terms of and subject to the limitations of this Policy, provided, that such representatives shall, as though they were the Insured, observe, fulfill and be subject to the Terms of this Policy insofar as they can apply.

8. The Company may, at its option, make indemnity payable directly to the claimants or heirs of claimants, with or without securing the consent of or prior notification to the Insured, it being the true intention of this Policy to protect, to the extent herein specified and subject always to the Terms Of this Policy, the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public.

Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is driving the Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify his personal representatives." In fact, the Company "may, at its option, make indemnity payable directly to the claimants or heirs of claimants ... it being the true intention of this Policy to protect ... the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public" — in other words, third parties.

Thus, the policy under consideration is typical of contracts pour autrui, this character being made more manifest by the fact that the deceased driver paid fifty percent (50%) of the corresponding premiums, which were deducted from his weekly commissions. Under these conditions, it is clear that the Coquias — who, admittedly, are the sole heirs of the deceased — have a direct cause of action against the Company,3 and, since they could have maintained this action by themselves, without the assistance of the Insured, it goes without saying that they could and did properly join the latter in filing the complaint herein.4

The second defense set up by the Company is based upon Section 17 of the policy reading:

If any difference or dispute shall arise with respect to the amount of the Company's liability under this Policy, the same shall be referred to the decision of a single arbitrator to be agreed upon by both parties or failing such agreement of a single arbitrator, to the decision of two arbitrators, one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties and in case of disagreement between the arbitrators, to the decision of an umpire who shall have been appointed in writing by the arbitrators before entering on the reference and the costs of and incident to the reference shall be dealt with in the Award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this Policy that the award by such arbitrator, arbitrators or umpire of the amount of the Company's liability hereunder if disputed shall be first obtained.

The record shows, however, that none of the parties to the contract invoked this section, or made any reference to arbitration, during the negotiations preceding the institution of the present case. In fact, counsel for both parties stipulated, in the trial court, that none of them had, at any time during said negotiations, even suggested the settlement of the issue between them by arbitration, as provided in said section. Their aforementioned acts or omissions had the effect of a waiver of their respective right to demand an arbitration. Thus, in Kahnweiler vs.

Phenix Ins. Co. of Brooklyn,5 it was held:

Another well-settled rule for interpretation of all contracts is that the court will lean to that interpretation of a contract which will make it reasonable and just. Bish. Cont. Sec. 400. Applying these rules to the tenth clause of this policy, its proper interpretation seems quite clear. When there is a difference between the company and the insured as to the amount of the loss the policy declares: "The same shall then be submitted to competent and impartial arbitrators, one to be selected by each party ...". It will be observed that the obligation to procure or demand an arbitration is not, by this clause, in terms imposed on either party. It is not said that either the company or the insured shall take the initiative in setting the arbitration on foot. The company has no more right to say the insured must do it than the insured has to say the company must do it. The contract in this respect is neither unilateral nor self-executing. To procure a reference to arbitrators, the joint and concurrent action of both parties to the contract is indispensable. The right it gives and the obligation it creates to refer the differences between the parties to arbitrators are mutual. One party to the contract cannot bring about an arbitration. Each party is entitled to demand a reference, but neither can compel it, and neither has the right to insist that the other shall first demand it, and shall forfeit any right by not doing so. If the company demands it, and the insured refuses to arbitrate, his right of action is suspended until he consents to an arbitration; and if the insured demands an arbitration, and the company refuses to accede to the demand, the insured may maintain a suit on the policy, notwithstanding the language of the twelfth section of the policy, and, where neither party demands an arbitration, both parties

thereby waive it.6

To the same effect was the decision of the Supreme Court of Minnesota in Independent School Dist. No. 35, St. Louis County vs. A. Hedenberg & Co., Inc.7 from which we quote:

This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W. 937, decided in 1893, this court held that the parties to a construction contract, having proceeded throughout the entire course of their dealings with each other in entire disregard of the provision of the contract regarding the mode of determining by arbitration the value of the extras, thereby waived such provision.

xxx xxx xxx

The test for determining whether there has been a waiver in a particular case is stated by the author of an exhaustive annotation in 117 A.L.R. p. 304, as follows: "Any conduct of the parties inconsistent with the notion that they treated the arbitration provision as in effect, or any conduct which might be reasonably construed as showing that they did not intend to avail themselves of such provision, may amount to a waiver thereof and estop the party charged with such conduct from claiming its benefits".

xxx xxx xxx

The decisive facts here are that both parties from the inception of their dispute proceeded in entire disregard of the provisions of the contract relating to arbitration and that neither at any stage of such dispute, either before or after commencement of the action, demanded arbitration, either by oral or written demand, pleading, or otherwise. Their conduct was as effective a rejection of the right to arbitrate as if, in the best Coolidge tradition, they had said, "We do not choose to arbitrate". As arbitration under the express provisions of article 40 was "at the choice of either party," and was chosen by neither, a waiver by both of the right to arbitration followed as a matter of law.

WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto, with costs against the herein defendant-appellant, Fieldmen's Insurance Co., Inc. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando and Capistrano, JJ., concur.

G.R. No. L-22962 September 28, 1972

PILAR N. BORROMEO, MARIA B. PUTONG, FEDERICO V. BORROMEO, JOSE BORROMEO, CONSUELO B. MORALES and CANUTO V. BORROMEO, JR., petitioners,vs.COURT OF APPEALS and JOSE A. VILLAMOR, (Deceased) Substituted by FELISA VILLAMOR, ROSARIO V. LIAO LAMCO, MANUEL VILLAMOR, AMPARO V. COTTON, MIGUEL VILLAMOR and CARMENCITA VILLAMOR, respondents.

Filiberto Leonardo for petitioners.

Ramon Duterte for private respondents.

FERNANDO, J.:p

The point pressed on us by private respondents, 1

in this petition for review of a decision ofthe Court of Appeals in the interpretation of a stipulation which admittedly is not free from ambiguity, there being a mention of a waiver of the defense of prescription, is not calculated to elicit undue judicial sympathy. For if accorded

acceptance, a creditor, now represented by his heirs, 2 who, following the warm and generous impulse of friendship, came to the rescue of a debtor from a serious predicament of his own making would be barred from recovering the money loaned. Thus the promptings of charity, unfortunately not often persuasive enough, would be discredited. It is unfortunate then that respondentCourt of Appeals did not see it that way. For its decision to be upheld would be to subject the law to such a scathing indictment. A careful study of the relevant facts in the light of applicable doctrines calls for the reversal of its decision.

The facts as found by the Court of Appeals follow: "Before the year 1933, defendant [Jose A. Villamor] was a distributor of lumber belonging to Mr. Miller who was the agent of the Insular Lumber Company in Cebu City. Defendant being a friend and former classmate of plaintiff [Canuto O. Borromeo] used to borrow from the latter certain amounts from time to time. On one occasion with some pressing obligation to settle with Mr. Miller, defendant borrowed from plaintiff a large sum of money for which he mortgaged his land and house inCebu City. Mr. Miller filed civil action against the defendant and attached his properties including those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered because not properly drawn up. Plaintiff then pressed the defendant for settlement of his obligation, but defendant instead offered to execute a document promising to pay his indebtedness even after the lapse of ten years. Liquidation was made and defendant was found to be indebted to plaintiff in the sum of P7,220.00, for which defendant signed a promissory note therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to pay 'as soon as I have money'. The note further stipulates that defendant 'hereby relinquish, renounce, or otherwise waive my rights to the prescriptions established by our Code of Civil Procedure for the collection or recovery of the above sum of P7,220.00. ...at any time even after the lapse of ten years from the date of this instrument'.

After the execution of the document, plaintiff limited himself to verbally requesting defendant to settle his indebtedness from time to time. Plaintiff did not file any complaint against the defendant within ten years from the execution of the document as there was no property registered in defendant's name, who furthermore assured him that he could collect even after the lapse of ten years.After the last war, plaintiff made various oral demands, but defendants failed to settle his account, — hence the present complaint for collection." 3 It was then noted in the decision under review that the Court of First Instance of Cebu did sentence the original defendant, the deceased Jose A. Villamor, to pay Canuto O. Borromeo, now represented by petitioners, the sum of P7,220.00 within ninety days from the date of the receipt of such decision with interest at the rate of 12% per annum from the expiration of such ninety-day period. That was the judgment reversed by the Court of Appeals in its decision of March 7, 1964, now the subject of this petition for review. The legal basis was the lack of validity of the stipulation amounting to a waiver in line with the principle "that a person cannot renounce future prescription." 4

The rather summary and curt disposition of the crucial legal question of respondent Court in its five-page decision, regrettably rising not too-far-above the superficial level of analysis hardly commends itself for approval. In the first place, there appeared to be undue reliance on certain words employed in the written instrument executed by the parties to the total disregard of their intention. That was to pay undue homage to verbalism. That was to ignore the warning of Frankfurter against succumbing to the vice of literalism in the interpretation of language whether found in a constitution, a statute, or a contract. Then, too, in effect it would nullify what ought to have been evident by a perusal that is not-too-cursory, namely, that the creditor moved by ties of friendship was more than willing to give the debtor the utmost latitude as to when his admittedly scanty resources will allow him to pay. He was not renouncing any right; he was just being considerate, perhaps excessively so. Under the view of respondent Court, however, what had been agreed upon was in effect voided. That was to run counter to the well-settled maxim that between two possible interpretations, that which saves rather than destroys is to be preferred. What vitiates most the appealed decision, however, is that it would amount not to just negating an agreement duly entered into but would put a premium on conduct that is hardly fair and could be characterized as duplicitous. Certainly, it would reflect on a debtor apparently bent all the while on repudiating his obligation. Thus he would be permitted to repay an act of kindness with base ingratitude. Since as will hereafter be shown, there is, on the contrary, the appropriate construction of the wording that found its way in the document, one which has all the earmarks of validity and at the same time is in consonance with the demands of justice and morality, the decision on appeal, as was noted at the outset, must be reversed.

1. The facts rightly understood argue for the reversal of the decision arrived at by respondent Court of Appeals. Even before the event that gave rise to the loan in question, the debtor, the late Jose A. Villamor, being a friend and a former classmate, used to borrow from time to time various sums of money from the creditor, the late Canuto O. Borromeo. Then faced with the need to settle a pressing obligation with a certain Miller, he did borrow from the latter sometime

in 1933 what respondent Court called "a large sum of money for which he

mortgaged his land and house in Cebu City." 5 It was noted that this Miller did file a suit against him, attaching his properties including those he did mortgage to the late Borromeo, there being no valid objection to such a step as the aforesaid mortgage, not being properly drawn up, could not be registered. Mention was then made of the late Borromeo in his lifetime seeking the satisfaction of the sum due with Villamor unable to pay, but executing a document promising "to pay his indebtedness even

after the lapse of ten years." 6 It is with such a background that the words employed in the instrument of November 29, 1933 should be viewed. There is nothing implausible in the view that such language renouncing the debtor's right to the prescription established by the Code of Civil Procedure should be given the meaning, as noted in the preceding sentence of the decision of respondent Court, that the debtor could be trusted to pay even after the termination of the ten-year prescriptive period. For as was also made clear therein, there had been since then verbal requests on the part of the creditor made to the debtor for the settlement of such a loan. Nor was the Court of Appeals unaware that such indeed was within the contemplation of the parties as shown by this sentence in its decision: "Plaintiff did not file any complaint against the defendant within ten years from the execution of the document as there was no property registered in defendant's name who

furthermore assured him that he could collect even after the lapse of ten years." 7

2. There is much to be said then for the contention of petitioners that the reference to the prescriptive period is susceptible to the construction that only after the lapse thereof could the demand be made for the payment of the obligation. Whatever be the obscurity occasioned by the words is illumined when the light arising from the relationship of close friendship between the parties as well as the unsuccessful effort to execute a mortgage, taken in connection with the various oral demands made, is thrown on them. Obviously, it did not suffice for the respondent Court of Appeals. It preferred to reach a conclusion which for it was necessitated by the strict letter of the law untinged by any spirit of good morals and justice, which should not be alien to legal norms. Even from the standpoint of what for some is strict legalism, the decision arrived at by theCourt of Appeals calls for disapproval. It is a fundamental principle in the interpretation of contracts that while ordinarily the literal sense of the words employed is to be followed, such is not the case where they "appear to be contrary to the evident intention of the contracting parties," which "intention shall prevail." 8 Such a codal provision has been given full force and effect since the leading case of Reyes v. Limjap, 9 a 1910 decision. Justice Torres, who penned the above decision, had occasion to reiterate such a principle when he spoke for the Court in De la Vega v. Ballilos 10 thus: "The contract entered into by the contracting parties which has produced between them rights and obligations is in fact one of antichresis, for article 1281 of the Civil Code prescribes among other things that if the words should appear to conflict with the evident intent of the contracting parties, the intent shall prevail." 11 In Abella v. Gonzaga, 12 thisCourt through the then Justice Villamor, gave force to such a codal provision when he made clear that the inevitable conclusion arrived at was "that although in the contract Exhibit A the usual words 'lease,' 'lessee,' and 'lessor' were employed, that is no obstacle to holding, as we do hereby hold, that said

contract was a sale on installments, for such was the evident intention of the parties in entering into said contract. 13 Only lately in Nielson and Company v. Lepanto Consolidated Mining Company, 14 this Court, with Justice Zaldivar, as ponente, after stressing the primordial rule that in the construction and interpretation of a document, the intention of the parties must be sought, went on to state: "This is the basic rule in the interpretation of contracts because all other rules are but ancillary to the ascertainment of the meaning intended by the parties. And once this intention has been ascertained it becomes an integral part of the contract as though it had been originally expressed therein in unequivocal terms ... ." 15 While not directly in point, what was said by Justice Labrador in Tumaneng v. Abad 16 is relevant: "There is no question that the terms of the contract are not clear on the period of redemption. But the intent of the parties thereto is the law between them, and it must be ascertained and enforced." 17 Nor is it to be forgotten, following what was first announced in Velasquez v. Teodoro 18 that "previous, simultaneous and subsequent acts of the parties are properly cognizable indicia of their true intention." 19

There is another fundamental rule in the interpretation of contracts specifically

referred to in Kasilag v. Rodriguez, 20 as "not less important" 21 than other principles which "is to the effect that the terms, clauses and conditions contrary to law, morals and public order should be separated from the valid and legal contract when such separation can be made because they are independent of the valid contract which expresses the will of the contracting parties. Manresa, commenting on article 1255 of the Civil Code and stating the rule of separation just mentioned, gives his views as follows: 'On the supposition that the various pacts, clauses, or conditions are valid, no difficulty is presented; but should they be void, the question is as to what extent they may produce the nullity of the principal obligation. Under the view that such features of the obligation are added to it and do not go to its essence, a criterion based upon the stability of juridical relations should tend to consider the nullity as confined to the clause or pact suffering therefrom, except in cases where the latter, by an established connection or by manifest intention of the parties, is inseparable from the principal obligation, and is a condition, juridically speaking, of that the nullity of which it would also occasion.' ... The same view prevails in the Anglo-American law as condensed in the following words: 'Where an agreement founded on a legal consideration contains several promises, or a promise to do several things, and a part only of the things to be done are illegal, the promises which can be separated, or the promise, so far as it can be separated, from the illegality, may be valid. The rule is that a lawful promise made for a lawful consideration is not invalid merely because an unlawful promise was made at the same time and for the same consideration, and this rule applies, although the invalidity is due to violation of a statutory provision, unless the statute

expressly or by necessary implication declares the entire contract void. ..." 22

Nor is it to be forgotten that as early as Compania Agricola Ultramar v. Reyes, 23 decided in 1904, the then Chief Justice Arellano in a concurring opinion explicitly declared: "It is true that contracts are not what the parties may see fit to call them, but what they really are as determined by the principles of law." 24 Such a doctrine has been subsequently adhered to since then. As was

rephrased by Justice Recto in Aquino v.

Deala: 25 "The validity of these agreements, however, is one thing, while the juridical qualification of the contract resulting therefrom is very distinctively another." 26 In a recent decision, Shell Company of the Phils., Ltd. vs. Firemen's Insurance

Co. of Newark, 27 this court, through Justice Padilla, reaffirmed the doctrine thus: "To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given it by the contracting parties, should there be a controversy as to what they really had intended to enter into, but the way the contracting parties do or perform their respective obligations, stipulated or agreed upon may be shown and inquired into, and should such performance conflict with the name or title given the contract by the parties, the former must prevail over the latter." 28 Is it not rather evident that since even the denomination of the entire contract itself is not conclusively determined by what the parties call it but by the law, a stipulation found therein should likewise be impressed with the characterization the law places upon it?

What emerges in the light of all the principles set forth above is that the first ten years after November 29, 1933 should not be counted in determining when the action of creditor, now represented by petitioners, could be filed. From the joint record on appeal, it is undoubted that the complaint was filed on January 7, 1953. If the first ten-year period was to be excluded, the creditor had until November 29, 1953 to start judicial proceedings. After deducting the first ten-year period which expired on November 29, 1943, there was the additional period of still another ten years. 29 Nor could there be any legal objection to the complaint by the creditor Borromeo of January 7, 1953 embodying not merely the fixing of the period within which the debtor Villamor was to pay but likewise the collection of the amount that until then was not paid. An action combining both features did receive the imprimatur of the approval of this Court. As was clearly set forth in Tiglao v. The Manila Railroad Company: 30 "There is something to defendant's contention that in previous cases this Court has held that the duration of the term should be fixed in a separate action for that express purpose. But we think the lower court has given good reasons for not adhering to technicalities in its desire to do substantial justice." 31 The justification became even more apparent in the latter portion of the opinion of Justice Alex Reyes for this Court: "We may add that defendant does not claim that if a separate action were instituted to fix the duration of the term of its obligation, it could present better proofs than those already adduced in the present case. Such separate action would, therefore, be a mere formality and would serve no purpose other than to delay." 32 There is no legal obstacle then to the action for collection filed by the creditor. Moreover, the judgment of the lower court, reversed by the respondent Court of Appeals, ordering the payment of the amount due is in accordance with law.

3. There is something more to be said about the stress in the Tiglao decision on the sound reasons for not adhering to technicalities in this Court's desire to do substantial justice. The then Justice, now Chief Justice, Concepcion expressed a similar thought in emphasizing that in the determination of the rights of the

contracting parties "the interest of justice and equity be not ignored." 33 This is a principle that dates back to the earliest years of this Court. The then Chief

Justice Bengzon in Arrieta v. Bellos, 34 invoked equity. Mention has been made of "practical and substantial justice," 35 "[no] sacrifice of the substantial rights of a litigant in the altar of sophisticated technicalities with impairment of the sacred principles of justice," 36 "to afford substantial justice" 37 and "what equity demands." 38 There has been disapproval when the result reached is "neither fair, nor equitable." 39 What is to be avoided is an interpretation that "may work injustice rather than promote justice." 40 What appears to be most obvious is that the decision of respondent Court of Appeals under review offended most grievously against the above fundamental postulate that underlies all systems of law.

WHEREFORE, the decision of respondent Court of Appeals of March 7, 1964 is reversed, thus giving full force and effect to the decision of the lower court of November 15, 1956. With costs against private respondents.

Concepcion, C.J., Zaldivar, Castro, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Makalintal, J., is on leave.

[G.R. No. 134241. August 11, 2003]

DAVID REYES (Substituted by Victoria R. Fabella), petitioner, vs. JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER, INC., respondents.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review on certiorari of the Decision1[1] dated 12 May 1998 of the Court of Appeals in CA-G.R. SP No. 46224. The Court of Appeals dismissed the petition for certiorari assailing the Orders dated 6 March 1997, 3 July 1997 and 3 October 1997 of the Regional Trial Court of Paranaque, Branch 2602[2] (“trial court”) in Civil Case No. 95-032.

The Facts

On 23 March 1995, petitioner David Reyes (“Reyes”) filed before the trial court a complaint for annulment of contract and damages against respondents Jose Lim (“Lim”), Chuy Cheng Keng (“Keng”) and Harrison Lumber, Inc. (“Harrison Lumber”).

The complaint3[3] alleged that on 7 November 1994, Reyes as seller andLim as buyer entered into a contract to sell (“Contract to Sell”) a parcel of land (“Property”) located along F.B. Harrison Street, Pasay City. HarrisonLumber occupied the Property as lessee with a monthly rental of P35,000. The Contract to Sell provided for the following terms and conditions:

1. The total consideration for the purchase of the aforedescribed parcel of land together with the perimeter walls found therein is TWENTY EIGHT MILLION (P28,000,000.00) PESOS payable as follows:

(a) TEN MILLION (P10,000,000.00) PESOS upon signing of this Contract to Sell;

(b) The balance of EIGHTEEN MILLION (P18,000,000.00) PESOS shall be paid on or before March 8, 1995 at 9:30 A.M. at a bank to be designated by the Buyer but upon the complete vacation of all the tenants or occupants of the property and execution of the Deed of Absolute Sale. However, if the tenants or occupants have vacated the premises earlier than March 8, 1995, the VENDOR shall give the VENDEE at least one week advance notice for the payment of the balance and execution of the Deed of Absolute Sale.

