[G.R. No. 151212.  September 10, 2003]

TEN FORTY REALTY AND DEVELOPMENT CORP., Represented by its President,

VERONICA G. LORENZANA, petitioner, vs. MARINA CRUZ, respondent.

D E C I S I O N

PANGANIBAN, J.:

In an ejectment suit, the question of ownership may be provisionally ruled upon for

the sole purpose of determining who is entitled to possession de facto.  In the present

case, both parties base their alleged right to possess on their right to own.  Hence, the

Court of Appeals did not err in passing upon the question of ownership to be able to

decide who was entitled to physical possession of the disputed land.

The Case

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

nullify the August 31, 2001 Decision[2] and December 19, 2001 Resolution[3] of the Court

of Appeals (CA) in CA- GR SP No. 64861.  The dispositive portion of the assailed

Decision is as follows:

“WHEREFORE, premises considered, the petition is hereby DISMISSED and the

Decision dated May 4, 2001 is hereby AFFIRMED.”[4]

The assailed Resolution denied petitioner's Motion for Reconsideration.

The Facts

The facts of the case are narrated by the CA as follows:

“A complaint for ejectment was filed by [Petitioner Ten Forty Realty and Development

Corporation] against x x x  [Respondent Marina Cruz] before the Municipal Trial Court in

Cities (MTCC) of Olongapo City, docketed as Civil Case 4269, which alleged

that:  petitioner is the true and absolute owner of a parcel of lot and residential house

situated in #71 18th Street, E.B.B. Olongapo City, particularly described as:

‘A parcel of residential house and lot situated in the above-mentioned address

containing an area of 324 square meters more or less bounded on the Northeast by 041

(Lot 255, Ts-308); on the Southeast by 044 (Lot 255, Ts-308); on the Southwest by 043

(Lot 226-A & 18th street) and on the Northwest by 045 (Lot 227, Ts-308) and declared

for taxation purposes in the name of [petitioner] under T.D. No. 002-4595-R and 002-

4596.’having acquired the same on December 5, 1996 from Barbara Galino by virtue of

a Deed of Absolute Sale; the sale was acknowledged by said Barbara Galino through a

'Katunayan'; payment of the capital gains tax for the transfer of the property was

evidenced by a Certification Authorizing Registration issued by the Bureau of Internal

Revenue;  petitioner came to know that Barbara Galino sold the same property on April

24, 1998 to Cruz, who immediately occupied the property and which occupation was

merely tolerated by petitioner; on October 16, 1998, a complaint for ejectment was filed

with the Barangay East Bajac-Bajac, Olongapo City but for failure to arrive at an

amicable settlement, a Certificate to File Action was issued;  on April 12, 1999 a

demand letter was sent to [respondent] to vacate and pay reasonable amount for the

use and occupation of the same, but was ignored by the latter; and due to the refusal of

[respondent]  to vacate the premises, petitioner was constrained to secure the services

of a counsel for an agreed fee of P5,000.00 as attorney’s fee and P500.00 as

appearance fee and incurred an expense of P5,000.00 for litigation.

“In respondent’s Answer with Counterclaim, it was alleged that: petitioner is not qualified

to own the residential lot in dispute, being a public land; according to Barbara Galino,

she did not sell her house and lot to petitioner but merely obtained a loan from Veronica

Lorenzana;  the payment of the capital gains tax does not necessarily show that the

Deed of Absolute Sale was at that time already in existence; the court has no

jurisdiction over the subject matter because the complaint was filed beyond the one (1)

year period after the alleged unlawful deprivation of possession; there is no allegation

that petitioner had been in prior possession of the premises and the same was lost thru

force, stealth or violence; evidence will show that it was Barbara Galino who was in

possession at the time of the sale and vacated the property in favor of

respondent;  never was there an occasion when petitioner occupied a portion of the

premises, before respondent occupied the lot in April 1998, she caused the cancellation

of the tax declaration in the name of Barbara Galino and a new one issued in

respondent’s name; petitioner obtained its tax declaration over the same property on

November 3, 1998, seven (7) months [after] the respondent [obtained hers]; at the time

the house and lot [were] bought by respondent, the house was not habitable, the power

and water connections were disconnected; being a public land, respondent filed a

miscellaneous sales application with the Community Environment and Natural

Resources Office in Olongapo City;  and the action for ejectment cannot succeed where

it appears that respondent had been in possession of the property prior to the

petitioner.”[5]

In a Decision[6] dated October 30, 2000, the Municipal Trial Court in Cities (MTCC)

ordered respondent to vacate the property and surrender to petitioner possession

thereof.  It also directed her to pay, as damages for its continued unlawful use, P500 a

month from April 24, 1999 until the property was vacated, P5,000 as attorney’s fees,

and the costs of the suit.

On appeal, the Regional Trial Court[7] (RTC) of Olongapo City (Branch 72) reversed

the MTCC. The RTC ruled as follows: 1) respondent’s entry into the property was not by

mere tolerance of petitioner, but by virtue of a Waiver and Transfer of Possessory

Rights and Deed of Sale in her favor; 2) the execution of the Deed of Sale without

actual transfer of the physical possession did not have the effect of making petitioner

the owner of the property, because there was no delivery of the object of the sale as

provided for in Article 1428 of the Civil Code; and 3) being a corporation, petitioner was

disqualified from acquiring the property, which was public land.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioner had failed to make a case for

unlawful detainer, because no contract -- express or implied -- had been entered into by

the parties with regard to possession of the property.  It ruled that the action should

have been for forcible entry, in which prior physical possession was indispensable -- a

circumstance petitioner had not shown either.

The appellate court also held that petitioner had challenged the RTC’s ruling on the

question of ownership for the purpose of compensating for the latter’s failure to counter

such ruling.   The RTC had held that, as a corporation, petitioner had no right to acquire

the property which was alienable public land.

Hence, this Petition.[8]

Issues

Petitioner submits the following issues for our consideration:

“1.     The Honorable Court of Appeals had clearly erred in not holding that

[r]espondent’s occupation or possession of the property in question was

merely through the tolerance or permission of the herein [p]etitioner;

“[2.]   The Honorable Court of Appeals had likewise erred in holding that the

ejectment case should have been a forcible entry case where prior

physical possession is indispensable; and

“[3.]   The Honorable Court of Appeals had also erred when it ruled that the

herein [r]espondent’s possession or occupation of the said property is in

the nature of an exercise of ownership which should put the herein

[p]etitioner on guard.”[9]

The Court’s Ruling

The Petition has no merit.

First Issue:

Alleged Occupation by Tolerance

Petitioner faults the CA for not holding that the former merely tolerated respondent’s

occupation of the subject property. By raising this issue, petitioner is in effect asking this

Court to reassess factual findings.  As a general rule, this kind of reassessment cannot

be done through a petition for review on certiorari under Rule 45 of the Rules of Court,

because this Court is not a trier of facts; it reviews only questions of law. [10] Petitioner

has not given us ample reasons to depart from the general rule.

On the basis of the facts found by the CA and the RTC, we find that petitioner failed

to substantiate its case for unlawful detainer.  Admittedly, no express contract existed

between the parties. Not shown either was the corporation’s alleged tolerance of

respondent’s possession.

While possession by tolerance may initially be lawful, it ceases to be so upon the

owner’s demand that the possessor by tolerance vacate the property. [11] To justify an

action for unlawful detainer, the permission or tolerance must have been present at the

beginning of the possession.[12] Otherwise, if the possession was unlawful from the start,

an action for unlawful detainer would be an improper remedy.  Sarona v.

Villegas[13] elucidates thus:

“A close assessment of the law and the concept of the word ‘tolerance’ confirms our

view heretofore expressed that such tolerance must be present right from the start of

possession sought to be recovered, to categorize a cause of action as one of unlawful

detainer not of forcible entry.  Indeed, to hold otherwise would espouse a dangerous

doctrine.  And for two reasons.  First.  Forcible entry into the land is an open challenge

to the right of the possessor.  Violation of that right authorizes the speedy redress – in

the inferior court – provided for in the rules.  If one year from the forcible entry is allowed

to lapse before suit is filed, then the remedy ceases to be speedy; and the possessor is

deemed to have waived his right to seek relief in the inferior court.  Second, if a forcible

entry action in the inferior court is allowed after the lapse of a number of years, then the

result may well be that no action for forcible entry can really prescribe.  No matter how

long such defendant is in physical possession, plaintiff will merely make a demand,

bring suit in the inferior court – upon a plea of tolerance to prevent prescription to set in

– and summarily throw him out of the land.  Such a conclusion is

unreasonable.  Especially if we bear in mind the postulates that proceedings of forcible

entry and unlawful detainer are summary in nature, and that the one year time bar to

suit is but in pursuance of the summary nature of the action.”[14]