2. That in the event, the tenants or occupants of the premises subject of this sale shall not vacate the premises on March 8, 1995 as stated above, the VENDEE shall withhold the payment of the balance of P18,000,000.00 and the VENDOR agrees to pay a penalty of Four percent (4%) per month to the herein VENDEE based on the amount of the downpayment of TEN MILLION (P10,000,000.00) PESOS until the complete vacation of the premises by the tenants therein.4[4]

The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property before the end of January 1995. Reyes also informed Keng5[5] and Harrison Lumber that if they failed to vacate by 8 March 1995, he would hold them liable for the penalty of P400,000 a month as provided in the Contract to Sell. The complaint further alleged that Lim connived with Harrison Lumber not to vacate the Property until the P400,000 monthly penalty would have accumulated and equaled the unpaid purchase price of P18,000,000.

On 3 May 1995, Keng and Harrison Lumber filed their Answer6[6] denying they connived with Lim to defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their request for an extension of time to vacate the Property due to their difficulty in finding a new location for their business. Harrison Lumber claimed that as of March

1995, it had already started transferring some of its merchandise to its new business location in Malabon.7[7]

On 31 May 1995, Lim filed his Answer8[8] stating that he was ready and willing to pay the balance of the purchase price on or before 8 March1995. Lim requested a meeting with Reyes through the latter’s daughter on the signing of the Deed of Absolute Sale and the payment of the balance but Reyes kept postponing their meeting. On 9 March 1995, Reyes offered to return the P10 million down payment to Lim because Reyes was having problems in removing the lessee from the Property.Lim rejected Reyes’ offer and proceeded to verify the status of Reyes’ title to the Property. Lim learned that Reyes had already sold the Property to Line One Foods Corporation (“Line One”) on 1 March 1995 for

P16,782,840. After the registration of the Deed of Absolute Sale, the Register of Deeds issued to Line One TCT No. 134767 covering the Property. Lim denied conniving with Keng and Harrison Lumber to defraud Reyes.

On 2 November 1995, Reyes filed a Motion for Leave to File Amended Complaint due to supervening facts. These included the filing by Lim of a complaint for estafa against Reyes as well as an action for specific performance and nullification of sale and title plus damages before another trial court.9[9] The trial court granted the motion in an Order dated 23 November 1995.

In his Amended Answer dated 18 January 1996,10[10] Lim prayed for the cancellation of the Contract to Sell and for the issuance of a writ of preliminary attachment against Reyes. The trial court denied the prayer for a writ of preliminary attachment in an Order dated 7 October 1996.

On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the P10 million down payment with the cashier of the Regional Trial Court of Parañaque. The trial court granted this motion.

On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997 on the ground the Order practically granted the reliefs Lim prayed for in his Amended Answer.11[11] The trial court denied Reyes’ motion in an Order12[12] dated 3 July 1997. Citing Article 1385 of the Civil Code, the trial court ruled that an action for rescission could prosper only if the party demanding rescission can return whatever he may be obliged to restore should the court grant the rescission.

The trial court denied Reyes’ Motion for Reconsideration in its Order13[13] dated 3 October 1997. In the same order, the trial court directed Reyes to deposit the P10 million down payment with the Clerk of Court on or before 30 October 1997.

On 8 December 1997, Reyes14[14] filed a Petition for Certiorari15[15] with the Court of Appeals. Reyes prayed that the Orders of the trial court dated 6 March 1997, 3 July 1997 and 3 October 1997 be set aside for having been issued with grave abuse of discretion amounting to lack of jurisdiction. On 12 May 1998, the Court of Appeals dismissed the petition for lack of merit.

Hence, this petition for review.

The Ruling of the Court of Appeals

The Court of Appeals ruled the trial court could validly issue the assailed orders in the exercise of its equity jurisdiction. The court may grant equitable reliefs to breathe life and force to substantive law such as Article 138516[16] of the Civil Code since the provisional remedies under the Rules of Court do not apply to this case.

The Court of Appeals held the assailed orders merely directed Reyes to deposit the P10 million to the custody of the trial court to protect the

interest of Lim who paid the amount to Reyes as down payment. This did not mean the money would be returned automatically to Lim.

The Issues

Reyes raises the following issues:

1. Whether the Court of Appeals erred in holding the trial court could issue the questioned Orders dated March 6, 1997, July 3, 1997 and October 3, 1997, requiring petitioner David Reyes to deposit the amount of Ten Million Pesos (P10,000,000.00) during the pendency of the action, when deposit is not among the provisional remedies enumerated in Rule 57 to 61 of the 1997 Rules on Civil Procedure.

2. Whether the Court of Appeals erred in finding the trial court could issue the questioned Orders on grounds of equity when there is an applicable law on the matter, that is, Rules 57 to 61 of the 1997 Rules on Civil Procedure.17[17]

The Court’s Ruling

Reyes’ contentions are without merit.

Reyes points out that deposit is not among the provisional remedies enumerated in the 1997 Rules of Civil Procedure. Reyes stresses the enumeration in the Rules is exclusive. Not one of the provisional remedies in Rules 57 to 6118[18] applies to this case. Reyes argues that a court cannot apply equity and require deposit if the law already prescribes the specific provisional remedies which do not include deposit. Reyes invokes the principle that equity is “applied only in the absence of, and never against, statutory law or x x x judicial rules of procedure.”19[19]

Reyes adds the fact that the provisional remedies do not include deposit is a matter of dura lex sed lex.20[20]

The instant case, however, is precisely one where there is a hiatus in the law and in the Rules of Court. If left alone, the hiatus will result in unjust enrichment to Reyes at the expense of Lim. The hiatus may also imperil restitution, which is a precondition to the rescission of the Contract to Sell that Reyes himself seeks. This is not a case of equity overruling a positive provision of law or judicial rule for there is none that governs this particular case. This is a case of silence or insufficiency of the law and the Rules of Court. In this case, Article 9 of the Civil Code expressly mandates the courts to make a ruling despite the “silence, obscurity or insufficiency of the laws.”21[21] This calls for the application of equity,22[22] which “fills the open spaces in the law.”23[23]

Thus, the trial court in the exercise of its equity jurisdiction may validly order the deposit of the P10 million down payment in court. The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.24[24] Equity is the principle by which substantial justice may be attained in cases where the prescribed or customary forms of ordinary law are inadequate.25[25]

Reyes is seeking rescission of the Contract to Sell. In his amended answer, Lim is also seeking cancellation of the Contract to Sell. The trial court then ordered Reyes to deposit in court the P10 million down payment that Lim made under the Contract to Sell. Reyes admits receipt of the P10 million down payment but opposes the order to deposit the amount in court. Reyes contends that prior to a judgment annulling theContract to Sell, he has the “right to use, possess and enjoy”26[26] the P10

million as its “owner”27[27] unless the court orders its preliminary attachment.28[28]

To subscribe to Reyes’ contention will unjustly enrich Reyes at the expense of Lim. Reyes sold to Line One the Property even before the balance of P18 million under the Contract to Sell with Lim became due on 8 March 1995. On 1 March 1995, Reyes signed a Deed of Absolute Sale29[29] in favor of Line One. On 3 March 1995, the Register of Deeds issued TCT No. 13476730[30] in the name of Line One.31[31] Reyes cannot claim ownership of the P10 million down payment because Reyes had already sold to another buyer the Property for which Lim made the down payment. In fact, in his Comment32[32] dated 20 March 1996, Reyes reiterated his offer to return to Lim the P10 million down payment.

On balance, it is unreasonable and unjust for Reyes to object to the deposit of the P10 million down payment. The application of equity always involves a balancing of the equities in a particular case, a matter addressed to the sound discretion of the court. Here, we find the equities weigh heavily in favor of Lim, who paid the P10 million down payment in good faith only to discover later that Reyes had subsequently sold the Property to another buyer.

In Eternal Gardens Memorial Parks Corp. v. IAC,33[33] this Court held the plaintiff could not continue to benefit from the property or funds in litigation during the pendency of the suit at the expense of whomever the court might ultimately adjudge as the lawful owner. The Court declared:

In the case at bar, a careful analysis of the records will show that petitioner admitted among others in its complaint in Interpleader that it is still obligated to pay certain amounts to private respondent; that it claims no interest in such amounts due and is willing to pay whoever is declared entitled to said amounts. x x x

Under the circumstances, there appears to be no plausible reason for petitioner’s objections to the deposit of the amounts in litigation after having asked for the assistance of the lower court by filing a complaint for interpleader where the deposit of aforesaid amounts is not only required by the nature of the action but is a contractual obligation of the petitioner under the Land Development Program (Rollo, p. 252).

There is also no plausible or justifiable reason for Reyes to object to the deposit of the P10 million down payment in court. The Contract to Sell can no longer be enforced because Reyes himself subsequently sold the Property to Line One. Both Reyes and Lim are now seeking rescission of the Contract to Sell. Under Article 1385 of the Civil Code, rescission creates the obligation to return the things that are the object of the contract. Rescission is possible only when the person demanding rescission can return whatever he may be obliged to restore. A court of equity will not rescind a contract unless there is restitution, that is, the parties are restored to the status quo ante.34[34]

Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to deposit the P10 million down payment in court.35[35] Such deposit will ensure restitution of the P10 million to its rightful owner. Lim, on the other hand, has nothing to refund, as he has not received anything under the Contract to Sell.36[36]

In Government of the Philippine Islands v. Wagner and Cleland Wagner,37[37] the Court ruled the refund of amounts received under a contract is a precondition to the rescission of the contract. The Court declared:

The Government, having asked for rescission, must restore to the defendants whatever it has received under the contract. It will only be just if, as a condition to rescission, the Government be required to refund to the defendants an amount equal to the purchase price, plus the sums expended by them in improving the land. (Civil Code, art. 1295.)

The principle that no person may unjustly enrich himself at the expense of another is embodied in Article 2238[38] of the Civil Code. This principle applies not only to substantive rights but also to procedural remedies. One condition for invoking this principle is that the aggrieved party has no other action based on contract, quasi-contract, crime, quasi-delict or any other provision of law.39[39] Courts can extend this condition to the hiatus in the Rules of Court where the aggrieved party, during the pendency of the case, has no other recourse based on the provisional remedies of the Rules of Court.

Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the seller himself seeks rescission of the sale because he has subsequently sold the same property to another buyer.40[40] By seeking rescission, a seller necessarily offers to return what he has received from the buyer. Such a seller may not take back his offer if the court deems it equitable, to prevent unjust enrichment and ensure restitution, to put the money in judicial deposit.

There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.41[41] In this case, it was just, equitable and proper for the trial court to order the deposit of the P10 million down payment to prevent unjust enrichment by Reyes at the expense of Lim.42[42]

WHEREFORE, we AFFIRM the Decision of the Court of Appeals.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

G.R. No. 101762 July 6, 1993

VERMEN REALTY DEVELOPMENT CORPORATION, petitioner, vs.THE COURT OF APPEALS and SENECA HARDWARE CO., INC., respondents.Ramon P. Gutierrez for petitioner. Adriano Velasco for private respondent.

BIDIN, J.:

Petitioner seeks a review of the decision of the Court of Appeals in CA-G.R. CV No. 15730, which set aside the decision of the Regional Trial Court of Quezon City, Branch 92 in Civil Case No. Q-45232. The dispositive portion of the assailed decision reads as follows:

WHEREFORE, the decision a quo is set aside. As prayed for by plaintiff-appellant, the "Offsetting Agreement" (Exhibit "E" or "2") is hereby rescinded. Room 601 of Phase I of the Vermen Pines Condominium should be returned by plaintiff-appellant to defendant-appellee upon payment by the latter of the sum of P330,855.25 to the former, plus damages in the sum of P5,000.00 and P50.00 for the furnishings of Phase I of Condo (sic) Units Nos. 601 and 602, and three (3) day rental of Room 402 during the Holy Week of 1982, respectively. In addition, defendant-appellee is hereby ordered to pay plaintiff-appellant, who was compelled to litigate and hire the services of counsel to protect its interests against defendant-appellee's violation of their Offsetting Agreement, the sum of P10,000.00 as an award for attorney's fee (sic) and other expenses of litigation. The claim for unrealized profits in a sum equivalent to 10% to 20% percent or P522,000.00 not having been duly proved, is therefore DENIED. No costs. (Rollo, p. 31)

On March 2, 1981, petitioner Vermen Realty and Development Corporation, asFirst Party, and private respondent Seneca Hardware Co., Inc., as SecondParty, entered into a contract denominated as "Offsetting Agreement". The said agreement contained the following stipulations:

1. That the FIRST PARTY is the owner/developer of VERMEN PINES CONDOMINIUM located at Bakakeng Road, Baguio City;

2. That the SECOND PARTY is in business of construction materials and other hardware items;

3. That the SECOND PARTY desires to buy from the FIRST PARTY two (2) residential condominium units, studio type, with a total floor area of 76.22 square meter (sic) more or less worth TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS only;

4. That the FIRST PARTY desires to but from the SECOND PARTY construction materials mostly steel bars, electrical materials and other related items worth FIVE HUNDRED FIFTY TWO THOUSAND (P552,000.00) PESOS only;

5. That the FIRST PARTY shall pay the SECOND PARTY TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS in cash upon delivery of said construction materials and the other TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS shall be paid in the form of two (2) residential condominium units, studio type, with a total floor area of 76.22 square meter (sic) more or less also worth P276,000.00;

6. That, for every staggered delivery of construction materials, fifty percent (50%) shall be paid by the FIRST PARTY to the SECOND PARTY C.O.D. and, fifty percent (50%) shall be credited to the said condominium unit in favor of the SECOND PARTY;

7. That the SECOND PARTY shall deliver to the FIRST PARTY said construction materials under the agreed price and conditions stated in the price quotation approved by both parties and made an integral part of this document;

8. That the SECOND PARTY is obliged to start delivering to the FIRST PARTY all items in the purchase order seven (7) days from receipt of said purchase order until such time that the whole amount of P552,000.00 is settled;

9. That the place of delivery shall be Vermen Pines Condominium at Bakakeng Road, Baguio City;

10. That the freight cost of said materials shall be borne fifty percent (50%) by the FIRST PARTY and fifty percent (50%) by the SECOND PARTY;

11. That the FIRST PARTY pending completion of the VERMEN PINES CONDOMINIUM PHASE II which is the subject of this contract, shall deliver to the SECOND PARTY the possession of residential condominium, Phase I, Unit Nos. 601 and 602,

studio type with a total area of 76.22 square meters or less, worth P276,000.00;

12. That after the completion of Vermen Pines CondominiumPhase II, the SECOND PARTY shall be given by the FIRSTPARTY the first option to transfer from Phase I to Phase II under the same price, terms and conditions. (Rollo, pp. 26-28).

As found by the appellate court and admitted by both parties, private respondent had paid petitioner the amount of P110,151.75, and at the same time delivered construction materials worth P219,727.00. Pending completion of Phase II of the Vermen Pines Condominiums, petitioner delivered to private respondent units 601 and 602 at Phase I of the Vermen Pines Condominiums (Rollo, p. 28). In 1982, the petitioner repossessed unit 602. As a consequence of the repossession, the officers of the private respondent corporation had to rent another unit for their use when they went to Baguio on April 8, 1982. On May 10, 1982, the officers of the private respondent corporation requested for a clarification of the petitioner's action of preventing them and their families from occupying condominium unit 602.

In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased to another tenant because private respondent corporation had not paid anything for purchase of the condominium unit. Petitioner corporation demanded payment of P27,848.25 representing the balance of the purchase price of Room 601.

In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II was denied. Consequently, construction of the condominium project stopped and has not been resumed since then.

On June 21, 1985, private respondent filed a complaint with the Regional TrialCourt of Quezon City (Branch 92) for rescission of the Offsetting Agreement with damages. In said complaint, private respondent alleged that petitioner VermenRealty Corporation had stopped issuing purchase orders of construction materials after April, 1982, without valid reason, thus resulting in the stoppage of deliveries of construction materials on its (Seneca Hardware) part, in violation of the Offsetting Agreement.

In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private respondent (plaintiff therein): although petitioner issued purchase orders, it was private respondent who could not deliver the supplies ordered, alleging that they were out of stock. (However, during a hearing on January 28, 1987, the Treasurer of petitioner corporation, when asked where the purchase orders were, alleged that she was going to produce the same in court, but the same was never produced (Rollo, p. 30). Moreover, private respondent quoted higher prices for the construction materials which were available. Thus, petitioner had to resort to its other suppliers. Anent the query as to why Unit 602 was leased to

another tenant, petitioner averred that this was done because private respondent had not paid anything for it.

As of December 16, 1986, private respondent had paid petitioner P110,151.75 in cash, made deliveries of construction materials worth P219,727.00, leaving a balance of P27,848.25 representing the purchase price of unit 601 (Rollo, p. 28). The price of one condominium unit was P138,000.00.

After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the plaintiff (private respondent in this petition) to pay defendant (petitioner in this petition) on its counterclaim in the amount of P27,848.25 representing the balance due on the purchase price of condominium unit 601.

On appeal, respondent court reversed the trial court's decision as adverted to above.

Petitioner now comes before us with the following assignment of errors:

I

THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT SUPPLANTED CONTRARY TO THE EVIDENCE ON RECORD, THE TRIAL COURT'S CONCLUSIONS THAT PETITIONER DID NOT VIOLATE THE "OFFSETTING AGREEMENT" IT ENTERED INTO WITH THE SENECAHARDWARE CO., INC. WITH ITS TOTALLY BASELESS"PERCEPTION" THAT IT WAS PETITIONER WHICHDISCONTINUED TO ISSUE PURCHASE ORDERS DUE TOTHE STOPPAGE OF THE CONSTRUCTION OF PHASE II OFTHE CONDOMINIUM PROJECT WHEN THE LOAN ON THESAID PROJECT WAS STOPPED.

II

THE RESPONDENT COURT OF APPEALS ERRED, AND ITSERROR IS REVIEWABLE BY THIS HONORABLE COURT,WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICHBREACHED THE "OFFSETTING AGREEMENT" BECAUSE ITDID NOT SEND PURCHASE ORDERS TO PRIVATERESPONDENT AND DISCONTINUED THE CONSTRUCTION OF THE CONDOMINIUM PROJECT DESPITE THE FACT THAT THE EXHIBITS ATTESTING TO THIS FACT WASFORMALLY OFFERED IN EVIDENCE IN COURT ANDMENTIONED BY IT IN ITS DECISION.

III

THE RESPONDENT COURT OF APPEALS ERRED, AND ITSERROR IS REVIEWABLE BY THIS HONORABLE COURT,WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICHBREACHED THE "OFFSETTING AGREEMENT" DESPITE THE ADMISSION MADE BY PRIVATE RESPONDENT'S OWNWITNESS THAT PETITIONER HAD THE DISCRETION TO ORDER OR NOT TO ORDER THE CONSTRUCTION MATERIAL (SIC) FROM THE FORMER. (Rollo, p. )

The issue presented before the Court is whether or not the circumstances of the case warrant rescission of the Offsetting Agreement as prayed for by Private Respondent when he instituted the case before the trial court.

We rule in favor of private respondent. There is no controversy that the provisions of the Offsetting Agreement are reciprocal in nature. Reciprocal obligations are those created or established at the same time, out of the same cause, and which results in a mutual relationship of creditor and debtor between parties. In reciprocal obligations, the performance of one is conditioned on the simultaneous fulfillment of the other obligation (Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262 [1957]). Under the agreement, private respondent shall deliver to petitioner construction materials worth P552,000.00 under the conditions set forth in the Offsetting Agreement. Petitioner's obligation under the agreement is three-fold: he shall pay private respondent P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value of P276,000.00) to private respondent; upon completion of Vermen Pines Condominiums Phase II, private respondent shall be given option to transfer to similar units therein.

Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is "resolution") in case of reciprocal obligations, where one of the obligors fails to comply with that is incumbent upon him.

The general rule is that rescission of a contract will not be permitted for a slight or causal breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in executing the agreement. The question of whether a breach of contract is substantial depends upon the attendant circumstances (Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, [1970]).

In the case at bar, petitioner argues that it was private respondent who failed to perform its obligation in the Offsetting Agreement. It averred that contrary to the appellate court's ruling, the mere stoppage of the loan for the construction of Phase II of the Vermen Pines Condominiums should not have had any effect on the fulfillment of the obligations set forth in the Offsetting Agreement. Petitioner moreover stresses that contrary to private respondent's averments, purchase orders were sent, but there was failure to deliver the materials ordered because they were allegedly out of stock. Petitioner points out that, as admitted by private

respondent's witness, petitioner had the discretion to order or not to order constructions materials, and that it was only after petitioner approved the price, after making a canvass from other suppliers, that the latter would issue a purchase order. Petitioner argues that this was the agreement, and therefore the law between the parties, hence, when no purchase orders were issued, no provision of the agreement was violated.

Private respondent, on the other hand, points out that the subject of the Offsetting Agreement is Phase II of the Vermen Pines Condominiums. It alleges that since construction of Phase II of the Vermen Pines Condominiums has failed to begin (Rollo, p. 104), it has reason to move for rescission of the Offsetting Agreement, as it cannot forever wait for the delivery of the condominium units to it.

It is evident from the facts of the case that private respondent did not fail to fulfill its obligation in the Offsetting Agreement. The discontinuance of delivery of construction materials to petitioner stemmed from the failure of petitioner to send purchase orders to private respondent. The allegation that petitioner had been sending purchase orders to private respondent, which the latter could not fill, cannot be given credence. Perhaps in the beginning, it would send purchase orders to private respondent (as evidenced by the purchase orders presented in court), and the latter would deliver the construction materials ordered. However, according to private respondent, after April, 1982, petitioner stopped sending purchase orders. Petitioner failed to refute this allegation. When petitioner's witness, Treasurer of the petitioner corporation, was asked to produce the purchase orders in court, the latter promised to do so, but this was never complied with.