In this case, the Complaint and the other pleadings do not recite any averment of

fact that would substantiate the claim of petitioner that it permitted or tolerated the

occupation of the property by Respondent Cruz.  The Complaint contains only bare

allegations that 1) respondent immediately occupied the subject property after its sale to

her, an action merely tolerated by petitioner;[15] and 2) her allegedly illegal occupation of

the premises was by mere tolerance.[16]

These allegations contradict, rather than support, petitioner’s theory that its cause of

action is for unlawful detainer.  First, these arguments advance the view that

respondent’s occupation of the property was unlawful at its inception. Second, they

counter the essential requirement in unlawful detainer cases that petitioner’s supposed

act of sufferance or tolerance must be present right from the start of a possession that is

later sought to be recovered.[17]

As the bare allegation of petitioner’s tolerance of respondent’s occupation of the

premises has not been proven, the possession should be deemed illegal from the

beginning.  Thus, the CA correctly ruled that the ejectment case should have been for

forcible entry -- an action that had already prescribed, however, when the Complaint

was filed on May 12, 1999. The prescriptive period of one year for forcible entry cases is

reckoned from the date of respondent’s actual entry into the land, which in this case

was on April 24, 1998.

Second Issue:

Nature of the Case

Much of the difficulty in the present controversy stems from the legal

characterization of the ejectment Complaint filed by petitioner.  Specifically, was it for

unlawful detainer or for forcible entry?

The answer is given in Section 1 of Rule 70 of the Rules of Court, which we

reproduce as follows:

“SECTION 1. Who may institute proceedings, and when. - Subject to the provisions of

the next succeeding section, a person deprived of the possession of any land or

building by force, intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or

other person against whom the possession of any land or building is unlawfully withheld

after the expiration or termination of the right to hold possession, by virtue of any

contract, express or implied, or the legal representatives or assigns of any such lessor,

vendor, vendee, or other person, may, at any time within one (1) year after such

unlawful deprivation or withholding of possession, bring an action in the proper

Municipal Trial Court against the person or persons unlawfully withholding or depriving

of possession, or any person or persons claiming under them, for the restitution of such

possession, together with damages and costs.”

While both causes of action deal only with the sole issue of  physical or de

facto possession,[18] the two cases are really separate and  distinct, as explained below:

“x x x.  In forcible entry, one is deprived of physical possession of land or building by

means of force, intimidation, threat, strategy, or stealth.  In unlawful detainer, one

unlawfully withholds possession thereof after the expiration or termination of his right to

hold possession under any contract, express or implied.  In forcible entry, the

possession is illegal from the beginning and the basic inquiry centers on who has the

prior possession de facto.  In unlawful detainer, the possession was originally lawful but

became unlawful by the expiration or termination of the right to possess, hence the

issue of rightful possession is decisive for, in such action, the defendant is in actual

possession and the plaintiff’s cause of action is the termination of the defendant’s right

to continue in possession.

“What determines the cause of action is the nature of defendant’s entry into the land.  If

the entry is illegal, then the action which may be filed against the intruder within one

year therefrom is forcible entry.  If, on the other hand, the entry is legal but the

possession thereafter became illegal, the case is one of unlawful detainer which must

be filed within one year from the date of the last demand.”[19]

It is axiomatic that what determines the nature of an action as well as which court

has jurisdiction over it are the allegations in the complaint[20] and the character of the

relief sought.[21]

In its Complaint, petitioner alleged that, having acquired the subject property from

Barbara Galino on December 5, 1996,[22] it was the true and absolute owner[23] thereof;

that Galino had sold the property to Respondent Cruz on April 24, 1998;[24]that after the

sale, the latter immediately occupied the property, an action that was merely tolerated

by petitioner;[25] and that, in a letter given to respondent on April 12, 1999,[26] petitioner

had demanded that the former vacate the property, but that she refused to do so.[27] Petitioner thereupon prayed for judgment ordering her to vacate the property and to

pay reasonable rentals for the use of the premises, attorney’s fees and the costs of the

suit.[28]

The above allegations appeared to show the elements of unlawful detainer.  They

also conferred initiatory jurisdiction on the MTCC, because the case was filed a month

after the last demand to vacate -- hence, within the one-year prescriptive period.

However, what was actually proven by petitioner was that possession by

respondent had been illegal from the beginning.  While the Complaint was crafted to be

an unlawful detainer suit, petitioner’s real cause of action was for forcible entry, which

had already prescribed.  Consequently, the MTCC had no more jurisdiction over the

action.

The appellate court, therefore, did not err when it ruled that petitioner’s Complaint

for unlawful detainer was a mere subterfuge or a disguised substitute action for forcible

entry, which had already prescribed.  To repeat, to maintain a viable action for forcible

entry, plaintiff must have been in prior physical possession of the property; this is an

essential element of the suit.[29]

Third Issue:

Alleged Acts of Ownership

Petitioner next questions the CA’s pronouncement that respondent’s occupation of

the property was an exercise of a right flowing from a claim of ownership.  It submits

that the appellate court should not have passed upon the issue of ownership, because

the only question for resolution in an ejectment suit is that of possession de facto.

Clearly, each of the parties claimed the right to possess the disputed property

because of alleged ownership of it.  Hence, no error could have been imputed to the

appellate court when it passed upon the issue of ownership only for the purpose of

resolving the issue of possession de facto.[30] The CA’s holding is moreover in accord

with jurisprudence and the law.

Execution of a Deed of Sale

Not Sufficient as Delivery

In a contract of sale, the buyer acquires the thing sold only upon its delivery “in any

of the ways specified in Articles 1497 to 1501, or in any other manner signifying an

agreement that the possession is transferred from the vendor to the vendee.” [31] With

respect to incorporeal property, Article 1498 lays down the general rule: the execution of

a public instrument shall be equivalent to the delivery of the thing that is the object of

the contract if, from the deed, the contrary does not appear or cannot be clearly

inferred.

However, ownership is transferred not by contract but by tradition or delivery.[32]  Nowhere in the Civil Code is it provided that the execution of a Deed of Sale is

a conclusive presumption of delivery of possession of a piece of real estate.[33]

This Court has held that the execution of a public instrument gives rise only to a

prima facie presumption of delivery.  Such presumption is destroyed when the delivery

is not effected because of a legal impediment.[34] Pasagui v. Villablanca[35]had earlier

ruled that such constructive or symbolic delivery, being merely presumptive, was

deemed negated by the failure of the vendee to take actual possession of the land sold.

It is undisputed that petitioner did not occupy the property from the time it was

allegedly sold to it on December 5, 1996 or at any time thereafter. Nonetheless, it

maintains that Galino’s continued stay in the premises from the time of the sale up to

the time respondent’s occupation of the same on April 24, 1998, was possession held

on its behalf and had the effect of delivery under the law.[36]

Both the RTC and the CA disagreed.  According to the RTC, petitioner did not gain

control and possession of the property, because Galino had continued to exercise

ownership rights over the realty.  That is, she had remained in possession, continued to

declare it as her property for tax purposes and sold it to respondent in 1998.

For its part, the CA found it highly unbelievable that petitioner -- which claims to be

the owner of the disputed property -- would tolerate possession of the property by

respondent from April 24, 1998 up to October 16, 1998.  How could it have been so

tolerant despite its knowledge that the property had been sold to her, and that it was by

virtue of that sale that she had undertaken major repairs and improvements on it?

Petitioner should have likewise been put on guard by respondent’s declaration of

the property for tax purposes on April 23, 1998,[37] as annotated in the tax certificate filed

seven  months later.[38] Verily, the tax declaration represented an adverse claim over the

unregistered property and was inimical to the right of petitioner.

Indeed, the above circumstances derogated its claim of control and possession of

the property.

Order of Preference in Double Sale of Immovable Property

The ownership of immovable property sold to two different buyers at different times

is governed by Article 1544 of the Civil Code, which reads as follows:

“Article 1544.  x  x  x

“Should it be immovable property, the ownership shall belong to the person acquiring it

who in good faith first recorded it in the Registry of Property.

“Should there be no inscription, the ownership shall pertain to the person who in good

faith was first in possession; and, in the absence thereof, to the person who presents

the oldest title, provided there is good faith.”

Galino allegedly sold the property in question to petitioner on December 5, 1996

and, subsequently, to respondent on April 24, 1998.  Petitioner thus argues that being

the first buyer, it has a better right to own the realty.  However, it has not been able to

establish that its Deed of Sale was recorded in the Registry of Deeds of Olongapo City.[39] Its claim of an unattested and unverified notation on its Deed of Absolute Sale [40] is

not equivalent to registration.  It admits that, indeed, the sale has not been recorded in

the Registry of Deeds.[41]

In the absence of the required inscription, the law gives preferential right to the

buyer who in good faith is first in possession.  In determining the question of who

is first in possession, certain basic parameters have been established by jurisprudence.