On the other hand, petitioner would never able to fulfill its obligation in allowing private respondent to exercise the option to transfer from Phase I to Phase II, as the construction of Phase II has ceased and the subject condominium units will never be available.

The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of the contract for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial breach of the OffsettingAgreement. The possibility of exercising the option of whether or not to transfer to condominium units in Phase II was one of the factors which were considered by private respondent when it entered into the agreement. Since the construction of the Vermen Pines Condominium Phase II has stopped, petitioner would be in no position to perform its obligation to give private respondent the option to transfer to Phase II. It would be the height of injustice to make private respondent wait for something that may never come.

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.SO ORDERED.

Feliciano, Davide, Jr., Romero and Melo, JJ., concur.

G.R. No. 97347 July 6, 1999

JAIME G. ONG, petitioner, vs.THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES and ALEJANDRO M. ROBLES, respondents.

YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari from the judgment rendered by the Court of Appeals which, except as to the award of exemplary damages, affirmed the decision of the Regional Trial Court of Lucena City, Branch 60, setting aside the "Agreement of Purchase and Sale" entered into by herein petitioner and private respondent spouses in Civil Case No. 85-85.1âwphi1.nêt

On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K. Robles and Alejandra Robles, on the other hand, executed an "Agreement of Purchase and Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. The terms and conditions of the contract read:"

1. That for and in consideration of the agreed purchase price of TWO MILLION PESOS (P2,000,000.00), Philippine currency, the mode and manner of payment is as follows:

A. The initial payment of SIX HUNDREDTHOUSAND PESOS (P600,000.00) as verbally agreed by the parties, shall be broken down as follows:

1. P103,499.91 shall be paid, and as already paid by theBUYER to the SELLERS onMarch 22, 1983, as stipulated under the Certification of undertaking dated March 22,1983 and covered by a check of even date.

2. That the sum of P496,500.09 shall be paid directly by theBUYER to the Bank ofPhilippine Islands to answer for the loan of the SELLERS which as of March 15, 1983

amounted to P537,310.10, and for the interest that may accrued (sic) from March 15,1983, up to the time said obligation of the SELLERS with the said bank has been settled, provided however that the amount in excess ofP496,500.09, shall be chargeable from the time deposit of the SELLERS with the aforesaid bank.

B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND (P1,400,000.00) PESOS shall be paid by the BUYER to the SELLERS in four (4) equal quarterly installments of THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00), the first to be due and payable on June 15, 1983, and every quarter thereafter, until the whole amount is fully paid, by these presents promise to sell to said BUYER the two (2) parcels of agricultural land including the rice mill and the piggery which are the most notable improvements thereon, situated at Barangay Puri, San Antonio Quezon, . . .

2. That upon the payment of the total purchase price by the BUYER the SELLERS bind themselves to deliver to the former a good and sufficient deed of sale and conveyance for the described two (2) parcels of land, free and clear from all liens and encumbrances.

3. That immediately upon the execution of this document, the SELLERS shall deliver, surrender and transfer possession of the said parcels of land including all the improvements that may be found thereon, to the BUYER, and the latter shall take over from the SELLER the possession, operation, control and management of the RICEMILL and PIGGERY found on the aforesaid parcels of land.

4. That all payments due and payable under this contract shall be effected in the residence of the SELLERS located at Barangay Puri, San Antonio, Quezon unless another place shall have been subsequently designated by both parties in writing.

xxx xxx xxx 1

On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon.

Pursuant to the contract they executed, petitioner paid respondent spouses the sum of P103,499.91 2 by depositing it with the United Coconut Planters Bank. Subsequently, petitioner deposited sums of money with the Bank of Philippine

Islands (BPI), 3 in accordance with their stipulation that petitioner pay the loan of respondents with BPI.

To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks payable to respondent spouses in the amount of P350,0000.00 each, namely: Check No. 157708 dated June 15, 1983, 4 Check No. 157709 dated September 15, 1983, 5 Check No. 157710 dated December 15, 1983 6 and Check No. 157711 dated March 15, 1984. 7 When presented for payment, however, the checks were dishonored due to insufficient funds. Petitioner promised to replace the checks but failed to do so. To make matters worse, out of the P496,500.00 loan of respondent spouses with the Bank of the Philippine Islands, which petitioner, as per agreement, should have paid, petitioner only managed to dole out no more than P393,679.60. When the bank threatened to foreclose the respondent spouses' mortgage, they sold three transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge and conformity of petitioner. 8

Petitioner, in return, voluntarily gave the spouses authority to operate the rice mill. 9 He, however, continued to be in possession of the two parcels of land while private respondents were forced to use the rice mill for residential purposes.

On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for the return of the properties. Their demand was left unheeded, so, on September 2, 1985, they filed with the Regional Trial Court ofLucena City, Branch 60, a complaint for rescission of contract and recovery of properties with damages. Later, while the case was still pending with the trial court, petitioner introduced major improvements on the subject properties by constructing a complete fence made of hollow blocks and expanding the piggery. These

prompted the respondent spouses to ask for a writ of preliminary injunction. 10 The trial court granted the application and enjoined petitioner from introducing

improvements on the properties except for repairs. 11

On June 1, 1989 the trial court rendered a decision, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered:

a) Ordering that the contract entered into by plaintiff spousesMiguel K. Robles and Alejandra M. Robles and the defendant,Jaime Ong captioned "Agreement of Purchase and Sale," marked as Exhibit "A" set aside;

b) Ordering defendant, Jaime Ong to deliver the two (2) parcels of land which are the subject matter of Exhibit "A" together with the improvements thereon to the spouses Miguel K. Robles and Alejandro M. Robles;

c) Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to return to Jaime Ong the sum of P497,179.51;

d) Ordering defendant Jaime Ong to pay the plaintiffs the sum of P100,000.00 as exemplary damages; and

e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Miguel K. Robles and Alejandra Robles the sum of P20,000.00 as attorney's fees and litigation expenses.

The motion of the plaintiff spouses Miguel K. Roles and Alejandra Robles for the appointment of receivership is rendered moot and academic.

SO ORDERED. 12

From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the Regional Trial Court but deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the instant petition.

At the outset, it must be stated that the issues raised by the petitioner are generally factual in nature and were already passed upon by the Court ofAppeals and the trial court. Time and again, we have stated that it is not the function of the Supreme Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties to an appeal, particularly where, such as in the case at bench, the findings of both the trial court and the appellate court on the matter coincide. There is no cogent reason shown that would justify the court to discard the factual findings of the two courts below and to superimpose its own. 13

The only pertinent legal issues raised which are worthy of discussion are (1) whether the contract entered into by the parties may be validly rescinded underArticle 1191 of the New Civil Code; and (2) whether the parties had novated their original contract as to the time and manner of payment.

Petitioner contends that Article 1191 of the New Civil Code is not applicable since he has already paid respondent spouses a considerable sum and has therefore substantially complied with his obligation. He cites Article 1383

instead, to the effect that where specific performance is available as a remedy, rescission may not be resorted to.

A discussion of the aforesaid articles is in order.

Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things to their condition at the moment prior to the celebration of the contract. 14 It implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to someone. 15

On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. 16 They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. Although both presuppose contracts validly entered into and subsisting and both require mutual restitution when proper, they are not entirely identical.

While Article 1191 uses the term "rescission," the original term which was used in the old Civil Code, from which the article was based, was "resolution. 17"Resolution is a principal action which is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code, which expressly enumerates the following rescissible contracts:

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

2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

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

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

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

Obviously, the contract entered into by the parties in the case at bar does not fall under any of those mentioned by Article 1381.Consequently, Article 1383 is inapplicable.

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

A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. 18 In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. 19

Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2,000,000.00. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the petitioner. Petitioner, however, failed to complete payment of the purchase price. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply with an obligation. 20 Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor's obligation to convey title from acquiring binding force. 21 Hence, the agreement of the parties in the case at bench may be set aside, but not because of a breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force.

Petitioner insists, however, that the contract was novated as to the manner and time of payment.

We are not persuaded. Article 1292 of the New Civil Code states that, "In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so

declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other."

Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation. 22 Petitioner cites the following instances as proof that the contract was novated: the retrieval of the transformers from petitioner's custody and their sale by the respondents to MERALCO on the condition that the proceeds thereof be accounted for by the respondents and deducted from the price of the contract; the take-over by the respondents of the custody and operation of the rice mill; and the continuous and regular withdrawals by respondent Miguel Robles of installment sums per vouchers (Exhs. "8" to "47") on the condition that these installments be credited to petitioner's account and deducted from the balance of the purchase price.

Contrary to petitioner's claim, records show that the parties never even intended to novate their previous agreement. It is true that petitioner paid respondents small sums of money amounting to P48,680.00, in contravention of the manner of payment stipulated in their contract. These installments were, however, objected to by respondent spouses, and petitioner replied that these represented the interest of the principal amount which he owed them. 23 Records further show that petitioner agreed to the sale of MERALCO transformers by private respondents to pay for the balance of their subsisting loan with the Bank of Philippine Islands. Petitioner's letter of authorization reads:

xxx xxx xxx

Under this authority, it is mutually understood that whatever payment received from MERALCO as payment to the transfromers will be considered as partial payment of the undersigned's obligation to Mr. and Mrs. Miguel K. Robles.

The same will be utilized as partial payment to existing loan with the Bank of Philippine Islands.

It is also mutually understood that this payment to the Bank of Philippine Islands will be reimbursed to Mr. and Mrs. Miguel K. Robles by the undersigned. [Emphasis supplied] 24

It should be noted that while it was. agreed that part of the purchase price in the sum of P496,500.00 would be directly

deposited by petitioner to the Bank of Philippine Islands to answer for the loan of respondent spouses, petitioner only managed to deposit P393,679.60. When the bank threatened to foreclose the properties, petitioner apparently could not even raise the sum needed to forestall any action on the part of the bank. Consequently, he authorized respondent spouses to sell the three (3) transformers. However, although the parties agreed to credit the proceeds from the sale of the transformers to petitioner's obligation, he was supposed to reimburse the same later to respondent spouses. This can only mean that there was never an intention on the part of either of the parties to novate petitioner's manner of payment.

Petitioner contends that the parties verbally agreed to novate the manner of payment when respondent spouses proposed to operate the rice mill on the condition that they will account for its earnings. We find that this is unsubstantiated by the evidenced on the record. The tenor of his letter dated August 12, 1984 to respondent spouses, in fact, shows that petitioner had a "little misunderstanding" with respondent spouses whom he was evidently trying to appease by authorizing them to continue temporarily with the operation of the rice mill. Clearly, while petitioner might have wanted to novate the original agreement as to his manner of payment, the records are bereft of evidence that respondent spouses willingly agreed to modify their previous arrangement.

In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract. 25 The aforesaid requisites are not found in the case at bench. The subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of the new one. We repeat to the point of triteness, novation is never presumed, there must be an express intention to novate.

As regards the improvements introduced by petitioner to the premises and for which he claims reimbursement, we see no reason to depart from the ruling of the trial court and the appellate court that petitioner is a builder in bad faith. He introduced the improvements on the premises knowing fully well that he has not paid the consideration of the contract in full and over the vigorous objections of respondent spouses. Moreover, petitioner introduced major improvements on the premises even while the case against him was pending before the trial court.

The award of exemplary damages was correctly deleted by the Court of Appeals in as much as no moral, temperate, liquidated or compensatory damages in addition to exemplary damages were awarded.

WHEREFORE, the decision rendered by the Court of Appeals is hereby AFFIRMED with the MODIFICATION that respondent spouses are ordered to return to petitioner the sum of P48,680.00 in addition to the amounts already awarded. Costs against petitioner.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.

G.R. No. 126812 November 24, 1998

GOLDENROD, INC., petitioner, vs.COURT OF APPEALS, PIO BARRETO & SONS, INC., PIO BARRETO REALTY DEVELOPMENT, INC. and ANTHONY QUE, respondents.

BELLOSILLO, J.:

In the absence of a specific stipulation, may the seller of real estate keep the earnest money to answer for damages in the event the sale fails due to the fault of the prospective buyer?

Pio Barreto and Sons, Inc. (BARRETO & SONS) owned forty-three (43) parcels of registered land with a total area of 18,500 square meters located at CarlosPalanca St., Quiapo, Manila, which were mortgaged with United CoconutPlanters Bank (UCPB). In 1988, the obligation of the corporation with UCPB remained unpaid making foreclosure of the mortgage imminent.

Goldenrod, Inc. (GOLDENROD), offered to buy the property from BARRETO & SONS. On 25 May 1988, through its president Sonya G. Mathay, petitioner wrote respondent Anthony Que, President of respondent BARRETO & SONS, as follows:

Thank you for your reply to our letter offering to buy your property in Echague (C. Palanca) Quiapo.

We are happy that you accepted our offer except the two amendments concerning the payment of interest which should be monthly instead of semi-annually and the period to remove the trusses, steel frames etc. which shall be 180 days instead of 90 days only. Please be advised that we agree to your amendments.

As to your other query, we prefer that the lots be reconsolidated back to its (sic) mother titles.

Enclosed is the earnest money of P1 million which shall form part of the purchase price.

Payment of the agreed total consideration shall be effected in accordance with our offer as you have accepted and upon execution of the necessary documents of sale to be implemented after the said reconsolidation of the lots.

Kindly acknowlege receipt of the earnest money.

When the term of existence of BARRETO & SONS expired, all its assets and liabilities including the property located in Quiapo were transferred to respondentPio Barreto Realty Development, Inc. (BARRETO REALTY). Petitioner's offer to buy the property resulted in its agreement with respondent BARRETO REALTY that petitioner would pay the following amounts: (a) P24.5 million representing the outstanding obligations of BARRETO REALTY with UCPB on 30 June 1988, the deadline set by the bank for payment; and, (b) P20 million which was the balance of the purchase price of the property to be paid in installments within a3-year period with interes at 18% per annum.

Petitioner did not pay UCPB the P24.5 million loan obligation of BARRETOREALTY on the deadline set for payment; instead, it asked for an extension of one (1) month or up to 31 July 1988 to settle the obligation, which the bank granted. On 31 July 1988, petitioner requested another extension of sixty (60) days to pay the loan. This time bank demurred.

In the meantime BARRETO REALTY was able to cause the reconsolidation of the forty-three (43) titles covering the property subject of the purchase into two(2) titles covering Lots 1 and 2, which were issued on 4 August 1988. The

reconsolidation of the titles was made pursuant to the request of petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETO REALTY allegedly incurred expenses for the reconsolidation amounting to P250,000.00.

On 25 August 1988 petitioner sought reconsideration of the denial by the bank of its request for extension of sixty (60) days by asking for a shorter period of thirty (30) days. This was again denied by UCPB.

On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation (LOGARTA REALTY), which acted as agent and broker of petitioner, wrote private respondent Anthony Que informing him on behalf of petitioner that it could not go through with the purchase of the property due to circumstances beyond its fault, i.e., the denial by UCPB of its request for extension of time to pay the obligation. In the same letter, Logarta also demanded the refund of the earnest money of P1 million which petitioner gave to respondent BARRETO REALTY.

On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade Center Phils., Inc. (ASIAWORLD), Lot 2, one of the two (2) consolidated lots, for the price of P23 million. On 13 October 1988 respondent BARRETTO REALTY executed a deed transferring by way of "dacion" the property reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property to ASIAWORLD for P24 million.

On 12 December 1988 Logarta again wrote respondent Que demanding the return of the earnest money to GOLDENROD. On 7 February 1989 petitioner through its lawyer reiterated its demand, but the same remained unheeded by private respondents. This prompted petitioner to file a complaint with the Regional Trial Court of Manila against private respondents for the return of the amount of P1 million and the payment of damages including lost interests or profits. In their answer, private respondents contended that it was the agreement of the parties that the earnest money of P1 million would be forfeited to answer for losses and damages that might be suffered by private respondents in case of failure by petitioner to comply with the terms of their purchase agreement.

On 15 March 1991 the trial court rendered a decision 1 ordering private respondents jointly and severally to pay petitioner P1,000.000.00 with legal interest from 9 February 1989 until fully paid, P50,000.00 representing unrealized profits and P10,000.00 as attorney's fees. The trial court found that there was no written agreement between the parties concerning forfeiture of the earnest money if the sale did not push through. It further declared that the earnest money given by petitioner to respondent BARRETO REALTY was intended to form part of the purchase price; thus, the refusal of the latter to return the money when the sale was not consummated violated Arts. 22 and 23 of the Civil Code against unjust enrichment.

Obviously dissatisfied with the decision of the trial court, private respondents appealed to the Court of Appeals which reversed the trial court and ordered the dismissal of the complaint; hence, this petition.

Petitioner alleges that the Court of Appeals erred in disregarding the finding of the trial court that the earnest money given by petitioner to respondent BARRETTO REALTY should be returned to the former. The absence of an express stipulation that the same shall be forfeited in favor of the seller in case the buyer fails to comply with his obligation is compelling. It argues that the forfeiture of the money in favor of respondent BARRETTO REALTY would amount to unjust enrichment at the expense of petitioner.

We sustain petitioner. Under Art. 1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall be considered as part of the purchase price and as proof of the perfection of the contract. Petitioner clearly stated without any objection from private respondents that the earnest money was intended to form part of the purchase price. It was an advance payment which must be deducted from the total price. Hence, the parties could not have intended that the earnest money or advance payment would be forfeited when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon. By reason oi its failure to make payment petitioner, through its agent, informed private respondents that it would no longer push through with the sale. In other words, petitioner resorted to extrajudicial rescission of its agreement with private respondents.

In University of the Philippines v. de los Angeles, 2 the right to rescind contracts is not absolute and is subject to scrutiny and review by the proper court. We held further, in the more recent case of Adelfa Properties, Inc. v. Court of Appeals, 3 that rescission of reciprocal contracts may be extrajudicially rescinded unless successfully impugned in court. If the party does not oppose the declaration of rescission of the other party, specifying the grounds therefor, and it fails to reply or protest against it, its silence thereon suggests an admission of the veracity and validity of the rescinding party's claim.

Private respondents did not interpose any objection to the rescission by petitioner of the agreement. As found by the Court of Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the subject consolidated lots to another buyer, ASIAWORLD, one day after its President Anthony Que received the broker's letter rescinding tne sale. Subsequently, on 13 October1988 respondent BARRETO REALTY also conveyed ownership over Lot 1 toUCPB which, in turn, sold the same to ASIAWORLD.

Art. 1385 of the Civil Code provides that rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest. The vendor is therefore obliged to return the purchase price paid to him by the buyer if the latter rescinds the sale, 4 or when the transaction was called off and the subject property had already been sold to a third person, as what obtained in this case. 5 Therefore, by virtue of the extrajudicial rescission of

the contract to sell by petitioner without opposition from private respondents who, in turn, sold the property to other persons, private respondent BARRETTOREALTY, as the vendor, had the obligation to return the earnest money ofP1000,000.00 plus legal interest from the date it received notice of rescission from petitioner, i.e., 30 August 1988, up to the date of the return or payment. It would be most inequitable if resondent BARRETTO REALTY would be allowed to retain petitioner's payment of P1,000,000.00 and at the same time appropriate the proceeds of the second sale made to another. 6

WHEREFORE, the Petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. Private respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY), its successors and assigns are ordered to return to petitioner Goldenrod, Inc. (GOLDENROD), the amount of P1,000,000.00 with legal interest thereon from 30 August 1988, the date of notice of extrajudicial rescission, until the amount is fully paid, with costs against private respondents.

SO ORDERED.

Davide, Jr., Vitug, Panganiban and Quisumbing, JJ., concur.

[G.R. No. 125485. September 13, 2004]

RESTITUTA LEONARDO, assisted by JOSE T. RAMOS, petitioners, vs. COURT OF APPEALS, and TEODORO SEBASTIAN, VICENTE SEBASTIAN, CORAZON SEBASTIAN, assisted by ANDRES MARCELO; PEDAD SEBASTIAN, HEIRS OF EDUVIGIS SEBASTIAN, namely: EDUARDO S. TENORLAS, ABELARDO J. TENORLAS, ADELA S. and SOLEDAD S. TENORLAS, represented by EDUARDO S. TENORLAS, and HEIRS OF DOMINADOR, namely: NAPOLEON SEBASTIAN, RUPERTO SEBASTIAN, ADORACION SEBASTIAN, PRISCILLA SEBASTIAN, LITA SEBASTIAN, TITA SEBASTIAN and GLORIA SEBASTIAN, represented by NAPOLEON SEBASTIAN; EVELYN SEBASTIAN; AURORA SEBASTIAN; and JULIETA SEBASTIAN, respondents.

D E C I S I O N

CORONA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking to reverse and set aside the decision[1] of the Court of Appeals which in turn affirmed the judgment[2] of Branch 57, Regional Trial Court (RTC) of San Carlos City, dismissing for lack of cause of action the complaint filed by petitioner against private respondents for declaration of nullity of the extrajudicial settlement of the estate of Jose Sebastian and Tomasina Paul.

Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina Paul and Balbino Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as well as the late Eduvigis and Dominador, all surnamed Sebastian, are the illegitimate children of Tomasina with Jose Sebastian after she separated from Balbino Leonardo.