First, the possession mentioned in Article 1544 includes not only material but also

symbolic possession.[42] Second, possessors in good faith are those who are not aware

of any flaw in their title or mode of acquisition.[43] Third, buyers of real property that is in

the possession of persons other than the seller must be wary -- they must investigate

the rights of the possessors.[44] Fourth, good faith is always presumed; upon those who

allege bad faith on the part of the possessors rests the burden of proof.[45]

Earlier, we ruled that the subject property had not been delivered to petitioner;

hence, it did not acquire possession either materially or symbolically. As between the

two buyers, therefore, respondent was first in actual possession of the property.

Petitioner has not proven that respondent was aware that her mode of acquiring the

property was defective at the time she acquired it from Galino.  At the time, the property

-- which was public land -- had not been registered in the name of Galino; thus,

respondent relied on the tax declarations thereon.  As shown, the former’s name

appeared on the tax declarations for the property until its sale to the latter in

1998.  Galino was in fact occupying the realty when respondent took over

possession.  Thus, there was no circumstance that could have placed the latter upon

inquiry or required her to further investigate petitioner’s right of ownership.

Disqualification from Ownership of Alienable Public Land

Private corporations are disqualified from acquiring lands of the public domain, as

provided under Section 3 of Article XII of the Constitution, which we quote:

“Sec. 3. Lands of the public domain are classified into agricultural, forest or timber,

mineral lands, and national parks.  Agricultural lands of the public domain may be

further classified by law according to the uses to which they may be devoted. Alienable

lands of the public domain shall be limited to agricultural lands.  Private corporations or

associations may not hold such alienable lands of the public domain except by lease,

for a period not exceeding twenty-five years, and not to exceed one thousand hectares

in area.  Citizens of the Philippines may not lease not more than five hundred hectares,

or acquire not more than twelve hectares thereof by purchase, homestead, or grant.  x x

x.” (Italics supplied)

While corporations cannot acquire land of the public domain, they can however

acquire private land.[46] Hence, the next issue that needs to be resolved is the

determination of whether the disputed property is private land or of the public domain.

According to the certification by the City Planning and Development Office of

Olongapo City, the contested property in this case is alienable and disposable public

land.[47] It was for this reason that respondent filed a miscellaneous sales application to

acquire it.[48]

On the other hand, petitioner has not presented proof that, at the time it purchased

the property from Galino, the property had ceased to be of the public domain and was

already private land.  The established rule is that alienable and disposable land of the

public domain held and occupied by a possessor -- personally or through predecessors-

in-interest, openly, continuously, and exclusively for 30 years -- is ipso jure converted to

private property by the mere lapse of time.[49]

In view of the foregoing, we affirm the appellate court’s ruling that respondent is

entitled to possession de facto.  This determination, however, is only provisional in

nature.[50] Well-settled is the rule that an award of possession de facto over a piece of

property does not constitute res judicata as to the issue of its ownership.[51]

WHEREFORE, this Petition is DENIED and the assailed

Decision AFFIRMED.  Costs against petitioner.

SO ORDERED.

G.R. No. 70082 August 19, 1991

SPOUSES RICKY WONG and ANITA CHAN, LEONARDO JOSON, JUANITO

SANTOS, EMERITO SICAT and CONRADO LAGMAN, petitioners, 

vs.

HON. INTERMEDIATE APPELLATE COURT and ROMARICO

HENSON, respondents.

Feliciano C. Tumale for petitioners.

Benjamin Dadios and Bausa, Ampil, Suarez, Paredes & Bausa for private respondent.

 

FERNAN, C.J.:p

Submitted for adjudication in the instant petition for review on certiorari is the issue of

whether or not the execution of a decision in an action for collection of a sum of money

may be nullified on the ground that the real properties levied upon and sold at public

auction are the alleged exclusive properties of a husband who did not participate in his

wife's business transaction from which said action stemmed.

Private respondent Romarico Henson married Katrina Pineda on January 6,

1964. 1 They have three children but even during the early years of their marriage,

Romarico and Katrina had been most of the time living separately. The former stayed in

Angeles City while the latter lived in Manila. During the marriage or on January 6, 1971,

Romarico bought a 1,787 square-meter parcel of land in Angeles City for P11,492 from

his father, Dr. Celestino L. Henson 2 with money borrowed from an officemate. His

father need the amount for investments in Angeles City and Palawan. 3

Meanwhile, in Hongkong sometime in June 1972, Katrina entered into an agreement

with Anita Chan whereby the latter consigned to Katrina pieces of jewelry for sale

valued at 199,895 Hongkong dollars or P321,830.95. 4 When Katrina failed to return the

pieces of jewelry within the 20-day period agreed upon, Anita Chan demanded payment

of their value.