In an action to declare the nullity of the extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian before Branch 57, RTC of San Carlos City, Pangasinan, petitioner alleged that, on June 24, 1988, at around 5:00 p.m., private respondent Corazon Sebastian and her niece Julieta Sebastian, and a certain Bitang, came to petitioner’s house to persuade her to sign a deed of extrajudicial partition of the estate of Tomasina Paul and Jose Sebastian. Before signing the document, petitioner allegedly insisted that they wait for her husband Jose Ramos so he could translate the document which was written in English. Petitioner, however, proceeded to sign the document even without her husband and without reading the document, on the assurance of private respondent Corazon Sebastian that petitioner’s share as a legitimate daughter of Tomasina Paul was provided for in the extrajudicial partition. Petitioner then asked private respondent Corazon and her companions to wait for her husband so he could read the document. When petitioner’s husband arrived, however, private respondent

Corazon and her companions had left without leaving a copy of the document. It was only when petitioner hired a lawyer that they were able to secure a copy and read the contents thereof.

Petitioner refuted[3] private respondents’ claim that they were the legitimate children and sole heirs of Jose Sebastian and Tomasina Paul. Despite the (de facto) separation of petitioner’s father Balbino Leonardo and Tomasina Paul, the latter remained the lawful wife of Balbino. Petitioner maintained that no joint settlement of the estate of Jose Sebastian and Tomasina Paul could be effected since what existed between them was co-ownership, not conjugal partnership. They were never married to each other. The extrajudicial partition was therefore unlawful and illegal.

Petitioner also claimed that her consent was vitiated because she was deceived into signing the extrajudicial settlement. She further denied having appeared before Judge Juan Austria of the Municipal Trial Court (MTC) of Urbiztondo, Pangasinan on July 27, 1988 to acknowledge the execution of the extrajudicial partition.

Private respondents, in their answer with counterclaim,[4] raised the defense of lack of cause of action. They insisted that the document in question was valid and binding between the parties. According to them, on July 27, 1988, they personally appeared before Judge Austria of the MTC of Urbiztondo, who read and explained the contents of the document which all of them, including petitioner, voluntarily signed.

Private respondents contended that their declaration that they were legitimate children of Jose Sebastian and Tomasina Paul did not affect the validity of the extrajudicial partition. Petitioner’s act of signing the document estopped her to deny or question its validity. They moreover averred that the action filed by petitioner was incompatible with her complaint. Considering that petitioner claimed vitiation of consent, the proper action was annulment and not declaration of nullity of the instrument.

On July 27, 1989, petitioner filed an amended complaint[5] to include parties to the extrajudicial partition who were not named as defendants in the original complaint.

During the August 23, 1990 pre-trial conference,[6] no amicable settlement was reached and the parties agreed that the only issue to be resolved was whether petitioner’s consent to the extrajudicial partition was voluntarily given.

In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan rendered a decision[7] dismissing the complaint as well as the counterclaim. The court a quo ruled that the element of duress or fraud that vitiates consent was not established and that the proper action was the reformation of the instrument, not the declaration of nullity of the extrajudicial settlement of estate. By way of obiter dictum, the trial court stated that, being a legitimate child, petitioner was entitled to one-half (or 19,282.5 sq.m.) of Tomasina Paul’s estate as her legitime. The 7,671.75 square meters allotted to her in the assailed extrajudicial partition was therefore less than her correct share as provided by law.

On appeal, the Court of Appeals affirmed the judgment of the trial court in its May 23, 1996 decision.[8] Hence, this petition for review on certiorari under Rule 45.

The sole issue in this case is whether the consent given by petitioner to the extrajudicial settlement of estate was given voluntarily.

We hold that it was not.

The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by one of the offer made by the other. It is the concurrence of the minds of the parties on the object and the cause which constitutes the contract.[9] The area of agreement must extend to all points that the parties deem material or there is no consent at all.[10]

To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact notion of the matter to which it refers; (b) it should be free and (c) it should be spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; and spontaneity by fraud.[11]

In determining the effect of an alleged error, the courts must consider both the objective and subjective aspects of the case which is the intellectual capacity of the person who committed the mistake.[12]

Mistake, on the other hand, in order to invalidate consent “should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.”[13]

According to the late civil law authority, Arturo M. Tolentino, the (old) rule that a party is presumed to know the import of a document to which he affixes his signature and is bound thereby, has been altered by Art. 1332 of the Civil Code. The provision states that “[w]hen one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.”

Article 1332 was a provision taken from american law, necessitated by the fact that there continues to be a fair number of people in this country without the benefit of a good education or documents have been written in English or Spanish.[14] The provision was intended to protect a party to a contract disadvantaged by illiteracy, ignorance, mental weakness or some other handicap. It contemplates a situation wherein a contract is entered into but the consent of one of the contracting parties is vitiated by mistake or fraud committed by the other.[15]

Thus, in case one of the parties to a contract is unable to read and fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.[16] Where a party is unable to read, and he expressly pleads in his reply that he signed the voucher in question “without knowing (its) contents which have not been explained to him,” this plea is tantamount to one of mistake or fraud in the execution of the voucher or receipt in question and the burden is shifted to the other party to show that the former fully understood the contents of the document; and if he

fails to prove this, the presumption of mistake (if not fraud) stands unrebutted and controlling.[17]

Contracts where consent is given by mistake or because of violence, intimidation, undue influence or fraud are voidable.[18] These circumstances are defects of the will, the existence of which impairs the freedom, intelligence, spontaneity and voluntariness of the party in giving consent to the agreement. In determining whether consent is vitiated by any of the circumstances mentioned in Art. 1330 of the Civil Code, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what they believe actually occurred, considering the age, physical infirmity, intelligence, relationship and the conduct of the parties at the time of making the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing.[19]

Although under Art. 1332 there exists a presumption of mistake or error accorded by the law to those who have not had the benefit of a good education, one who alleges any defect or the lack of a valid consent to a contract must establish the same by full, clear and convincing evidence, not merely by preponderance of evidence.[20] Hence, even as the burden of proof shifts to the defendants to rebut the presumption of mistake, the plaintiff who alleges such mistake (or fraud) must show that his personal circumstances warrant the application of Art. 1332.

In this case, the presumption of mistake or error on the part of petitioner was not sufficiently rebutted by private respondents. Private respondents failed to offer any evidence to prove that the extrajudicial settlement of estate was explained in a language known to the petitioner, i.e. the Pangasinan dialect. Clearly, petitioner, who only finished Grade 3, was not in a position to give her free, voluntary and spontaneous consent without having the document, which was in English, explained to her in the Pangasinan dialect. She stated in open court that she did not understand English. Her testimony, translated into English, was as follows:

Q: While you were there is your house at barangay Angatel, Urbiztondo, Pangasinan, what happened?

A: On June 24, 1988, I was in our house because I got sick, sir.

Q: What happened?

A: When the time was about 5:00 o’clock, I was awaken by my daughter-in-law, Rita Ramos, and told me that my half sister Corazon would like to tell us something, sir.

Q: What did you do?

A: I let them come in, sir.

Q: Did they come in?

A: Yes, sir.

Q: Who was the companion of your half sister Corazon Sebastian when she arrived in your house?

A: Julita Sebastian and her daughter Bitang, sir.

Q: And who is this Julita Sebastian to you?

A: She is my niece, sir.

Q: And then when they got inside the house, what happened?

A: I asked them their purpose, sir.

Q: Did they tell you their purpose?

A: I asked their purpose in coming to our house and they told me, “I came here because I have a partition executed so that the share of each one of us will be given”, she said sir.

Q: Did you see that document?

A: Yes, sir.

ATTY. L. TULAGAN

Q: Did you read the document?

A: No, sir because I was waiting for my husband to have that document read or translated to me because I could not understand, sir.

Q: What could you not understand?

A: I can not understand English, sir.

Q: But anyway, can you read?

A: Yes, sir in Pangasinan.

Q: Now, that document which according to you was brought by your half sister Corazon Sebastian, what happened to that document?

A: Corazon Sebastian request(ed) me to sign, sir.

Q: Did you sign immediately?

A: Yes, sir, because according to her, all my shares were embodied in that document as a legal daughter.[21]

Petitioner’s wish to wait for her husband, Jose T. Ramos, to explain to her the contents of the document in the Pangasinan dialect was a reasonable and prudent act that showed her uncertainty over what was written. Due to her limited educational attainment, she could not understand the document in English. She wanted to seek assistance from her husband who was then out of the house. However, due to the misrepresentation, deception and undue pressure of her half-sister Corazon Sebastian, petitioner signed the document. Corazon assured petitioner that she would receive her legitimate share in the estate of their late mother.

Later on, when petitioner’s husband examined the extrajudicial partition agreement, he found out that petitioner was deprived of her full legitime. Under the law, petitioner’s share should have been one-half of her mother’s estate, comprising a total area of

19,282.50 square meters. Under the defective extrajudicial settlement of estate, however, petitioner was to receive only 7,671.75 square meters. This was a substantial mistake clearly prejudicial to the substantive interests of petitioner in her mother’s estate. There is no doubt that, given her lack of education, petitioner is protected by Art. 1332 of the Civil Code. There is reason to believe that, had the provisions of the extrajudicial agreement been explained to her in the Pangasinan dialect, she would not have consented to the significant and unreasonable diminution of her rights.

MTC Judge Austria, the officer who notarized the extrajudicial settlement, stated that he explained the contents to all the parties concerned. Granting arguendo, however, that Judge Austria did indeed explain the provisions of the agreement to them, the records do not reflect that he explained it to petitioner in a language or dialect known to her. Judge Austria never stated in his testimony before the court a quo what language or dialect he used in explaining the contents of the document to the parties.[22] Significantly, he was not even certain if the parties to the agreement were present during the notarization of the document:

ATTY. TULAGAN

Q: Reflected upon all the pages of this Exhibit “1” are numerous signatures, two of whom belongs (sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas.

ATTY. D. TULAGAN

(continuing)

The Philippines on July, 1989, will you please educate us now Judge Austria on this document?

ATTY. O. DE GUZMAN

That will be improper, your Honor.

COURT

What is the question, you repeat the question.

INTERPRETER:

“Reflected upon all the pages of this Exhibit “1” are numerous signatures, two of whom belongs (sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas, in your just concluded testimony, you said that everyone of them appeared with you, we have here a documented evidence coming from the Department of Justice, Bureau of Immigration and Deportation, Manila, certifying that Piedad Paul Sebastian and Eduardo Sebastian Tenorlas did not arrive in the Philippines or departed from the Philippines on July, 1998, will you please educate us now Judge Austria on this document?

ATTY. O. DE GUZMAN:

Your Honor please, before the witness answer, may we examine the certification first and may we state for the record that the month of July, 1998 does not specify any date.

ATTY. L. TULAGAN:

July.

ATTY. O. DE GUZMAN:

But not a particular date, for the record.

ATTY. L. TULAGAN:

For the whole month of July, no departure and no arrival. This is a certificate from the Bureau of Immigration, Manila. I do not know about this, as a matter of fact, I do not even know this person personally

WITNESS:

Somebody that kind of name appeared before me.

ATTY. L. TULAGAN:

Q: Since you do not know everybody from Urbiztondo, Pangasinan it is possible that another person appeared and signed for that name?

A: Yes, possible.[23]

Therefore, the presumption of mistake under Article 1332 is controlling, having remained unrebutted by private respondents. The evidence proving that the document was not fully explained to petitioner in a language known to her, given her low educational attainment, remained uncontradicted by private respondents. We find that, in the light of the circumstances presented by the testimonies of the witnesses for both parties, the consent of petitioner was invalidated by a substantial mistake or error, rendering the agreement voidable. The extrajudicial partition between private respondents and petitioner should therefore be annulled and set aside on the ground of mistake.

In Rural Bank of Caloocan, Inc. v. Court of Appeals,[24] we ruled that a contract may be annulled on the ground of vitiated consent, even if the act complained of is committed by a third party without the connivance or complicity of one of the contracting parties. We found that a substantial mistake arose from the employment of fraud or misrepresentation. The plaintiff in that case was a 70-year-old unschooled and unlettered woman who signed an unauthorized loan obtained by a third party on her behalf. The Court annulled the contract due to a substantial mistake which invalidated her consent.

By the same reasoning, if it is one of the contracting parties who commits the fraud or misrepresentation, such contract may all the more be annulled due to substantial mistake.

In Remalante v. Tibe,[25] this Court ruled that misrepresentation to an illiterate woman who did not know how to read and write, nor understand English, is fraudulent. Thus, the deed of sale was considered vitiated with substantial error and fraud. This Court further held:[26]

Since it has been established by uncontradicted evidence that the plaintiff is practically unschooled and illiterate, not knowing how to read, write and understand the English language in which Exhibit 22 was drafted, it would have been incumbent upon the defendant to show that the terms there of have been fully explained to the plaintiff. The evidence is entirely lacking at this point, and the lack of it is fatal to the cause of the defendant for his failure to discharge the burden of proof.

Generally, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only questions of law and not issues of fact.[27] This rule, however, is inapplicable in cases such as the one at bar where the factual findings complained of are absolutely devoid of support in the records or the assailed judgment of the appellate court is based on a misapprehension of facts.[28] Thus, this case is an exception to the general rule on the conclusiveness of facts, the evidence pointing to no other conclusion but the existence of vitiated consent, given the diminished intellectual capacity of the petitioner and the misrepresentation of private respondent Corazon Sebastian on the contents of the extrajudicial partition.

Private respondents also maintain that petitioner has no cause of action since the remedy that should be pursued is an action for annulment and not for declaration of nullity. Private respondents therefore pray for the dismissal of this petition on the ground of lack of cause of action.

.Before ruling on this procedural matter, a distinction between an action for annulment and one for declaration of nullity of an agreement is called for.

An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of one of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud.[29] By its very nature, annulment contemplates a contract which is voidable, that is, valid until annulled. Such contract is binding on all the contracting parties until annulled and set aside by a court of law. It may be ratified. An action for annulment of contract has a four-year prescriptive period.[30]

On the other hand, an action for declaration of nullity of contract presupposes a void contract or one where all of the requisites prescribed by law for contracts are present but the cause, object or purpose is contrary to law, morals, good customs, public order or public policy, prohibited by law or declared by law to be void.[31] Such contract as a rule produces no legal and binding effect even if it is not set aside by direct legal action. Neither may it be ratified. An action for the declaration of nullity of contract is imprescriptible.[32]

The petitioner’s pleading was for the declaration of nullity of the extrajudicial settlement of estate. However, this did not necessarily mean the automatic dismissal of the case on the ground of lack of cause of action.

Granting that the action filed by petitioner was incompatible with her allegations, it is not the caption of the pleading but the allegations that determine the nature of the action.[33] The court should grant the relief warranted by the allegations and the proof even if no such relief is prayed for.[34] In this case, the allegations in the pleading and the evidence adduced point to no other remedy but to annul the extrajudicial settlement of estate because of vitiated consent.

WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is hereby REVERSED. The extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian is hereby ANNULLED and SET ASIDE. No cost.

SO ORDERED.

Panganiban, (Chairman), and Sandoval-Gutierrez, JJ., concur.

Carpio-Morales, J., on official leave.

G.R. No. 108245 November 25, 1994

MANOLO P. SAMSON, petitioner, vs.COURT OF APPEALS, SANTOS & SONS, INC., and ANGEL SANTOS, respondents.

Clara Dumandan-Singh for petitioner.

Paterno A. Catacutan for private respondents.

PUNO, J.:

Petitioner MANOLO P. SAMSON prays for the reversal of the Decision of the Court of Appeals, dated

November 27, 1992, 1 modifying the decision of the Regional Trial Court of Pasig,

Branch 157, dated November 29, 1990, and absolving private respondent AngelSantos from liability for the damages sustained by petitioner.

The antecedent facts, as borne by the records, are as follows:

The subject matter of this case is a commercial unit at the Madrigal Building, located at Claro M. Recto Avenue, Sta. Cruz, Manila. The building is owned by Susana Realty Corporation and the subject premises was leased to private respondent Angel Santos. The lessee's haberdashery store, Santos & Sons, Inc., occupied the premises for almost twenty (20) years on a yearly basis. 2 Thus, the lease contract in force between the parties in the year 1983 provided that the term of the lease shall be one (1) year, starting on August 1, 1983 until July 31, 1984. 3

On June 28, 1984, the lessor Susana Realty Corporation, through its representative Mr. Jes Gal R. Sarmiento, Jr., informed respondents that the lease contract which was to expire on July 31, 1984 would not be renewed. 4

Nonetheless, private respondent's lease contract was extended until December31, 1984. 5 Private respondent also continued to occupy the leased premises beyond the extended term.

On February 5, 1985, private respondent received a letter 6 from the lessor, through its Real Estate Accountant Jane F. Bartolome, informing him of the increase in rentals, retroactive to January 1985, pending renewal of his contract until the arrival of Ms. Ma. Rosa Madrigal (one of the owners of Susana Realty).

Four days later or on February 9, 1985, petitioner Manolo Samson saw private respondent in the latter's house and offered to buy the store of Santos & Sons and his right to lease the subject premises. 7 Petitioner was advised to return after a week.

On February 15, 1985, petitioner returned to private respondent's house to confirm his offer. On said occasion, private respondent presented petitioner with a letter containing his counter proposal, thus:

MANOLO SAMSONMarikina, Metro Manila

Sir:

In line with our negotiation to sell our rights in the Madrigal building at Recto, Rizal Avenue, I propose the following:

1. The lease contract between Santos and Sons, Inc. and Madrigal was impliedly renewed. It will be formally renewed this monthly (sic) when Tanya Madrigal arrives.

2. To avoid breach of contract with Madrigal, I suggest that you acquire all our shares in Santos and Sons, Inc.

3. I will answer and pay all obligations of Santos and Sons, Inc. as of February 28, 1985.

Very truly yours,

Angel C. Santos

Petitioner affixed his signature on the letter-proposal signifying his acceptance. 8 They agreed that the consideration for the sale of the store and leasehold right of Santos & Sons, Inc. shall be P300,000.00.

On February 20, 1985, petitioner paid P150,000.00 to private respondent representing the value of existing improvements in the Santos & Sons store. The parties agreed that the balance of P150,000.00 shall be paid upon the formal renewal of the lease contract between private respondent and Susana Realty. It was also a condition precedent to the transfer of the leasehold right of private respondent to petitioner. 9

In March 1985, petitioner began to occupy the Santos & Sons store. He utilized the store for the sale of his own goods. 10

All went well for a few months. In July 1985, however, petitioner received a notice from Susana Realty, addressed to Santos & Sons, Inc., directing the latter to vacate the leased premises on or before July 15, 1985. 11 Private respondent failed to renew his lease over the premises and petitioner was forced to vacate the same on July 16, 1985.

Petitioner then filed an action for damages against private respondent. He imputed fraud and bad faith against private respondent when the latter stated in his letter-proposal that his lease contract with Susana Realty has been impliedly renewed. Petitioner claimed that this misrepresentation induced him to purchase the store of Santos & Sons and the leasehold right of private respondent.

In defense, respondent alleged that their agreement was to the effect that the consideration for the sale was P300,000.00, broken down as follows: P150,000.00 shall be for the improvements in the store, and the balance of P150,000.00 shall be for the sale of the leasehold right of Santos & Sons over the subject premises. The balance shall be paid only after the formal renewal of the lease contract and its actual transfer to petitioner.

Trial on the merits ensued. On November 29, 1990, the trial court rendered a decision 12 in favor of petitioner. The dispositive portion reads:

WHEREFORE, AND IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of plaintiff Manolo P. Samson and against defendants Santos and Sons, Inc., and Angel C. Santos, ordering the said defendants to pay jointly and severally unto the plaintiff:

1. The sum of P150,000.00, representing the cash advance payment for the store and the right to occupy its leased premises subject matter of the sale involved, with interest thereon at the legal rate from the filing of the complaint on November 5, 1985 until the same is fully paid;

2. The sum of P70,000.00 representing the cost of additional improvements of the store sold, also with legal interest from November 5, 1985 until the full payment thereof;

3. The sum of P150,000.00, representing the loss that the plaintiff suffered from the sale at bargain prices of the goods taken out of the store, with legal interest thereon from the (d)ate of this decision until the same is fully paid;

4. The sum of P100,000.00 representing the profits which plaintiff failed to realize from the sale of the goods referred to above, with legal interest thereon from the date of the decision until said amount is fully paid;

5. The amounts of P100,000.00 and P50,000.00 as moral and exemplary damages, respectively, also with legal interest thereon, from the date of this judgment until fully paid; and

6. The sum of P45,000.00 as and for attorney's fees and expenses of litigation, in addition to judicial costs.

On the defendants' counterclaim, the plaintiff is ordered to return to the defendants the latter's steel filing cabinet, adding machine, typewriter and all its unused sales invoices, receipts and blank checks, if the plaintiff still has any of the said papers or documents.

SO ORDERED. 13

Private respondent appealed to the Court of Appeals. In a Decision dated November 27, 1992, 14 the appellate court modified the decision of the trial court after finding that private respondent did not exercise fraud or bad faith in its dealings with petitioner. The dispositive portion of the impugned decision reads:

WHEREFORE, the appealed decision is hereby MODIFIED by reducing the amounts the trial court awarded to appellee Manolo P. Samson in that appellants Santos & Sons, Inc. and Angel C. Santos are ordered to pay appellee, by way of reimbursement, the P150,000.00 which the latter gave appellants as advance payment for their store and lease right with legal interest to be reckoned from the promulgation date of this decision; and AFFIRMED with respect to the trial court's judgment ordering appellee to return to appellants the latter's filing cabinet, adding machine, typewriter, and all their unused sales invoices, receipts and blank checks, if appellee still has any of these documents. No costs.

SO ORDERED. 15

Hence this petition for review with the following assigned errors:

I

WHETHER OR NOT THE COURT OF APPEALS ERRED INDISREGARDING THE FOLLOWING FACTUAL FINDINGS OFTHE TRIAL COURT:

1. THAT RESPONDENTS DELIBERATELY AND FRAUDULENTLY CONCEALED FROM THE PETITIONER THE FACT THAT THE LEASE ON THE SUBJECT STORE PREMISES HAD ALREADY EXPIRED AND WOULD NO LONGER BE RENEWED BY THE LESSOR.

2. THAT SOLELY BY REASON OF RESPONDENTS' FRAUDULENT CONDUCT AND BAD FAITH, PETITIONER EXERCISING THE DILIGENCE REQUIRED UNDER THE CIRCUMSTANCES, THE LATTER INCURRED DAMAGES AND LOSSES.

II

WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING RESPONDENTS FREE FROM LIABILITY TO PETITIONER FOR THE DAMAGES THE LATTER HAD INCURRED ON ACCOUNT OF THE RESPONDENTS' BAD FAITH.

The pivotal issue in the case at bench is whether or not private respondent Angel Santos committed fraud or bad faith in representing to petitioner that his contract of lease over the subject premises has been impliedly renewed by Susana Realty. Undoubtedly, it was this representation which induced petitioner to enter into the subject contract with private respondent.

We find the petition devoid of merit.

Bad faith is essentially a state of mind affirmatively operating with furtive design or with some motive of ill-will. 16 It does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. 17 Bad faith is thus synonymous with fraud and involves a design to mislead or deceive another, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive. 18

In contracts, the kind of fraud that will vitiate consent is one where, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. 19 This is known as dolo causante or causal fraud which is basically a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.

Petitioner claims that their agreement was that the amount of P300,000.00 is the consideration for the transfer of private respondent's leasehold right to him and

he paid P150,000.00 as downpayment therefor. He insists that private respondent acted in bad faith in assuring him that his lease contract with SusanaRealty has been impliedly renewed and would be formally renewed upon the arrival of Tanya Madrigal (representative of Susana Realty). As evidence of private respondent's bad faith, petitioner stresses that private respondent himself admitted that prior to February 15, 1985, he was informed by his lawyer that he could not yet sell his lease right to petitioner for his lease over the premises has not been renewed by Susana Realty Corporation.

After carefully examining the records, we sustain the finding of public respondent Court of Appeals that private respondent was neither guilty of fraud nor bad faith in claiming that there was implied renewal of his contract of lease with Susana Realty. The records will bear that the original contract of lease between the lessor Susana Realty and the lessee private respondent was for a period of one year, commencing on August 1, 1983 until July 31, 1984. Subsequently, however, private respondent's lease was extended until December 31, 1984. At this point, it was clear that the lessor had no intention to renew the lease contract of private respondent for another year. However, on February 5, 1985, the lessor, thru its Real Estate Accountant, sent petitioner a letter 20 of even date, worded as follows:

February 5, 1985

Mr. Angel Santos1609-1613 C.M. Recto AvenueSta. Cruz, Manila

Dear Mr. Santos:

This is to notify you that the rentals for the1609-1613 C.M. Recto Avenue, Sta. Cruz,Manila, which you are leasing with (sic) us has been increased from P77.81 to P100.00 per square meter retroactive January 1985 (as you have not vacated the place) pending renewal of your contract until the arrival of Miss Ma. Rosa A.S. Madrigal.

Thus, your new rate will be PESOS:FOURTEEN THOUSAND TWO HUNDREDFIFTY ONLY (P14,250.00) since you are occupying One Hundred Forty-Two and 50/100 square meters.

Please note that we are charging the same for everybody and they all agreed to pay the new rate.

We do expect your full cooperation with regards (sic) to this matter.

Very truly yours,

(Sgd.) JANE F. BARTOLOMEAccountant-Real Estate

Clearly, this letter led private respondent to believe and conclude that his lease contract was impliedly renewed and that formal renewal thereof would be made upon the arrival of Tanya Madrigal. This much was admitted by petitioner himself when he testified during cross-examination that private respondent initially told him of the fact that his lease contract with Susana Realty has already expired but he was anticipating its formal renewal upon the arrival of Madrigal. 21 Thus, from the start, it was known to both parties that, insofar as the agreement regarding the transfer of private respondent's leasehold right to petitioner was concerned, the object thereof relates to a future right. 22 It is a conditional contract recognized in civil law, 23 the efficacy of which depends upon an expectancy — the formal renewal of the lease contract between private respondent and Susana Realty.

The records would also reveal that private respondent's lawyer informed him that he could sell the improvements within the store for he already owned them but the sale of his leasehold right over the store could not as yet be made for his lease contract had not been actually renewed by Susana Realty. Indeed, it was precisely pursuant to this advice that private respondent and petitioner agreed that the improvements in the store shall be sold to petitioner for P150,000.00 24 while the leasehold right shall be sold for the same amount of P150,000.00, payable only upon the formal renewal of the lease contract and the actual transfer of the leasehold right to petitioner. 25 The efficacy of the contract between the parties was thus made dependent upon the happening of this suspensive condition.

Moreover, public respondent Court of Appeals was correct when it faulted petitioner for failing to exercise sufficient diligence in verifying first the status of private respondent's lease. We thus quote with approval the decision of theCourt of Appeals when it ruled, thus:

When appellant Angel C. Santos said that the lease contract had expired but that it was impliedly renewed, that representation should have put appellee on guard. To protect his interest, appellee should have checked with the lessor whether that was so, and this he failed to do; or he would have simply deferred his decision on the proposed sale until MissMadrigal's arrival, and this appellee also failed to do. In short, as a buyer of the store and lease right in question — or as a buyer of any object of commerce for that matter — appellee was

charged with the obligation of caution aptly expressed in the universal maxim caveat emptor. 26

Indeed, petitioner had every opportunity to verify the status of the lease contract of private respondent with Susana Realty. As held by this Court in the case of

Caram, Jr. v. Laureta, 27 the rule caveat emptor requires the purchaser to be aware of the supposed title of the vendor and he who buys without checking the vendor's title takes all the risks and losses consequent to such failure. In the case at bench, the means of verifying for himself the status of private respondent's lease contract with Susana Realty was open to petitioner. Nonetheless, no effort was exerted by petitioner to confirm the status of the subject lease right. 28 He cannot now claim that he has been deceived.

In sum, we hold that under the facts proved, private respondent cannot be held guilty of fraud or bad faith when he entered into the subject contract with petitioner. Causal fraud or bad faith on the part of one of the contracting parties which allegedly induced the other to enter into a contract must be proved by clear and convincing evidence. This petitioner failed to do.

IN VIEW WHEREOF, the appealed decision is hereby AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

Narvasa, C.J., Regalado and Mendoza, JJ., concur.

[G.R. No. 128120. October 20, 2004]

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS, BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing himself without court sanction as “ JOOST PEKELHARING),” MASSIMO ROSSI and ED ENRIQUEZ, petitioners, vs. COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO K. LITONJUA, respondents.

D E C I S I O NTINGA, J.:

Petitioners seek a reversal of the twin Orders[1] of the Court of Appeals dated 15 November 1996[2] and 31 January 1997,[3] in CA-G.R. CV No. 35886, entitled “ALS Management et al., v. Swedish Match, AB et al.” The appellate court overturned the trial court’s Order[4] dismissing the respondents’ complaint for specific performance and remanded the case to the trial court for further proceedings.

Swedish Match, AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing business in the Philippines. SMAB, however, had three subsidiary corporations in the Philippines, all organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc.

Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and the latter’s worldwide match, lighter and shaving products operation to Eemland Management Services, now known as Swedish Match NV of Netherlands, (SMNV), a corporation organized and existing under the laws of Netherlands. STORA, however, retained for itself the packaging business.

SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the shaving business. SMNV adopted a two-pronged strategy, the first being to sell its shares in Phimco Industries, Inc. and a match company in Brazil, which proposed sale would stave-off defaults in the loan covenants of SMNV with its syndicate of lenders. The other move was to sell at once or in one package all the SMNV companies worldwide which were engaged in match and lighter operations thru a global deal (hereinafter, global deal).

Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)—the management company of the Swedish Match group—was commissioned and granted full powers to negotiate by SMNV, with the resulting transaction, however, made subject to final approval by the board. Enriquez was held under strict instructions that the sale of Phimco shares should be executed on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez came to the Philippines in November 1989 and informed the Philippine financial and business circles that the Phimco shares were for sale.

Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP Retirement and Separation Benefits System, herein respondent ALS Management & Development Corporation and respondent Antonio Litonjua (Litonjua), the president and general manager of ALS.

In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latter’s shares in Phimco and all of Phimco’s shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum of P750,000,000.00.[5]

Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989, thanked respondents for their interest in the Phimco shares. Rossi informed respondents that their price offer was below their expectations but urged them to undertake a comprehensive review and analysis of the value and profit potentials of the Phimco shares, with the assurance that respondents would enjoy a certain priority although several parties had indicated their interest to buy the shares.[6]

Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter division for US$30.6 million, which per another letter of the same date was increased to US$36 million.[7] Litonjua stressed that the bid amount could be adjusted subject to availability of additional information and audit verification of the company finances.

Responding to Litonjua’s offer, Rossi sent his letter dated 11 June 1990, informing the former that ALS should undertake a due diligence process or pre-acquisition audit and review of the draft contract for the Match and Forestry activities of Phimco at ALS’ convenience. However, Rossi made it clear that at the completion of the due diligence process, ALS should submit its final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to ninety-six percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in case the “global deal” presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would reimburse up to US$20,000.00 of ALS’ costs related to the due diligence process.[8]

Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMAB’s approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he was advised that one final bidder would be selected from among the four contending groups as of that date and that the decision would be made by 6 June 1990.He criticized SMAB’s decision to accept a new bidder who was not among those who participated in the 25 May 1990 bidding. He informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990, citing the advice to him of the auditing firm that the financial statements would not be completed until the end of July. Litonjua added that he would indicate in their final offer more specific details of the payment mechanics and consider the possibility of signing a conditional sale at that time.[9]

Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they would be unable to submit the final offer by 30 June 1990, considering that the acquisition audit of Phimco and the review of the draft agreements had not yet

been completed. He said, however, that they would be able to finalize their bid on 17 July 1990 and that in case their bid would turn out better than any other proponent, they would remit payment within ten (10) days from the execution of the contracts.[10]

Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in view of Litonjua’s failure to make a firm commitment for the shares ofSwedish Match in Phimco by 30 June 1990.[11]

In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional contract with a local group for the disposal of Phimco. He told Litonjua that his bid would no longer be considered unless the local group would fail to consummate the transaction on or before 15 September1990.[12]

Apparently irked by SMAB’s decision to junk his bid, Litonjua promptly responded by letter dated 4 July 1990. Contrary to his prior manifestations, he asserted that, for all intents and purposes, the US$36 million bid which he submitted on 21 May 1990 was their final bid based on the financial statements for the year 1989. He pointed out that they submitted the best bid and they were already finalizing the terms of the sale. He stressed that they were firmly committed to their bid of US$36 million and if ever there would be adjustments in the bid amount, the adjustments were brought about bySMAB’s subsequent disclosures and validated accounts, such as the aspect that only ninety-six percent (96%) of Phimco shares was actually being sold and not one-hundred percent (100%).[13]

More than two months from receipt of Litonjua’s last letter, Enriquez sent a fax communication to the former, advising him that the proposed sale of SMAB’s shares in Phimco with local buyers did not materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would be prepared to negotiate with ALS on an exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms contained in the letter. Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)-day period, SMAB would enter into negotiations with other buyers.[14]

Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and conditions for the sale of the Phimco shares. He emphasized that the new offer constituted an attempt to reopen the already perfected contract of sale of the shares in his favor. He intimated that he could not accept the new terms and conditions contained therein.[15]

On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a complaint for specific performance with damages, with a prayer for the issuance of a writ of preliminary injunction, against defendants, now petitioners. The individual defendants were sued in their respective capacities as officers of the corporations or entities involved in the aborted transaction.

Aside from the averments related to their principal cause of action for specific performance, respondents alleged that the Phimco management, in utter bad faith,

induced SMAB to violate its contract with respondents. They contended that the Phimco management took an interest in acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such sale by interposing various obstacles to the completion of the acquisition audit.[16] Respondents claimed that the Phimco management maliciously and deliberately delayed the delivery of documents to Laya Manabat Salgado & Co. which prevented them from completing the acquisition audit in time for the deadline on 30 June 1990 set by petitioners.[17] Respondents added thatSMAB’s refusal to consummate the perfected sale of the Phimco shares amounted to an abuse of right and constituted conduct which is contrary to law, morals, good customs and public policy.[18]

Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or otherwise implementing the sale or transfer thereof, in favor of any person or entity other than respondents, and that any such sale to third parties be annulled and set aside. Respondents also asked that petitioners be ordered to execute all documents or instruments and perform all acts necessary to consummate the sales agreement in their favor.

Traversing the complaint, petitioners alleged that respondents have no cause of action, contending that no perfected contract, whether verbal or written, existed between them.Petitioners added that respondents’ cause of action, if any, was barred by the Statute ofFrauds since there was no written instrument or document evidencing the alleged sale of the Phimco shares to respondents.

Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds, which the trial court granted. Both parties agreed to adopt as their evidence in support of or against the motion to dismiss, as the case may be, the evidence which they adduced in support of their respective positions on the writ of preliminary injunction incident.

In its Order dated 17 April 1991, the RTC dismissed respondents’ complaint.[19] It ruled that there was no perfected contract of sale between petitioners and respondents. The court a quo said that the letter dated 11 June 1990, relied upon by respondents, showed that petitioners did not accept the bid offer of respondents as the letter was a mere invitation for respondents to conduct a due diligence process or pre-acquisition audit of Phimco’s match and forestry operations to enable them to submit their final offer on 30 June 1990. Assuming that respondent’s bid was favored by an oral acceptance made in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory to a formal acceptance by the SMAB—the acceptance that would eventually lead to the execution and signing of the contract of sale. Moreover, the court noted that respondents failed to submit their final bid on the deadline set by petitioners.

Respondents appealed to the Court of Appeals, assigning the following errors:

A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THECOMPLAINT IN ITS ENTIRETY FOR “LACK OF A VALID CAUSE OF ACTION”

WITHOUT THE BENEFIT OF A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS.

B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS’ CAUSE OF ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL.

C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS’ CAUSE OF ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR THE OTHER CAUSES OF ACTION.

D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFS-APPELLANTS’ RIGHT TO DUE PROCESS.[20]

After assessing the respective arguments of the parties, the Court of Appeals reversed the trial court’s decision. It ruled that the series of written communications between petitioners and respondents collectively constitute a sufficient memorandum of their agreement under Article 1403 of the Civil Code; thus, respondents’ complaint should not have been dismissed on the ground that it was unenforceable under the Statute of Frauds. The appellate court opined that any document or writing, whether formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose which satisfies all the Statute’s requirements as to contents and signature would be sufficient; and, that two or more writings properly connected could be considered together. The appellate court concluded that the letters exchanged by and between the parties, taken together, were sufficient to establish that an agreement to sell the disputed shares to respondents was reached.

The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby declaring that respondents are entitled to the reliefs prayed for in their complaint, but only that the case should not have been dismissed on the ground of unenforceability under the Statute of Frauds. It ordered the remand of the case to the trial court for further proceedings.

Hence, this petition.

Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds requires not just the existence of any note or memorandum but that such note or memorandum should evidence an agreement to sell; and, that in this case, there was no word, phrase, or statement in the letters exchanged between the two parties to show or even imply that an agreement had been reached for the sale of the shares to respondent.

Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were merely tentative and still subject to further negotiations between him and the seller. They point out that there was no meeting of the minds on the essential terms and

conditions of the sale because SMAB did not accept respondents’ offer that consideration would be paid in Philippine pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same time stating that the broad terms and conditions described in their meeting were inadequate for them to make a response at that time so much so that he would have to await the corresponding specifics. Petitioners argue that the foregoing circumstances prove that they failed to reach an agreement on the sale of the Phimco shares.

In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of Frauds does not apply to the instant case. Respondents assert that the sale of the subject shares to them was perfected as shown by the following circumstances, namely: petitioners assured them that should they increase their bid, the sale would be awarded to them and that they did in fact increase their previous bid of US$30.6 million to US$36 million; petitioners orally accepted their revised offer and the acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed with the acquisition audit and to submit a comfort letter from the United Coconut Planters’ Bank (UCPB); petitioner corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June 1990; with the prior approval of petitioners, respondents engaged the services of Laya, Manabat, Salgado & Co., an independent auditing firm, to immediately proceed with the acquisition audit; and, petitioner corporation reiterated its commitment to be bound by the result of the acquisition audit and promised to reimburse respondents’ cost to the extent of US$20,000.00. All these incidents, according to respondents, overwhelmingly prove that the contract of sale of the Phimco shares was perfected.

Further, respondents argued that there was partial performance of the perfected contract on their part. They alleged that with the prior approval of petitioners, they engaged the services of Laya, Manabat, Salgado & Co. to conduct the acquisition audit. They averred that petitioners agreed to be bound by the results of the audit and offered to reimburse the costs thereof to the extent of US$20,000.00. Respondents added that in compliance with their obligations under the contract, they have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance the acquisition of the Phimco shares.[21]

The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial court’s decision dismissing the complaint for being unenforceable under the Statute of Frauds; and (2) whether there was a perfected contract of sale between petitioners and respondents with respect to the Phimco shares.

The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code[22] requires certain contracts enumerated therein to be evidenced by some note or memorandum in order to be enforceable. The term “Statute of Frauds” is descriptive of statutes which require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable.[23] Evidence of the agreement cannot be received without the writing or a secondary evidence of its contents.

The Statute, however, simply provides the method by which the contracts enumerated therein may be proved but does not declare them invalid because they are not reduced to writing. By law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.[24] Consequently, the effect of non-compliance with the requirement of the Statute is simply that no action can be enforced unless the requirement is complied with.[25] Clearly, the form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved, without any objection, it is then just as binding as if the Statute has been complied with.[26]

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.[27]

However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest partly in writing and partly in parol. The note or memorandum must contain the names of the parties, the terms and conditions of the contract, and a description of the property sufficient to render it capable of identification.[28] Such note or memorandum must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or memorandum itself, or some other writing to which it refers or within which it is connected, without resorting to parol evidence.[29]

Contrary to the Court of Appeals’ conclusion, the exchange of correspondence between the parties hardly constitutes the note or memorandum within the context of Article 1403 of the Civil Code. Rossi’s letter dated 11 June 1990, heavily relied upon by respondents, is not complete in itself. First, it does not indicate at what price the shares were being sold. In paragraph (5) of the letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the completion of the due diligence process. The paragraph undoubtedly proves that there was as yet no definite agreement as to the price. Second, the letter does not state the mode of payment of the price. In fact, Litonjua was supposed to indicate in his final offer how and where payment for the shares was planned to be made.[30]

Evidently, the trial court’s dismissal of the complaint on the ground of unenforceability under the Statute of Frauds is warranted.[31]

Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of taking the case out of the operation of the Statute the action for specific performance would still fail.

A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.[32] There can be no contract unless the following requisites concur: (a) consent of the contracting

parties; (b) object certain which is the subject matter of the contract; (c) cause of the obligation which is established.[33] Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.[34]

Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit: (a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter, and (c) price certain in money or its equivalent.[35] Such contract is born from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.[36]

In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.[37]

A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave the way for the celebration of a future contract. An imperfect promise (policitacion), on the other hand, is a mere unaccepted offer.[38] Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation.[39] The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal.[40]

An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. Consent in a contract of sale should be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.[41]

Quite obviously, Litonjua’s letter dated 21 May 1990, proposing the acquisition of the Phimco shares for US$36 million was merely an offer. This offer, however, inLitonjua’s own words, “is understood to be subject to adjustment on the basis of an audit of the assets, liabilities and net worth of Phimco and its subsidiaries and on the final negotiation between ourselves.”[42]

Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not.

Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30 June 1990.[43] With indubitable inconsistency, respondents later claimed that for all intents and purposes, the US$36 million was their final bid. If this were so, it would be inane for Litonjua to state, as he did, in his letter dated 28 June 1990 that they

would be in a position to submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents could not possibly serve as the basis of their claim that the sale of the Phimco shares in their favor was perfected, for one essential element of a contract of sale was obviously wanting—the price certain in money or its equivalent. The price must be certain, otherwise there is no true consent between the parties.[44] There can be no sale without a price.[45] Quite recently, this Court reiterated the long-standing doctrine that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist since the agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.[46]

Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere offer in the absence of evidence of its acceptance. To produce a contract, there must be acceptance, which may be express or implied, but it must not qualify the terms of the offer.[47] The acceptance of an offer must be unqualified and absolute to perfect the contract.[48] In other words, it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.[49]

Respondents’ attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile in the face of the overwhelming evidence on record that there was in the first place no meeting of the minds with respect to the price. It is dramatically clear that the US$36 million was not the actual price agreed upon but merely a preliminary offer which was subject to adjustment after the conclusion of the audit of the company finances. Respondents’ failure to submit their final bid on the deadline set by petitioners prevented the perfection of the contract of sale. It was not perfected due to the absence of one essential element which was the price certain in money or its equivalent.