On September 18, 1972, Katrina issued in favor of Anita Chan a check for P55,000

which, however, was dishonored for lack of funds. Hence, Katrina was charged with

estafa before the then Court of First Instance of Pampanga and Angeles City, Branch

IV. 5 After trial, the lower court rendered a decision dismissing the case on the ground

that Katrina's liability was not criminal but civil in nature as no estafa was committed by

the issuance of the check in payment of a pre-existing obligation. 6

In view of said decision, Anita Chan and her husband Ricky Wong filed against Katrina

and her husband Romarico Henson, an action for collection of a sum of money also in

the same branch of the aforesaid court. 7 The records of the case show that Atty.

Gregorio Albino, Jr. filed an answer with counterclaim but only in behalf of Katrina.

When the case was called for pre-trial, Atty. Albino once again appeared as counsel for

Katrina only. While it is true that during subsequent hearings, Atty. Expedite Yumul, who

collaborated with Atty. Albino, appeared for the defendants, it is not shown on record

that said counsel also represented Romarico. In fact, a power of attorney which Atty.

Albino produced during the trial, showed that the same was executed solely by

Katrina. 8

After trial, the court promulgated a decisions 9 in favor of the Wongs. It ordered Katrina

and Romarico Henson to pay the Wongs HK$199,895.00 or P321,830.95 with legal

interest from May 27, 1975, the date of filing of the complaint, until fully paid; P20,000

as expenses for litigation; P15,000 as attorney's fees, and the costs of the suit.

A writ of execution was thereafter issued. Levied upon were four lots in Angeles City

covered by Transfer Certificates of Title Nos. 30950, 30951, 30952 and 30953 all in the

name of Romarico Henson ... married to Katrina Henson. 10

The public auction sale was first set for October 30, 1977 but since said date was

declared a public holiday, Deputy Sheriff Emerito Sicat reset the sale to November 11,

1977. On said date, the following properties registered in the name of Romarico Henson

"married to Katrina Henson" were sold at public auction: (a) two parcels of land covered

by Transfer Certificates of Title Nos. 30950 and 30951 with respective areas of 293 and

289 square meters at P145,000 each to Juanito L. Santos, 11 and (b) two parcels of land

covered by Transfer Certificates of Title Nos. 30952 and 30953 with respective areas of

289 and 916 square meters in the amount of P119,000.00 to Leonardo B. Joson. 12

After the inscription on Transfer Certificate of Title No. 30951 of the levy on execution of

the judgment in Civil Case No. 2224, the property covered by said title was

extrajudicially foreclosed by the Rural Bank of Porac, Pampanga on account of the

mortgage loan of P8,000 which Romarico and Katrina had obtained from said bank. The

property was sold by the sheriff to the highest bidder for P57,000 on September 9,

1977. On September 14, 1978, Juanito Santos, who had earlier bought the same

property at public auction on November 11, 1977, redeemed it by paying the sum of

P57,000 plus the legal interest of P6,840.00 or a total amount of P63,840.00. 13

About a month before such redemption or on August 8, 1 978, Romarico filed an action

for the annulment of the decision in Civil Case No. 2224 as well as the writ of execution,

levy on execution and the auction sale therein in the same Court of First

Instance. 14 Romarico alleged that he was "not given his day in court" because he was

not represented by counsel as Attys. Albino and Yumul appeared solely for Katrina; that

although he did not file an answer to the complaint, he was not declared in default in the

case; that while Atty. Albino received a copy of the decision, he and his wife were never

personally served a copy thereof; that he had nothing to do with the business

transactions of Katrina as he did not authorize her to enter into such transactions; and

that the properties levied on execution and sold at public auction by the sheriff were his

capital properties and therefore, as to him, all the proceedings had in the case were null

and void.

On November 10, 1978, the lower court issued an order restraining the Register of

Deeds of Angeles City from issuing the final bill of sale of Transfer Certificates of Title

Nos. 30950 and 30951 in favor of Juanito Santos and Transfer Certificates of Title Nos.

30952 and 30953 in favor of Leonardo Joson until further orders of the court. 15On

January 22, 1979, upon motion of Romarico, the court issued a writ of preliminary

injunction enjoining the sheriff from approving the final bill of sale of the land covered by

the aforementioned certificates of title and the Register of Deeds of Angeles City from

registering said certificates of title in the names of Santos and Joson until the final

outcome of the case subject to Romarico's posting of a bond in the amount of

P321,831.00. 16

After trial on the merits, the lower court 17 rendered a decision holding that Romarico

was indeed not given his day in court as he was not represented by counsel nor was he

notified of the hearings therein although he was never declared in default. Noting that

the complaint in Civil Case No. 2224 as well as the testimonial and documentary

evidence adduced at the trial in said case do not show that Romarico had anything to

do with the transactions between Katrina and Anita Chan, the court ruled that the

judgment in Civil Case No. 2224 "is devoid of legal or factual basis which is not even

supported by a finding of fact or ratio decidendi in the body of the decision, and may be

declared null and void ... pursuant to a doctrine laid down by the Supreme Court to the

effect that the Court of First Instance or a branch thereof, has authority and jurisdiction

to try and decide an action for annulment of a final and executory judgment or order

rendered by another court of first instance or of a branch thereof (Gianan vs. Imperial,

55 SCRA 755)." 18

On whether or not the properties lenied upon and sold at public auction may be

reconveyed to Romarico, the court, finding that there was no basis for holding the

conjugal partnership liable for the personal indebtedness of Katrina, ruled in favor of

reconveyance in view of the jurisprudence that the interest of the wife in the conjugal

partnership property being inchoate and therefore merely an expectancy, the same may

not be sold or disposed of for value until after the liquidation and settlement of the

community assets. The dispositive portion of the decision reads:

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

in favor of the plaintiff and against all the defendants, as follows:

(a) The Decision of the Court of First Instance of Pampanga and Angeles

City, Branch IV, rendered in Civil Case No. 2224, entitled "RICKY WONG,

ET AL. vs. KATRINA PINEDA HENSON and ROMARICO HENSON", is

hereby declared null and void, only as far as it affects plaintiff herein

Romarico Henson;

(b) The Writ of Execution, levy in execution and auction sale of the

conjugal property of the spouses Romarico Henson and Katrina Pineda

Henson which were sold at public auction on November 11, 1977, without

notice to plaintiff herein, by Deputy Sheriff Emerito Sicat, are likewise

declared null and void and of no force and effect;

(c) Defendants Emerito Sicat and Conrado Lagman, in their official

capacity as Sheriff and Register of Deeds, respectively, are enjoined

permanently from issuing and/or registering the corresponding deeds of

sale affecting the property;

(d) The aforementioned buyers are directed to reconvey the property they

have thus purchased at public auction to plaintiff Romarico Henson;

(e) As far as the claim for reimbursement filed by Juanito Santos

concerning the redemption of the property covered by Transfer Certificate

of Title No. 30951 from the Rural Bank of Porac, which foreclosed the

same extrajudicially, is concerned, plaintiff Romarico Henson may redeem

the same within the period and in the manner prescribed by law, after the

corresponding deed of redemption shall have been registered in the Office

of the Registry of Deeds for Angeles City;

(f) Defendants Spouses Ricky Wong and Anita Chan are, with the

exception of the defendants Juanito Santos, Leonardo Joson, Sheriff and

Register of Deeds, are ordered jointly and severally, to pay the plaintiff

Romarico Henson the sum of P10,000.00, corresponding to the expenses

of litigation, with legal interest thereon from the time this suit was filed up

to the time the same shall have been paid, plus P5,000.00 for and as

attorney's fees, and the costs of suit; and

(g) The counterclaims respectively filed on behalf of all the defendants in

the above-entitled case are hereby DISMISSED.

SO ORDERED.

The defendants appealed to the then Intermediate Appellate Court. In its decision of

January 22, 1985 19 the said court affirmed in toto the decision of the lower court. It

added that as to Romarico, the judgment in Civil Case No. 2224 had not attained finality

as the decision therein was not served on him and that he was not represented by

counsel. Therefore, estoppel may not be applied against him as, not having been

served with the decision, Romarico did not know anything about it. Corollarily, there can

be no valid writ of execution inasmuch as the decision had not become final as far as

Romarico is concerned.

On whether the properties may be levied upon as conjugal properties, the appellate

court ruled in the negative. It noted that the properties are Romarico' s exclusive capital

having been bought by him with his own funds. But granting that the properties are

conjugal, they cannot answer for Katrina's obligations as the latter were exclusively hers

because they were incurred without the consent of her husband, they were not for the

daily expenses of the family and they did not redound to the benefit of the family. The

court underscored the fact that no evidence has been submitted that the administration

of the conjugal partnership had been transferred to Katrina either by Romarico or by the

court before said obligations were incurred.