At any rate, from the procedural stand point, the continuing objections raised by petitioners to the admission of parol evidence[50] on the alleged verbal acceptance of the offer rendered any evidence of acceptance inadmissible.

Respondents’ plea of partial performance should likewise fail. The acquisition audit and submission of a comfort letter, even if considered together, failed to prove the perfection of the contract. Quite the contrary, they indicated that the sale was far from concluded.

Respondents conducted the audit as part of the due diligence process to help them arrive at and make their final offer. On the other hand, the submission of the comfort letter was merely a guarantee that respondents had the financial capacity to pay the price in the event that their bid was accepted by petitioners.

The Statute of Frauds is applicable only to contracts which are executory and not to those which have been consummated either totally or partially.[51] If a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits already derived by him from the transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.[52] This rule, however, is predicated on the fact of ratification of the contract within the meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of oral evidence to prove the same, or (2) by the acceptance of benefits under them. In the

instant case, respondents failed to prove that there was partial performance of the contract within the purview of the Statute.

Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the trial court erred in dismissing the complaint altogether. They point out that the complaint presents several causes of action.

A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for specific performance[53] premised on the existence of the contract of sale, while the other is solely for damages, predicated on the purported dilatory maneuvers executed by the Phimco management.[54]

With respect to the first cause of action for specific performance, apart from petitioners’ alleged refusal to honor the contract of sale—which has never been perfected in the first place—respondents made a number of averments in their complaint all in support of said cause of action. Respondents claimed that petitioners were guilty of promissory estoppel,[55] warranty breaches[56] and tortious conduct[57] in refusing to honor the alleged contract of sale. These averments are predicated on or at least interwoven with the existence or perfection of the contract of sale. As there was no such perfected contract, the trial court properly rejected the averments in conjunction with the dismissal of the complaint for specific performance.

However, respondents’ second cause of action due to the alleged malicious and deliberate delay of the Phimco management in the delivery of documents necessary for the completion of the audit on time, not being based on the existence of the contract of sale, could stand independently of the action for specific performance and should not be deemed barred by the dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of action would entitle respondents to the recovery of damages against the officers of the corporation responsible for the acts complained of.

Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an opportunity to substantiate their allegations with respect to its cause of action for damages against the officers of Phimco based on the latter’s alleged self-serving dilatory maneuvers.

WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as it declared the agreement between the parties enforceable under the Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the cause of action for specific performance is concerned. The case is ordered REMANDED to the trial court for further proceedings with respect to the cause of action for damages as above specified.SO ORDERED.

Puno, J., (Chairman), Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

G.R. No. 87550 February 11, 1991

DIVINA J. VICTORIANO, petitioner, vs.HON. COURT OF APPEALS AND HEIRS OF CRISPIN ARCILLA, represented by LADISLAWA A. MASIGLA, respondents.

J.C. Baldoz & Associates for petitioner.

Baltazar J. Llamas for private respondents.

MEDIALDEA, J.:p

This petition seeks the review on certiorari of the decision of the Court of Appeals dated January 10, 1989, which reversed the ruling of the trial court declaring petitioner Divina J. Victoriano (hereafter "Victoriano") as owner of Lot 897, and instead, declaring the heirs of Crispin Arcilla, herein represented by Ladislawa A. Masigla (hereafter "Masigla") as true owners thereof. The dispositive portion of the Court of Appeals' decision provides as follows:

WHEREFORE, in view of the foregoing, the judgment appealed from is hereby reversed and set aside. In lieu thereof, judgment is hereby rendered:

1. Declaring plaintiffs-appellants as the owners of Lot #897 located in Barangay Santol, Tanza, Cavite;

2. Ordering defendant-appellee to execute the proper deed of sale to enable plaintiffs-appellants to transfer the title to the property in their name and in case of failure of defendant-appellee to do so within 30 days from finality hereof, the Register of Deeds of Cavite is hereby directed to cancel Transfer Certificate of Title No. T-124731 in the name of defendant-appellant and issue a new one in the name of plaintiffs-appellants.

SO ORDERED. (pp. 21-22, Rollo)

The facts of the case, as obtained from the Court of Appeals' decision, are as follows:

Masigla was in possession of Lot 897 which is situated in Barangay Santol,Tanza, Cavite. In 1987, her son, Domingo Masigla entered the adjoining property, Lot 898, owned by Victoriano, and prohibited her and her tenants from

cultivating the land. Victoriano filed a criminal case for theft, malicious mischief, usurpation and squatting against Domingo. In the process, Victoriano discovered that title to Lot No. 897 was registered in the name of her grandfather, Cirilo Tamio (TCT No. 1648). She secured an extrajudicial partition from all the heirs of Cirilo Tamio, who thus waived their shares in the lot in her favor. Victoriano thereafter secured a title (TCT No. 124731) to said lot in her name.

The heirs of Crispin Arcilla, represented by Masigla, filed a complaint in court (RTC-Cavite, Trece Martires, Br. 23) for reconveyance of Lot No. 897, claiming that their father, Crispin Arcilla, had bought the lot from Cirilo Tamio, and that they had been in possession thereof since 1927. Masigla could not, however, present a deed of sale evidencing the transfer of the property from Cirilo Tamio to Crispin Arcilla. All that she and her heirs could present were a "Sinumpaang Salaysay" dated January 20, 1927, wherein the children of Cirilo Tamio authorized their mother to sell Lot 897 to Crispin Arcilla; the owner's duplicate of the title to the property in the name of Cirilo Tamio and real property tax receipts and tax declarations, the earliest of which is 1944. Masigla claimed that taxes were being paid since 1927 but the receipt had been lost or destroyed.

Victoriano on the other hand, presented the Transfer Certificate of Title in her name (TCT 124731), a tax declaration and a receipt dated March 30, 1983 (p. 18, Rollo).

In a decision dated October 5, 1987 (p. 61, Rollo), the trial court ruled in favor of Victoriano, declaring her the lawful and absolute owner of Lot No. 897.

Masigla appealed, assigning as errors, the failure of the trial court to consider Masigla's evidence submitted in support of her claim for reconveyance and rendering instead a decision allowing recovery of possession in favor ofVictoriano, based on the allegation and evidence in her counterclaim.

The Court of Appeals reversed the decision of the trial court and declaredMasigla and her co-heirs as true owners of the property. In the resolution datedMarch 17, 1989, it denied Victoriano's motion for reconsideration.

Victoriano filed this petition on the following grounds:

1. The respondent Court of Appeals abused its discretion by deciding this case based on the principles of the "Statute of Frauds" and then on the principle of "laches" which principles were never raised in the lower court.

2. The respondent Court of Appeals decided questions of substance in a way not in accord with law or with the applicable decisions of the Supreme Court. (p. 9, Rollo)

We uphold the Court of Appeals' decision.

The trial court's ruling was anchored solely on the failure of Masigla to prove transfer of ownership from Cirilo Tamio to their predecessor-in-interest, CrispinArcilla, because of the absence of a deed of sale.

Apparently, the trial court relied on the Statute of Frauds principle which requires"an agreement for the sale . . ." of real property or an interest therein (Art.1403(e)) to be in writing. It overlooked the fact that this principle applies only to executory contracts. As correctly observed by the Court of Appeals:

The Statute of Frauds is applicable only to executory contracts, not to contracts either totally or partially performed. Thus, where a contract of sale is alleged to be consummated, it matters not that neither the receipt for the consideration nor the sale itself was in writing, because oral evidence of the alleged consummated sale is not forbidden by the Statute of Frauds and may not be excluded in court. (Iñigo vs. Estate of Maloto, 21 SCRA (1901) 246)

Thus, the testimony of plaintiffs-appellants on this point is admissible to prove the existence of the sale, it being of record that the land has been in their possession since 1927. (CA Decision, pp. 19-20, Rollo)

Performance of the contract, whether total or partial, takes it out of the operation of the statute (Gomez v. Salcedo, 26 Phil. 485; Hernandez v. Andal, 78 Phil.196). This performance, necessarily must be duly proved. And it is in this light that Masigla pointed out the circumstances to show performance on the contract or transfer of ownership, as follows:

1. Plaintiffs-appellants are in possession of the owner's copy of the title;

2. They have been undisturbed in their possession of the land for more than fifty years;

3. They are in possession of "Sinumpaang Salaysay" wherein the children of Cirilo Tamio authorized their mother to sell Lot 897 specifically to Crispin Arcilla, the predecessor of plaintiffs-appellants;

4. They introduced improvements on the land;

5. They incurred expenses for the resurvey of the land when they had the title in the name of Cirilo Tamio reconstituted (T.S.N. p. 30, Nov. 29, 1983);

6. The tax declarations over the property were in the name of plaintiff s father;

7. Plaintiffs-appellants have been religious in paying taxes over the property;

8. The immediate heirs of Cirilo Tamio, that is, his wife and children, never contested plaintiffs-appellants' possession of the land, nor did they set up any claim over the property. This behavior negates any pretense that there was no sale in favor of Crispin Arcilla. (ibid., p. 20, Rollo)

In ruling in favor of Masigla, the Court of Appeals mentioned the principle of the Statute of Frauds merely to point out the trial court's improper reliance thereon. It was not raised as a new issue. Precisely, the inapplicability of the Statute of Frauds allows the filing of Masigla's complaint seeking the reconveyance of property, which was erroneously registered in Victoriano's name.

Likewise, We agree with the Court of Appeals when it barred Victoriano's action to recover possession of Lot No. 897, premised on the principle of laches. Defined as "such neglect or omission to assert a right taken in conjunction with the lapse of time and other circumstances causing prejudice to an adverse party, as will operate as a bar in equity." (Heirs of Batiog Lacamen v. Heirs of Laruan, G.R. No, L-27088, July 31, 1975, 65 SCRA 125) the Court of Appeals observed:

However, defendant-appellee disregards the fact that plaintiffs-appellants have been in continuous possession of the landSince 1927 and they were not ousted therefrom by the grandfather of defendant-appellee who sold the property to them, nor by the immediate successors of the seller. It was only after decades had passed that it was discovered that the sale was never registered or the title cancelled and transferred in the name of plaintiffs-appellants. True, titled lands cannot be acquired by prescription, however, defendant-appellee's inaction for more than 50 years now bars her from acquiring possession of the land on the ground of laches. (p. 25, Rollo)

Again, the principle of laches was mentioned to refute Victoriano's claims that "no title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession (Sec. 46, Act No. 496, now Sec.47 of PD No. 1529). Thus, the Court of Appeals stated:

At this state, therefore, respondents-appellants' claim of absolute ownership over the land cannot be countenanced. It has been held that while a person may not acquire title to the registered property through continuous adverse possession, in derogation of the title of the original registered owner, the heir of the latter, however, may lose his right to recover back the possession of such property and the title thereto, by reason of laches. (p. 25, Rollo)

ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals dated January 10, 1989 as well as its Resolution dated March 17, 1989 declaring the heirs of Crispin Arcilla, represented by Ladislawa A. Masigla as the owners of Lot No. 897 are AFFIRMED.

SO ORDERED.

Narvasa, Cruz, Gancayco and Griño-Aquino, JJ., concur.

[G.R. No. 132474. November 19, 1999]

RENATO CENIDO (deceased), represented by VICTORIA CENIDOSA, petitioner, vs. SPOUSES AMADEO APACIONADO and HERMINIA STA. ANA, respondents.

D E C I S I O N

PUNO, J.:

In this petition for review, petitioner Renato Cenido seeks to reverse and set aside the decision of the Court of Appealsi[1] in CA-G.R. CV No. 41011 which declared the private respondents as the owners of a house and lot in Binangonan, Rizal.ii[2]

The antecedent facts are as follows:

On May 22, 1989, respondent spouses Amadeo Apacionado and Herminia Sta. Ana filed with the Regional Trial Court, Branch 70, Rizal a complaint against petitioner Renato Cenido for “Declaration of Ownership, Nullity, with Damages.”iii[3] The spouses alleged that: (1) they are the owners of a parcel of unregistered land, 123 square meters in area and located at Rizal Street, Barrio Layunan, Binangonan, Rizal, more particularly described as follows:

“x x x that certain parcel of land located at Rizal, St., Layunan,Binangonan, Rizal, with an area of 123 square meters, more or less, bounded on the North by Gavino Aparato; on the East by Rizal St., on the South by Tranquilino Manuzon; and on the West by Simplicio Aparato, and the residential house standing thereon.”iv[4]

(2) this house and lot were purchased by the spouses from its previous owner, Bonifacio Aparato, now deceased, who lived under the spouses' care and protection for some twenty years prior to his death; (3) while he was alive, Bonifacio Aparato mortgaged the said property twice, one to the Rural Bank of Binangonan and the other to Linda C. Ynares, as security for loans obtained by him; (4) the loans were paid off by the spouses thereby securing the release and cancellation of said mortgages;(5) the spouses also paid and continue to pay the real estate taxes on the property; (6) from the time of sale, they have been in open, public, continuous and uninterrupted possession of the property in the concept of

owners; (7) that on January 7, 1987, petitioner Renato Cenido, claiming to be the owner of the subject house and lot, filed a complaint for ejectment against them with the Municipal Trial Court, Branch 2, Binangonan, Rizal; (8) through fraudulent and unauthorized means, Cenido was able to cause the issuance in his name of Tax Declaration No. 02-0368 over the subject property, which fact the spouses learned only upon the filing of the ejectment case; (9) although the ejectment case was dismissed by the Municipal Trial Court (MTC), Branch 2, the tax declaration in Cenido's name was not cancelled and still subsisted; (10) the spouses have referred the matter to the barangay for conciliation but Cenido unjustifiably refused to appear thereat. The spouses thus prayed that:

“WHEREFORE, it is respectfully prayed of the Honorable Court that judgment issue in the case:

1. Declaring them (plaintiffs) the true and absolute owners of the house and lot now covered by Tax Declaration No. 02-0368;

2. Declaring Tax Declaration No. 02-0368 in the name of defendant Renato Cenido as null and void and directing the Provincial Assessor of Rizal and the Municipal Assessor of Binangonan, Rizal to register and to declare the house and lot covered by the same in their names (plaintiffs) for purposes of taxation;

3. Ordering defendant to pay them in the least amount of P50,000.00 as and for moral damages suffered;

4. Ordering defendant to pay them the amount of P10,000.00 as and for attorney's fees;

5. Ordering payment by defendant of exemplary damages in such amount which the Honorable Court may deem just and equitable in the premises;

6. Ordering defendant to pay the costs of suit; and

Plaintiffs pray for such other and further relief which the Honorable Court may deem just and equitable considering the foregoing premises.”v[5]

Petitioner Cenido answered claiming that: (1) he is the illegitimate son of Bonifacio Aparato, the deceased owner of the subject property; (2) as

Aparato's sole surviving heir, he became the owner of the property as evidenced by the cancellation of Tax Declaration No. 02-0274 in Bonifacio's name and the issuance of Tax Declaration No. 02-0368 in his name; (3) his ownership over the house and lot was also confirmed in 1985 by the Municipal Trial Court, Branch 1, Binangonan in Case No. 2264 which “adjudicated various claims involving the same subject property wherein plaintiffs were privy to the said case;” (4) that in said case, the Apacionado spouses participated in the execution of the compromise agreement partitioning the deceased's estate among his heirs, which agreement was adopted by the Municipal Trial Court as its judgment; (5) that the Apacionado spouses were allowed to stay in his father's house temporarily; (6) the mortgages on the property were obtained by his father upon request of the Apacionados who used the proceeds of the loans exclusively for themselves; (7) the real estate taxes on the property were paid for by his father, the principal, and the spouses were merely his agents; (8) the instrument attesting to the alleged sale of the house and lot by Bonifacio Aparato to the spouses is not a public document; (8) petitioner Cenido was never summoned to appear before the barangay for conciliation proceedings.vi[6]

Respondent spouses replied that: (1) Cenido is not the illegitimate son of Bonifacio, Cenido's claim of paternity being spurious; (2) the ownership of the property was not the proper subject in Civil Case No. 2264 before the MTC, Branch I, nor were the spouses parties in said case.vii[7]

The parties went to trial. Respondent spouses presented four (4) witnesses, namely, respondent Herminia Sta. Ana Apacionado; Rolando Nieves, the barangay captain; Norberto Aparato, the son of Gavino Aparato, Bonifacio's brother; and Carlos Inabayan, one of the two witnesses to the deed of sale between Bonifacio Aparato and the spouses over the property. Petitioner Cenido presented only himself as witness.

On March 30, 1993, the trial court rendered judgment. The court upheld petitioner Cenido's ownership over the property by virtue of the recognition made by Bonifacio's then surviving brother, Gavino, in the compromise judgment of the MTC. Concomitantly, the court also did not sustain the deed of sale between Bonifacio and the spouses because it was neither notarized nor signed by Bonifacio and was intrinsically defective. The court ordered thus:

“WHEREFORE, in the light of the foregoing considerations, the Court believes that preponderance of evidence is on the side of defendant and so the complaint could not be given due course. Accordingly, the case is, as it should be, dismissed. No attorney's fees or damages is being awarded as no evidence to this effect had been given by defendant. With costs against plaintiffs.

SO ORDERED.”viii[8]

Respondent spouses appealed to the Court of Appeals. In a decision dated September 30, 1997, the appellate court found the appeal meritorious and reversed the decision of the trial court. It held that the recognition of Cenido's filiation by Gavino, Bonifacio's brother, did not comply with the requirements of the Civil Code and the Family Code; that the deed between Bonifacio and respondent spouses was a valid contract of sale over the property; and Cenido's failure to object to the presentation of the deed before the trial court was a waiver of the defense of the Statute of Frauds. The Court of Appeals disposed of as follows:

“WHEREFORE, the appealed Decision is hereby REVERSED and SETASIDE. Plaintiffs-Appellants Spouses Amadeo Apacionado and Herminia Sta. Ana are declared owners of the subject house and lot now covered by Tax Declaration No. 02-6368.”ix[9]

Hence, this recourse. Petitioner Cenido alleges that:

“1. The unsigned, unnotarized and highly doubtful private document designated as “Pagpapatunay” which is solely relied upon by the respondents in support of their case is not sufficient to vest ownership of and transfer the title, rights and interest over the subject property to the respondents.

x x x.

2. The Court of Appeals departed from the accepted and usual course of judicial proceedings in that it ruled against the petitioner in view of the alleged weakness of his defense rather than evaluate the case based on the strength of the respondents’ evidence, thereby necessitating this Honorable Court's exercise of its power of supervision.”x[10]

Victoria Cenidosa, in representation of petitioner Cenido, has manifested, through counsel, that petitioner died in September 1993; that on December 18, 1985, eight years before his death, Cenido sold the subject house and lot to Maria D. Ojeda for the sum of P70,000.00; that Maria D. Ojeda is now old and sickly, and is thus being represented in the instant case by her daughter, Victoria O. Cenidosa.xi[11]

In the same vein, respondent Herminia Sta. Ana Apacionado also manifested that her husband, Amadeo Apacionado, died on August 11, 1989. Amadeo is now being represented by his compulsory heirs.xii[12]

Before ruling on petitioner's arguments, it is necessary to establish certain facts essential for a proper adjudication of the case.

The records reveal that the late Bonifacio Aparato had two siblings-- a sister named Ursula and a brother named Gavino.xiii[13] Ursula died on March 1, 1979,xiv[14] Bonifacio on January 3, 1982xv[15] and Gavino, sometime after Bonifacio's death. Both Ursula and Bonifacio never married and died leaving no legitimate offspring. Gavino's son, Norberto, however, testified that there was a fourth sibling, a sister, who married but also died; as to when she died or whether she left any heirs, Norberto did not know.xvi[16] What is clear and undisputed is that Bonifacio was survived by Gavino who also left legitimate heirs.

Both Bonifacio and Ursula lived in the subject property under the care and protection of the Apacionados. Herminia Sta. Ana Apacionado started living with them in 1976. She took care of Bonifacio and Ursula, who died three years later. Herminia married Amado Apacionado, whose paternal grandmother was a sister of Bonifacio.xvii[17] Amadeo moved into Bonifacio's house and assisted Herminia in taking care of the old man until his demise.

Shortly after Bonifacio's death, Civil Case No. 2264 was instituted by petitioner Cenido against Gavino Aparato before the Municipal Trial Court, Branch 1, Binangonan. The records do not reveal the nature of this action.xviii[18] Nevertheless, three years after filing of the case, the parties entered into a compromise agreement. The parties listed the properties of Bonifacio comprising two parcels of land: one parcel was the residential house and lot in question and the other was registered agricultural land with an area of 38,641 square meters; Gavino Aparato expressly recognized Renato Cenido as the sole illegitimate son of his

brother, likewise, Cenido recognized Gavino as the brother of Bonifacio; as Bonifacio's heirs, they partitioned his estate among themselves, with the subject property and three portions of the agricultural land as Cenido's share, and the remaining 15,309 square meters of the agricultural land as Gavino's; both parties agreed to share in the documentation, registration and other expenses for the transfer of their shares. This compromise agreement was adopted as the decision of the MTC on January 31, 1985.xix[19]

In the same year, petitioner Cenido obtained in his name Tax Declaration No. 02-6368 over the subject property. Two years later, in January 1987, he filed an ejectment case against respondent spouses who continued occupying the property in question. This case was dismissed.

Respondent spouses’ claim of ownership over the subject property is anchored on a one-page typewritten document entitled “Pagpapatunay,” executed by Bonifacio Aparato. The “Pagpapatunay” reads as follows:

“PAGPAPATUNAY

DAPAT MALAMAN NG LAHAT:

Akong si BONIFACIO APARATO, binata, Pilipino, husto sa gulang, at kasalukuyang naninirahan sa Layunan, Binangonan, Rizal, ay nagpapatunay nitong mga sumusunod:

Una: -- Na, ako ang siyang nagmamay-ari ng isang lagay na lupang SOLAR at Bahay Tirahan na nakatirik sa nabanggit na solar na makikita sa lugar ng Rizal St., Layunan, Binangonan, Rizal;

Ikalawa: -- Na, sapagkat ang nagalaga sa akin hanggang sa ako'y tuluyang kunin ng Dakilang Maykapal ay walang iba kungdi ang mag-asawang AMADEO APACIONADO at HERMINIA STA. ANA APACIONADO;

Ikatlo: -- Na, pinatutunayan ko sa mga maykapangyarihan at kanginumang tao na ang nabanggit na SOLAR at bahay tirahan ay ipinagbili ko sa nabanggit na mag-asawa sa halagang SAMPUNG LIBONG (P10,000.00) PISO, bilang pakunsuwelo sa kanilang pagmamalasakit sa aking pagkatao at kalalagayan;

Na, patunay na ito ay aking nilagdaan ng maliwanag ang aking isip at nalalaman ko ang lahat ng nilalaman nito.

SA KATUNAYAN NG LAHAT, lumagda ako ng aking pangalan at apelyido ngayong ika-10 ng Disyembre 1981, dito sa Layunan, Binangonan, Rizal.

(Thumbmarked) BONIFACIO APARATO

Nagpatunay

NILAGDAAN SA HARAP NINA:

(SGD.)(SGD.)

Virgilio O. Cenido Carlos Inabayan

- Saksi - - Saksi -”xx[20]

On its face, the document “Pagpapatunay” attests to the fact thatBonifacio Aparato was the owner of the house and lot in Layunan, Rizal; that because the Apacionado spouses took care of him until the time of his death, Bonifacio sold said property to them for the sum of P10,000.00; that he was signing the same document with a clear mind and with full knowledge of its contents; and as proof thereof, he was affixing his signature on said document on the tenth day of December 1981 in Layunan, Binangonan, Rizal. Bonifacio affixed his thumbmark on the space above his name; and this was witnessed by Virgilio O. Cenido and Carlos Inabayan.

Petitioner Cenido disputes the authenticity and validity of the“Pagpapatunay.” He claims that it is not a valid contract of sale and its genuineness is highly doubtful because: (1) it was not notarized and is merely a private instrument; (2) it was not signed by the vendor, Bonifacio; (3) it was improbable for Bonifacio to have executed the document and dictated the words “lumagda ako ng aking pangalan at apelyido” because he was paralyzed and could no longer sign his name at that time; and (4) the phrase “ang nag-alaga sa akin hanggang sa ako'y tuluyang kunin ng Dakilang Maykapal” speaks of an already departed

Bonifacio and could have been made only by persons other than the dead man himself.xxi[21]

To determine whether the “Pagpapatunay” is a valid contract of sale, it must contain the essential requisites of contracts, viz: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.xxii[22]

The object of the “Pagpapatunay” is the house and lot. The consideration is P10,000.00 for the services rendered to Aparato by respondent spouses. According to respondent Herminia Apacionado, this P10,000.00 was not actually paid to Bonifacio because the amount merely quantified the services they rendered to the old man. It was the care the spouses voluntarily gave that was the cause of the sale.xxiii[23] The cause therefore was the service remunerated.xxiv[24]

Petitioner alleges that Bonifacio did not give his consent to the deed because he did not affix his signature, but merely his thumbmark, on the document. Bonifacio was a literate person who could legibly sign his full name, and his signature is evident in several documents such as his identification card as member of the Anderson Fil-American Guerillas;xxv[25] the “Kasulatan ng Palasanglaan” dated July 25, 1974 where he and his two other siblings mortgaged the subject property for P2,000.00 to one Linda Y. Cenido;xxvi[26] “Padagdag sa Sanglaan” datedJune 16, 1976;xxvii[27] and another “Padagdag sa Sanglaan” dated March2, 1979.xxviii[28]

Respondent Herminia Sta. Ana Apacionado testified that Bonifacio Aparato affixed his thumbmark because he could no longer write at the time of execution of the document. The old man was already 61 years of age and could not properly see with his eyes. He was stricken by illness a month before and was paralyzed from the waist down. He could still speak, albeit in a garbled manner, and be understood. The contents of the“Pagpapatunay” were actually dictated by him to one Leticia Bandola who typed the same on a typewriter she brought to his house.xxix[29]

That Bonifacio was alive at the time of execution of the contract and voluntarily gave his consent to the instrument is supported by the testimony of Carlos Inabayan, the lessee of Bonifacio's billiard hall at the ground floor of the subject property. Inabayan testified that on December 10, 1981, he was summoned to go up to Bonifacio's house. There, he saw

Bonifacio, respondent Apacionados, and a woman and her husband. He was given a sheet of paper to read. He read the paper and understood that it was a deed of sale of the house and lot executed by Bonifacio in favor of the Apacionados. Thereafter, Bonifacio requested him to sign the document as witness. Reexamining the “Pagpapatunay,” Inabayan saw that Bonifacio affixed his thumbmark on the space above his name. Inabayan thus signed the document and returned to the billiard hall.xxx[30]

Inabayan's testimony has not been rebutted by petitioner. Petitioner, through counsel, waived his right to do so, finding no need to cross-examine the witness.xxxi[31] This waiver was granted by the court in the order of September 23, 1992.xxxii[32]

One who alleges any defect or the lack of a valid consent to a contract must establish the same by full, clear and convincing evidence, not merely by preponderance thereof.xxxiii[33] Petitioner has not alleged that the old man, by his physical or mental state, was incapacitated to give his consent at the time of execution of the “Pagpapatunay.” Petitioner has not shown that Bonifacio was insane or demented or a deaf-mute who did not know how to write.xxxiv[34] Neither has petitioner claimed, at the very least, that the consent of Bonifacio to the contract was vitiated by mistake, violence, intimidation, undue influence or fraud.xxxv[35] If by assailing the intrinsic defects in the wordage of the “Pagpapatunay” petitioner Cenido seeks to specifically allege the exercise of extrinsic fraud and undue influence on the old man, these defects are not substantial as to render the entire contract void. There must be clear and convincing evidence of what specific acts of undue influencexxxvi[36] or fraudxxxvii[37] were employed by respondent spouses that gave rise to said defects. Absent such proof, Bonifacio's presumed consent to the“Pagpapatunay” remains.

The “Pagpapatunay,” therefore, contains all the essential requisites of a contract. Its authenticity and due execution have not been disproved either. The finding of the trial court that the document was prepared by another person and the thumbmark of the dead Bonifacio was merely affixed to it is pure conjecture. On the contrary, the testimonies of respondent Herminia Sta. Ana and Carlos Inabayan prove that the document is authentic and was duly executed by Bonifacio himself.

The “Pagpapatunay” is undisputably a private document. And this fact does not detract from its validity. The Civil Code, in Article 1356 provides:

“Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised.”

Generally, contracts are obligatory, in whatever form such contracts may have been entered into, provided all the essential requisites for their validity are present. When, however, the law requires that a contract be in some form for it to be valid or enforceable, that requirement must be complied with.

A certain form may be prescribed by law for any of the following purposes: for validity, enforceability, or greater efficacy of the contract.xxxviii[38] When the form required is for validity, its non-observance renders the contract void and of no effect.xxxix[39] When the required form is for enforceability, non-compliance therewith will not permit, upon the objection of a party, the contract, although otherwise valid, to be proved or enforced by action.xl[40] Formalities intended for greater efficacy or convenience or to bind third persons, if not done, would not adversely affect the validity or enforceability of the contract between the contracting parties themselves.xli[41]

Article 1358 of the Civil Code requires that:

“Art. 1358. The following must appear in a public document:

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

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and1405.”

Acts and contracts which create, transmit, modify or extinguish real rights over immovable property should be embodied in a public document. Sales of real property are governed by the Statute of Frauds which reads:

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

(1) x x x

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

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

x x x

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

(3) x x x.”

The sale of real property should be in writing and subscribed by the party charged for it to be enforceable. The “Pagpapatunay” is in writing and subscribed by Bonifacio Aparato, the vendor; hence, it is enforceable

under the Statute of Frauds. Not having been subscribed and sworn to before a notary public, however, the “Pagpapatunay” is not a public document, and therefore does not comply with Article 1358, paragraph 1 of the Civil Code.

The requirement of a public document in Article 1358 is not for the validity of the instrument but for its efficacy.xlii[42] Although a conveyance of land is not made in a public document, it does not affect the validity of such conveyance.xliii[43] Article 1358 does not require the accomplishment of the acts or contracts in a public instrument in order to validate the act or contract but only to insure its efficacy,xliv[44] so that after the existence of said contract has been admitted, the party bound may be compelled to execute the proper document.xlv[45] This is clear from Article 1357, viz:

“Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article [Article 1358], the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract.”

The private conveyance of the house and lot is therefore valid between Bonifacio Aparato and respondent spouses. The question of whether the“Pagpapatunay” is sufficient to transfer and convey title to the land for purposes of original registrationxlvi[46] or the issuance of a real estate tax declaration in respondent spouses' names, as prayed for by respondent spouses,xlvii[47] is another matter altogether.xlviii[48] For greater efficacy of the contract, convenience of the parties and to bind third persons, respondent spouses have the right to compel the vendor or his heirs to execute the necessary document to properly convey the property.xlix[49]

Anent petitioner's second assigned error, the fact that the Court ofAppeals sustained the validity of the “Pagpapatunay” was not a conclusion that necessarily resulted from the weakness of petitioner's claim of filiation to Bonifacio Aparato. Of and by itself, the “Pagpapatunay” is a valid contract of sale between the parties and the Court of Appeals did not err in upholding its validity.

The issue of petitioner's paternity, however, is essential to determine whether Tax Declaration No. 02-6368 in the name of petitioner Cenido

should be nullified, as prayed for by respondent spouses in their complaint.

Tax Declaration No. 02-6368l[50] in petitioner Cenido's name was issued pursuant to the compromise judgment of the MTC where Gavino Aparato, Bonifacio's brother, expressly recognized petitioner Cenido as Bonifacio's sole illegitimate son. The compromise judgment was rendered in 1985, three years after Bonifacio's demise.

Under the Civil Code,li[51] natural children and illegitimate children other than natural are entitled to support and successional rights only when recognized or acknowledged by the putative parent.lii[52] Unless recognized, they have no rights whatsoever against their alleged parent or his estate.liii[53]

The filiation of illegitimate children may be proved by any of the forms of recognition of natural children.liv[54] This recognition may be made in three ways:lv[55] (1) voluntarily, which must be express such as that in a record of birth, a will, a statement before a court of record, or in any authentic writing;lvi[56] (2) legally, i.e., when a natural child is recognized, such recognition extends to his or her brothers and sisters of the full blood;lvii[57] and (3) judicially or compulsorily, which may be demanded by the illegitimate child of his parents.lviii[58] The action for compulsory recognition of the illegitimate child must be brought during the lifetime of the presumed parents. This is explicitly provided in Article 285 of the Civil Code, viz:

“Art. 285. The action for the recognition of natural children may be brought only during the lifetime of the presumed parents, except in the following cases:

(1) If the father or mother died during the minority of the child, in which case the latter may file the action before the expiration of four years from the attainment of his majority;

(2) If after the death of the father or of the mother a document should appear of which nothing had been heard and in which either or both parents recognize the child.

In this case, the action must be commenced within four years from the finding of the document.”

The illegitimate child can file an action for compulsory recognition only during the lifetime of the presumed parent. After the parent's death, the child cannot bring such action, except, however, in only two instances: one is when the supposed parent died during the minority of the child, and the other is when after the death of the parent, a document should be discovered in which the parent recognized the child as his. The action must be brought within four years from the attainment of majority in the first case, and from the discovery of the document in the second case. The requirement that the action be filed during the parent's lifetime is to prevent illegitimate children, on account of strong temptations to large estates left by dead persons, to claim part of this estate without giving the alleged parent personal opportunity to be heard.lix[59] It is vital that the parent be heard for only the parent is in a position to reveal the true facts surrounding the claimant's conception.lx[60]

In the case at bar, petitioner Cenido did not present any record of birth, will or any authentic writing to show he was voluntarily recognized by Bonifacio as his illegitimate son. In fact, petitioner admitted on the witness stand that he had no document to prove Bonifacio's recognition, much less his filiation.lxi[61] The voluntary recognition of petitioner's filiation by Bonifacio's brother before the MTC does not qualify as a“statement in a court of record.” Under the law, this statement must be made personally by the parent himself or herself, not by any brother, sister or relative; after all, the concept of recognition speaks of a voluntary declaration by the parent, or if the parent refuses, by judicial authority, to establish the paternity or maternity of children born outside wedlock.lxii[62]

The compromise judgment of the MTC does not qualify as a compulsory recognition of petitioner. In the first place, when he filed this case against Gavino Aparato, petitioner was no longer a minor. He was already pushing fifty years old.lxiii[63] Secondly, there is no allegation that after Bonifacio's death, a document was discovered where Bonifacio recognized petitioner Cenido as his son. Thirdly, there is nothing in the compromise judgment that indicates that the action before the MTC was a settlement of Bonifacio's estate with a gross value not exceeding P20,000.00.lxiv[64] Definitely, the action could not have been for compulsory recognition because the MTC had no jurisdiction over the subject matter.lxv[65]

The Real Property Tax Code provides that real property tax be assessed in the name of the person “owning or administering” the property on which the tax is levied.lxvi[66] Since petitioner Cenido has not proven any successional or administrative rights to Bonifacio's estate, Tax Declaration No. 02-6368 in Cenido's name must be declared null and void.

IN VIEW WHEREOF, the petition is denied and the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 41011 are affirmed. Tax Declaration No. 02-6368 in the name of petitioner Renato Cenido is declared null and void.

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Kapunan, Pardo, and Ynares-Santiago, JJ., concur.

G.R. No. 153447 February 23, 2004

VICENTE G. VILLARANDA, petitioner, vs.Spouses HONORIO G. VILLARANDA and ANA MARIA Y. VILLARANDA; and COLORHOUSE LABORATORIES, INC., respondents.

D E C I S I O N

PANGANIBAN, J.:

Without the wife’s consent, the husband’s alienation or encumbrance of conjugal property prior to the effectivity of the Family Code is not void, but merely voidable.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the October 25, 2001 Decision2 and the April 23, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 55810. The assailed Decision disposed as follows:

"UPON THE VIEW WE TAKE OF THIS CASE, the present appeal is hereby DISMISSED and the judgment appealed from AFFIRMED in toto. Costs shall be taxed against appellant."4

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The trial court’s Decision that was affirmed by the CA had disposed as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant:

"(a) ORDERING the latter to reconvey to plaintiffs Lot 448-B-7 covered by Transfer Certificate of Title No. T-65893 Registry of Deeds of Cagayan de Oro City located at Divisoria, Cagayan de Oro City, in his name without any consideration; and

"(b) ORDERING defendant to choose his 500 square-meter portion on the lot of plaintiffs at Bontola, Macasandig, Cagayan de Oro City. After he shall have chosen his 500 square meter portion of the lot of plaintiff, plaintiff shall thru a surveyor, segregate this portion. After the subdivision plan shall have been approved by the Executive Director of the DENR, Region 10, Cagayan de Oro City, to execute a deed of conveyance in favor of defendant over this 500 square-meter portion of his land located at Bontola, Macasandig, Cagayan de Oro City, also without consideration;

"(c) With this judgment, plaintiffs and intervenor may now consummate their transaction.

"WITHOUT PRONOUNCEMENT AS TO COSTS."5

The Facts

This controversy revolves around a Deed of Exchange executed by and between two brothers, herein Petitioner Vicente Villaranda and Private Respondent Honorio Villaranda.

A 471-square-meter parcel of land located at Divisoria, Cagayan de Oro City, was left to the two brothers and their eight other siblings by their parents. Estate Administrator Bebiano Luminarias leased 124 square meters of the property to Honorio starting on May 1, 1976, until May 31, 1986. Vicente, on the other hand, inherited 64.22 square meters of the property that had not been leased to Honorio.6

On July 6, 1976, the two brothers executed the assailed Deed of Exchange. Under this instrument, Vicente agreed to convey his 64.22-square-meter portion to Honorio, in exchange for a 500-square-meter property in Macasandig, Cagayan de Oro City, which was covered by Transfer Certificate of Title (TCT) No. 2138.7

After the execution of the Deed, Honorio took possession of the 64.22-square-meter lot and constructed a building thereon.8

Years later, on April 6, 1992, a subdivision plan for Lot 448-B was completed, in pursuit of which TCT No. T-65893 for the 64.22 square-meter share of Vicente was issued in his name and designated as Lot 448-B-7. The other heirs were issued their own TCTs for their respective shares.9

Honorio and his wife, Respondent Ana Maria Y. Villaranda, then brought an action for specific performance10 before the Regional Trial Court (RTC) of Cagayan de Oro City (Branch 24) to compel Vicente to comply with his obligations under the Deed of Exchange. The spouses alleged that they could not fully use or dispose of their Macasandig property, because Vicente had yet to identify and delineate his undivided 500- square-meter portion of the property. They asked the court to compel him to do so, as well as to convey to them the 64.22-square-meter Divisoria lot, in compliance with his obligations under the Deed.11

During the pendency of the case, Honorio conditionally sold the Divisoria lot to Colorhouse Laboratories, Inc. which, by virtue thereof, intervened in the civil case.12

Vicente did not deny that he had entered into the Deed of Exchange with Honorio. The former, however, averred that he was not bound thereby,13 contending that because the property had not been delivered, the Deed had not been consummated. Moreover, he claimed that the Deed had already been revoked by both parties.14 According to him, he, together with his co-heirs, requested Honorio to agree to its rescission, because the

considerations therein were iniquitous. Honorio agreed, provided certain conditions he had disclosed were met.15 Vicente contended that he had complied with those conditions; and that, therefore, he and respondent spouses had already revoked the Deed of Exchange.

During pretrial, the parties stipulated the following facts: (a) the existence and due execution of the Deed of Exchange; (b) the identity of the parties; (c) the existence of TCT No. T-65893, which had been registered in the Registry of Deeds of Cagayan de Oro City in the name of petitioner; and (d) the physical possession by Colorhouse, through Honorio, of the 64.22-square-meter Divisoria lot.16 As already stated, the trial court ruled in favor of respondent spouses.

Ruling of the Court of Appeals

On appeal, the CA held that the provisions of the Civil Code were applicable to the case at bar, since the Deed of Exchange had been entered into prior to the enactment of the Family Code.17 Thus, the absence of the wife’s signature on the Deed made it only voidable,18 not void.

The CA further found that Ana was aware of the execution of the Deed,19 and yet she brought no action for its annulment within ten (10) years from its execution. Her omission or refusal to rescind it, as well as her act of joining her husband in filing the case for

specific performance, points to the conclusion that she assented to the Deed.20

The CA also ruled that the spouses’ cause of action had accrued, not from the date of the execution of the Deed, but only from the moment Vicente refused to cause the transfer of his title to Honorio, some two months before the filing of the present case. It was only then that the prescriptive period commenced to run.21

Further, the CA held that as regards the capacity of the parties to enter into the Deed of Exchange, the only time to be reckoned with was the moment of its execution.22 Honorio acquired his American citizenship only in September 1992, which was years thereafter.23 The CA further explained that according to the 1987 Constitution, a natural-born citizen of the Philippines who had lost Philippine citizenship may own private lands.24

Finally, the appellate court ruled that the circumstances at the time the parties entered into the Deed showed that the consideration was not altogether unconscionable as to warrant voiding the Contract.25

Hence, this Petition.26

The Issues

In his Memorandum,27 petitioner raises two issues for our consideration:

I.

"Whether there was a perfected and consummated deed of exchange on account of the following:

a) There was no specific identification and delineation of the object of the Deed of Exchange and that there was a condition precedent for petitioner to examine and accept the specific area to effect the exchange;

b) There was a need for another contract to be executed in order to identify the object of the exchange;

c) There was no acceptance and actual delivery of the 500 square meters lot to petitioner at any given time;

II.

Whether the Deed of Exchange which was not signed by the wife of Respondent Honorio G. Villaranda is valid and enforceable."28

The Court’s Ruling

The Petition has no merit.

First Issue:

Perfection and Consummation of the Deed of Exchange

Petitioner argues that the Contract was not perfected or consummated because, at the time of its execution, its object was not determinate or at least not determinable without need for a new agreement between the parties, as mandated by the provisions of the law on sales.29 He argues that, first, he has to make an ocular inspection of the area; second, the particular 500-square-meter portion of the Macasandig lot that is the object of the Deed still has to be particularly identified and delineated; third, the finally determined portion is still subject to the acceptance and agreement of the parties; and lastly, absent a delineation of the specified portion, no delivery -- which is essential to the perfection of the contract -- is possible.30 He further contends that, at best, he merely gave a qualified acceptance amounting to a counter-offer, which was contingent upon the final delineation and acceptance of the 500-square-meter portion.31

Respondent spouses, on the other hand, argue that petitioner should not be allowed to adopt a new theory of the case by impugning the validity of the Deed based on a different ground that was not alleged in the pleadings or raised before the lower and the appellate courts.32

In any event, respondent spouses contend that the Deed contains all the essential elements of a contract --consent, object and consideration.33 They insist that what needs to be executed is not another contract to give effect to their original agreements, but one

in the nature of a partition agreement.34 They aver that the Deed is akin to a contract of co-ownership, because it involves the conveyance of an undivided interest over land. Further agreement between the parties is necessary only to effect partition of the properties and thus terminate the existing co-ownership.35

Respondent Colorhouse raises the same issues as those brought up by respondent spouses. It adds that when petitioner asked that the agreement be revoked, he was estopped from claiming its non-perfection, because revocation presupposes the existence of a valid contract.36

Petitioner’s contentions must fail. It is well-settled that points of law, theories, issues and arguments not brought to the attention of the lower court need not be -- and ordinarily will not be -- considered by a reviewing court, as they cannot be raised for the first time at that late stage.37 Basic rules of fair play, justice and due process impel this rule. Any issue raised for the first time on appeal is barred by estoppel.38

There are, however, exceptions to the general rule.39 Though not raised below, the following issues may be considered by the reviewing court: lack of jurisdiction over the subject matter, as this issue may be raised at any stage; plain error;40 jurisprudential developments affecting the issues; or the raising of a matter of public policy.41

Too late in the day is petitioner’s argument that the Deed of Exchange is null and void on the ground that the object of the contract is not determinate or at least determinable. Considering that this issue does not fall under any of the enumerated exceptions, there is no cogent reason for the Court to pass upon it.

Second Issue:

Absence of Spouse’s Signature

Petitioner also contends that the Deed of Exchange is null and void because the signature of Honorio’s wife, Ana, does not appear on the instrument.42 To support his argument, he cites the Family Code; as well as Garcia v. Court of Appeals43 and Nicolas v. Court of Appeals,44 in which the Court declared the Deeds of Sale void because of the absence of the wives’ conformity to the disposition of the conjugal properties involved therein.

Respondents, on the other hand, argue that the absence of the signature of Ana on the Deed does not prove lack of her consent thereto, because a contract may validly exist even if the parties have not reduced their stipulations to writing.45 Too, assuming that her consent to the Deed is lacking, such fact would not render the agreement void, but merely voidable.46

Indeed, petitioner’s contention is untenable. The Deed was entered into on July 6, 1976, while the Family Code took effect only on August 3, 1998. Laws should be applied prospectively only, unless a legislative intent to give them retroactive effect is expressly

declared or is necessarily implied from the language used.47 Hence, the provisions of the

Civil Code, not the Family Code,48 are applicable to the present case. The Macasandig lot was part of Honorio and Ana’s conjugal properties. The relevant provisions of theCivil Code on the disposition of real properties of the conjugal partnership are the following:

"Article 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without the wife’s consent. x x x

"Article 173. The wife may, during the marriage, and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs, after the dissolution of the marriage, may demand the value of the property fraudulently alienated by the husband."

According to Article 166, the husband cannot alienate or encumber any real property of the conjugal partnership without the wife’s consent. This provision, however, must be read in conjunction with Article 173 of the same Code. The latter states that an action to annul an alienation or encumbrance may be instituted by the wife during the marriage and within ten years from the transaction questioned. Videlicet, the lack of consent on her part will not make the husband’s alienation or encumbrance of real property of the conjugal partnership void, but merely voidable.49 Hence, the Deed is valid until and unless annulled.

In this case, the records show no evidence that any action to annul the transfer made by Honorio was ever brought by Ana within ten years from "the transaction questioned." Her right to bring an action to invalidate the contract has thus prescribed. Hence, the assailed Deed is still valid and enforceable.

Moreover, in Papa v. Montenegro,50 the Court explained that the legal prohibition against the disposition of conjugal property by one spouse without consent of the other has been established for the benefit, not of third persons, but only of the other spouse for whom the law desires to save the conjugal partnership from damages that might be caused. Not being the proper party, Vicente cannot avail himself of the remedy prescribed by Article 173.

Furthermore, his reliance on Garcia v. Court of Appeals and Nicolas v. Court of Appeals is misplaced. Unlike the present case, the cited cases involve a Petition brought by one of the spouses for the annulment of the contracts entered into by the other spouse. Additionally, we must point out that contrary to petitioner’s contention, the contracts involved therein were not void ab initio, but merely voidable.

WHEREFORE, the Petition is DENIED and the challenged Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

[G.R. No. 125172. June 26, 1998]

Spouses ANTONIO and LUZVIMINDA GUIANG, petitioners, vs. COURT OFAPPEALS and GILDA CORPUZ, respondents.

D E C I S I O N

PANGANIBAN, J.:

The sale of a conjugal property requires the consent of both the husband and the wife. The absence of the consent of one renders the sale null and void, while the vitiation thereof makes it merely voidable. Only in the latter case can ratification cure the defect.

The Case

These were the principles that guided the Court in deciding this petition for review of the Decisionlxvii[1] dated January 30, 1996 and the Resolutionlxviii[2] dated May 28, 1996, promulgated by the Court of Appeals in CA-GR CV No. 41758, affirming the Decision of the lower court and denying reconsideration, respectively.

On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended Complaintlxix[3] against her husband Judie Corpuz and Petitioners-SpousesAntonio and Luzviminda Guiang. The said Complaint sought the declaration of a certain deed of sale, which involved the conjugal property of private respondent and her husband, null and void. The case was raffled to the Regional Trial Court of Koronadal, South Cotabato, Branch 25. In due course, the trial court rendered a Decisionlxx[4] dated September 9, 1992, disposing as follows:lxxi[5]

―ACCORDINGLY, judgment is rendered for the plaintiff and against the defendants,

1. Declaring both the Deed of Transfer of Rights dated March 1, 1990 (Exh. ‗A‘) and the ‗amicable settlement‘ dated March 16, 1990 (Exh. ‗B‘) as null and void and of no effect;

2. Recognizing as lawful and valid the ownership and possession of plaintiff Gilda Corpuz over the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409 which has been the subject of the Deed of Transfer of Rights (Exh. ‗A‘);

3. Ordering plaintiff Gilda Corpuz to reimburse defendants Luzviminda and Antonio Guiang the amount of NINE THOUSAND (P9,000.00) PESOS corresponding to the payment made by defendants Guiangs to Manuel Callejo for the unpaid balance of the account of plaintiff in favor of Manuel Callejo, and another sum of P379.62 representing one-half of the amount of realty taxes paid by defendants Guiangs on Lot 9, Block 8, (LRC) Psd-165409, both with legal interests thereon computed from the finality of the decision.

No pronouncement as to costs in view of the factual circumstances of the case.‖

Dissatisfied, petitioners-spouses filed an appeal with the Court of Appeals. Respondent Court, in its challenged Decision, ruled as follows:lxxii[6]

―WHEREFORE, the appealed decision of the lower court in Civil CaseNo. 204 is hereby AFFIRMED by this Court. No costs considering plaintiff-appellee‘s failure to file her brief, despite notice.‖

Reconsideration was similarly denied by the same court in its assailedResolution:lxxiii[7]

―Finding that the issues raised in defendants-appellants‘ motion for reconsideration of Our decision in this case of January 30, 1996, to be a mere rehash of the same issues which We have already passed upon in the said decision, and there [being] no cogent reason to disturb the same, this Court RESOLVES to DENY the instant motion for reconsideration for lack of merit.‖

The Facts

The facts of this case are simple. Over the objection of private respondent and while she was in Manila seeking employment, her husband sold to the petitioners-spouses one half of their conjugal property, consisting of their residence and the lot on which it stood. The circumstances of this sale are set forth in the Decision of Respondent Court, which quoted from the Decision of the trial court, as follows:lxxiv[8]

―1. Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married spouses. They were married on December 24, 1968 in

Bacolod City, before a judge. This is admitted by defendants-spouses Antonio and Luzviminda Guiang in their answer, and also admitted by defendant Judie Corpuz when he testified in court (tsn. p..3, June 9,1992), although the latter says that they were married in 1967. The couple have three children, namely: Junie – 18 years old, Harriet – 17 years of age, and Jodie or Joji, the youngest, who was 15 years of age in August, 1990 when her mother testified in court.

Sometime on February 14, 1983, the couple Gilda and Judie Corpuz, with plaintiff-wife Gilda Corpuz as vendee, bought a 421 sq. meter lot located in Barangay Gen. Paulino Santos (Bo. 1), Koronadal, SouthCotabato, and particularly known as Lot 9, Block 8, (LRC) Psd-165409 from Manuel Callejo who signed as vendor through a conditional deed of sale for a total consideration of P14,735.00. The consideration was payable in installment, with right of cancellation in favor of vendor should vendee fail to pay three successive installments (Exh. ‗2‘, tsn. p.6, February 14, 1990).

2. Sometime on April 22, 1988, the couple Gilda and Judie Corpuz sold one-half portion of their Lot No. 9, Block 8, (LRC) Psd-165409 to the defendants-spouses Antonio and Luzviminda Guiang. The latter have since then occupied the one-half portion [and] built their house thereon (tsn. p. 4, May 22, 1992). They are thus adjoining neighbors of the Corpuzes.

3. Plaintiff Gilda Corpuz left for Manila sometime in June 1989. She was trying to look for work abroad, in [the] Middle East. Unfortunately, she became a victim of an unscrupulous illegal recruiter. She was not able to go abroad. She stayed for sometime in Manila however, coming back to Koronadal, South Cotabato, x x x on March 11, 1990. Plaintiff‘s departure for Manila to look for work in the Middle East was with the consent of her husband Judie Corpuz (tsn. p. 16, Aug.12, 1990; p. 10, Sept. 6, 1991).

After his wife‘s departure for Manila, defendant Judie Corpuz seldom went home to the conjugal dwelling. He stayed most of the time at his place of work at Samahang Nayon Building, a hotel, restaurant, and a cooperative. Daughter Harriet Corpuz went to school at King‘s College,Bo. 1, Koronadal, South Cotabato, but she was at the same time working as household help of, and staying at, the house of Mr. Panes. Her brother Junie was not working. Her younger sister Jodie (Joji) was going to school. Her mother sometimes sent them money (tsn. p. 14, Sept. 6, 1991).

Sometime in January 1990, Harriet Corpuz learned that her father intended to sell the remaining one-half portion including their house, of their homelot to defendants Guiangs. She wrote a letter to her mother informing her. She [Gilda Corpuz] replied that she was objecting to the sale. Harriet, however, did not inform her father about this; but instead gave the letter to Mrs. Luzviminda Guiang so that she [Guiang] would advise her father (tsn. pp. 16-17, Sept. 6, 1991).

4. However, in the absence of his wife Gilda Corpuz, defendant Judie Corpuz pushed through the sale of the remaining one-half portion ofLot 9, Block 8, (LRC) Psd-165409. On March 1, 1990, he sold to defendant Luzviminda Guiang thru a document known as ‗Deed ofTransfer of Rights‘ (Exh. ‗A‘) the remaining one-half portion of their lot and the house standing thereon for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June , 1990. Transferor JudieCorpuz‘s children Junie and Harriet signed the document as witnesses.

Four (4) days after March 1, 1990 or on March 5, 1990, obviously to cure whatever defect in defendant Judie Corpuz‘s title over the lot transferred, defendant Luzviminda Guiang as vendee executed another agreement over Lot 9, Block 8, (LRC) Psd-165408 (Exh. ‗3‘), this time with Manuela Jimenez Callejo, a widow of the original registered owner from whom the couple Judie and Gilda Corpuz originally bought the lot(Exh. ‗2‘), who signed as vendor for a consideration of P9,000.00.Defendant Judie Corpuz signed as a witness to the sale (Exh. ‗3-A‘).The new sale (Exh. ‗3‘) describes the lot sold as Lot 8, Block 9, (LRC)Psd-165408 but it is obvious from the mass of evidence that the correct lot is Lot 8, Block 9, (LRC) Psd-165409, the very lot earlier sold to the couple Gilda and Judie Corpuz.

5. Sometime on March 11, 1990, plaintiff returned home. She found her children staying with other households. Only Junie was staying in their house. Harriet and Joji were with Mr. Panes. Gilda gathered her children together and stayed at their house. Her husband was nowhere to be found. She was informed by her children that their father had a wife already.

6. For staying in their house sold by her husband, plaintiff was complained against by defendant Luzviminda Guiang and her husband Antonio Guiang before the Barangay authorities of Barangay General Paulino Santos (Bo. 1), Koronadal, South Cotabato, for trespassing (tsn. p. 34, Aug. 17, 1990). The case was docketed by the barangay authorities as Barangay Case No. 38 for ‗trespassing‘. On March 16, 1990, the parties thereat signed a document known as ‗amicable settlement‘. In full, the settlement provides for, to wit:

‗That respondent, Mrs. Gilda Corpuz and her three children, namely: Junie, Hariet and Judie to leave voluntarily the house of Mr. and Mrs. Antonio Guiang, where they are presently boarding without any charge, on or before April 7, 1990.

FAIL NOT UNDER THE PENALTY OF THE LAW.‘

Believing that she had received the shorter end of the bargain, plaintiff went to the Barangay Captain of Barangay Paulino Santos to question her signature on the amicable settlement. She was referred however to the Officer-In-Charge at the time, a certain Mr. de la Cruz. The latter

in turn told her that he could not do anything on the matter (tsn. p. 31, Aug. 17, 1990).

This particular point was not rebutted. The Barangay Captain who testified did not deny that Mrs. Gilda Corpuz approached him for the annulment of the settlement. He merely said he forgot whether Mrs.Corpuz had approached him (tsn. p. 13, Sept. 26, 1990). We thus conclude that Mrs. Corpuz really approached the Barangay Captain for the annulment of the settlement. Annulment not having been made, plaintiff stayed put in her house and lot.

7. Defendant-spouses Guiang followed thru the amicable settlement with a motion for the execution of the amicable settlement, filing the same with the Municipal Trial Court of Koronadal, South Cotabato. The proceedings [are] still pending before the said court, with the filing of the instant suit.

8. As a consequence of the sale, the spouses Guiang spent P600.00 for the preparation of the Deed of Transfer of Rights, Exh. ‗A‘; P9,000.00 as the amount they paid to Mrs. Manuela Callejo, having assumed the remaining obligation of the Corpuzes to Mrs. Callejo (Exh. ‗3‘); P100.00 for the preparation of Exhibit ‗3‘; a total of P759.62 basic tax and special educational fund on the lot; P127.50 as the total documentary stamp tax on the various documents; P535.72 for the capital gains tax; P22.50 as transfer tax; a standard fee of P17.00; certification fee of P5.00. These expenses particularly the taxes and other expenses towards the transfer of the title to the spouses Guiangs were incurred for the whole Lot 9, Block 8, (LRC) Psd-165409.‖

Ruling of Respondent Court

Respondent Court found no reversible error in the trial court‘s ruling that any alienation or encumbrance by the husband of the conjugal property without the consent of his wife is null and void as provided under Article 124 of the FamilyCode. It also rejected petitioners‘ contention that the ―amicable settlement‖ ratified said sale, citing Article 1409 of the Code which expressly bars ratification of the contracts specified therein, particularly those ―prohibited or declared void by law.‖

Hence, this petition.lxxv[9]

The Issues

In their Memorandum, petitioners assign to public respondent the following errors:lxxvi[10]

―I

Whether or not the assailed Deed of Transfer of Rights was validly executed.

II

Whether or not the Court of Appeals erred in not declaring as voidable contract under Art. 1390 of the Civil Code the impugned Deed ofTransfer of Rights which was validly ratified thru the execution of the‗amicable settlement‘ by the contending parties.

III

Whether or not the Court of Appeals erred in not setting aside the findings of the Court a quo which recognized as lawful and valid the ownership and possession of private respondent over the remaining one half (1/2) portion of the subject property.‖

In a nutshell, petitioners-spouses contend that (1) the contract of sale (Deed of Transfer of Rights) was merely voidable, and (2) such contract was ratified by private respondent when she entered into an amicable settlement with them.

This Court‘s Ruling

The petition is bereft of merit.

First Issue: Void or Voidable Contract?

Petitioners insist that the questioned Deed of Transfer of Rights was validly executed by the parties-litigants in good faith and for valuable consideration.The absence of private respondent‘s consent merely rendered the Deed voidable under Article 1390 of the Civil Code, which provides:

―ART. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:

x x x x x x x x x

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.(n)‖

The error in petitioners‘ contention is evident. Article 1390, par. 2, refers to contracts visited by vices of consent, i.e., contracts which were entered into by a person whose consent was obtained and vitiated through mistake, violence, intimidation, undue influence or fraud. In this instance, private respondent‘s

consent to the contract of sale of their conjugal property was totally inexistent or absent. Gilda Corpuz, on direct examination, testified thus:lxxvii[11]

―Q Now, on March 1, 1990, could you still recall where you were?

A I was still in Manila during that time.

x x x x x x x x x

ATTY. FUENTES:

Q When did you come back to Koronadal, South Cotabato?

A That was on March 11, 1990, Ma‘am.

Q Now, when you arrived at Koronadal, was there any problem which arose concerning the ownership of your residential house at Callejo Subdivision?

A When I arrived here in Koronadal, there was a problem which arose regarding my residential house and lot because it was sold by my husband without my knowledge.‖

This being the case, said contract properly falls within the ambit of Article 124 of the Family Code, which was correctly applied by the two lower courts:

―ART. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husband‘s decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.(165a)‖ (Italics supplied)

Comparing said law with its equivalent provision in the Civil Code, the trial court adroitly explained the amendatory effect of the above provision in this wise:lxxviii[12]

―The legal provision is clear. The disposition or encumbrance is void.It becomes still clearer if we compare the same with the equivalent provision of the Civil Code of the Philippines. Under Article 166 of theCivil Code, the husband cannot generally alienate or encumber any real property of the conjugal partnership without the wife‘s consent.The alienation or encumbrance if so made however is not null and void. It is merely voidable. The offended wife may bring an action to annul the said alienation or encumbrance. Thus, the provision of Article 173 of the Civil Code of the Philippines, to wit:

‗Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property.Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband.(n)‘

This particular provision giving the wife ten (10) years x x x during [the] marriage to annul the alienation or encumbrance was not carried over to the Family Code. It is thus clear that any alienation or encumbrance made after August 3, 1988 when the Family Code took effect by the husband of the conjugal partnership property without the consent of the wife is null and void.‖

Furthermore, it must be noted that the fraud and the intimidation referred to by petitioners were perpetrated in the execution of the document embodying the amicable settlement. Gilda Corpuz alleged during trial that barangay authorities made her sign said document through misrepresentation and coercion.lxxix[13]In any event, its execution does not alter the void character of the deed of sale between the husband and the petitioners-spouses, as will be discussed later.The fact remains that such contract was entered into without the wife‘s consent.

In sum, the nullity of the contract of sale is premised on the absence of private respondent‘s consent. To constitute a valid contract, the Civil Code requires the concurrence of the following elements: (1) cause, (2) object, and (3) consent,lxxx[14] the last element being indubitably absent in the case at bar.

Second Issue: Amicable Settlement

Insisting that the contract of sale was merely voidable, petitioners aver that it was duly ratified by the contending parties through the ―amicable settlement‖ they executed on March 16, 1990 in Barangay Case No. 38.

The position is not well taken. The trial and the appellate courts have resolved this issue in favor of the private respondent. The trial court correctly held:lxxxi[15]

―By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed of Transfer of Rights (Exh. ‗A‘) cannot be ratified, even by an ‗amicable settlement‘. The participation by some barangay authorities in the ‗amicable settlement‘ cannot otherwise validate an invalid act. Moreover, it cannot be denied that the ‗amicable settlement‘ (Exh. ‗B‘) entered into by plaintiff Gilda Corpuz and defendant spouses Guiang is a contract. It is a direct offshoot of the Deed of Transfer of Rights (Exh.‗A‘). By express provision of law, such a contract is also void. Thus, the legal provision, to wit:

‗Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.‘ (Civil Code of thePhilippines).

In summation therefore, both the Deed of Transfer of Rights (Exh. ‗A‘) and the ‗amicable settlement‘ (Exh. ‗3‘) are null and void.‖

Doctrinally and clearly, a void contract cannot be ratified.lxxxii[16]

Neither can the ―amicable settlement‖ be considered a continuing offer that was accepted and perfected by the parties, following the last sentence of Article 124.The order of the pertinent events is clear: after the sale, petitioners filed a complaint for trespassing against private respondent, after which the barangay authorities secured an ―amicable settlement‖ and petitioners filed before theMTC a motion for its execution. The settlement, however, does not mention a continuing offer to sell the property or an acceptance of such a continuing offer.Its tenor was to the effect that private respondent would vacate the property. By no stretch of the imagination, can the Court interpret this document as the acceptance mentioned in Article 124.

WHEREFORE, the Court hereby DENIES the petition and AFFIRMS the challenged Decision and Resolution. Costs against petitioners.

SO ORDERED.

Davide, Jr., (Chairman), Bellosillo, Vitug, and Quisumbing, JJ., concur.