The appellants filed a motion for reconsideration of the decision of the appellate court

but the same was denied for lack of merit on February 6, 1985. 20

Hence, the instant petition for review on certiorari. Petitioners contend that, inasmuch as

the Henson spouses were duly represented by Atty. Albino as shown by their affidavit of

August 25, 1977 wherein they admitted that they were represented by said counsel until

Atty. Yumul took over the actual management and conduct of the case and that Atty.

Albino had not withdrawn as their counsel, the lower court "did not commit an error" in

serving a copy of the decision in Civil Case No. 2224 only on Atty. Albino. Moreover,

during the 2-year period between the filing of the complaint in Civil Case No. 2224 and

the public auction sale on November 11, 1977, Romarico remained silent thereby

making him in estoppel and guilty of laches.

Petitioners further aver that there being sufficient evidence that the auction sale was

conducted in accordance with law, the acts of the sheriffs concerned are presumed to

be regular and valid. But granting that an irregularity consisting of the non-notification of

Romarico attended the conduct of the auction sale, the rights of Santos and Joson who

were "mere strangers who participated as the highest bidders" therein, may not be

prejudiced. Santos and Joson bought the properties sincerely believing that the sheriff

was regularly performing his duties and no evidence was presented to the effect that

they acted with fraud or that they connived with the sheriff. However, should the auction

sale be nullified, petitioners assert that Romarico should not be unduly enriched at the

expense of Santos and Joson.

The petitioners' theory is that Romarico Henson was guilty of laches and may not now

belatedly assert his rights over the properties because he and Katrina were represented

by counsel in Civil Case No. 2224. Said theory is allegedly founded on the perception

that the Hensons were like any other ordinary couple wherein a spouse knows or should

know the transactions of the other spouse which necessarily must be in interest of the

family. The factual background of this case, however, takes it out of said ideal situation.

Romarico and Katrina had in fact been separated when Katrina entered into a business

deal with Anita Wong. Thus, when that business transaction eventually resulted in the

filing of Civil Case No. 2224, Romarico acted, or, as charged by petitioners, failed to act,

in the belief that he was not involved in the personal dealings of his estranged wife. That

belief was buttressed by the fact that the complaint itself did not mention or implicate

him other than as the husband of Katrina. On whether Romarico was also represented

by Atty. Albino, Katrina's counsel, the courts below found that:

... Atty. Albino filed an Answer with Counterclaims dated July 25, 1975

solely on behalf of defendant Katrina Henson. The salutary statement in

that Answer categorically reads: ... COMES NOW THE DEFENDANT

KATRINA HENSON by and through undersigned counsel, in answer to

plaintiffs' complaint respectfully alleges: ... .

That Answer was signed by GREGORIO ALBINO, JR., over the phrase

COUNSEL FOR DEFENDANT KATRINA HENSON.

Again, when Civil Case No. 2224 was called for pre-trial on November 27,

1975, before then Presiding Judge Bienvenido Ejercito, it is clearly stated

on page 2 of the day's stenographic notes, under "APPEARANCES that

Atty. Albino, Jr. appeared as COUNSEL FOR DEFENDANT KATRINA

HENSON". And when the case was called, Atty. Jose Baltazar, Sr.

appeared for the plaintiffs while Atty. Albino categorically appeared "FOR

DEFENDANT KATRINA HENSON".

It might be true that in subsequent hearings, Atty. Expedito Yumul

'appeared as counsel for the defendants,' but the whole trouble is that he

never expressly manifested to the Court that he was likewise actually

representing defendant "ROMARICO HENSON", for it cannot be disputed

that Atty. Yumul only entered his appearance in collaboration with Atty.

Albino (see p. 2 tsn, January 26, 1976, Espinosa), who in turn entered his

initial appearance during the pre- trial, and through the filing of an Answer,

for defendant KATRINA HENSON. As a matter of fact, the Power of

Attorney which Atty. Albino produced during the pre-trial was executed

solely by defendant KATRINA HENSON. Accordingly, as collaborating

counsel, Atty. Yumul cannot, by any stretch of the imagination, be

considered as duly authorized to formally appear likewise on behalf of

defendant ROMARICO HENSON for whom principal counsel of record

Atty. Gregorio Albino, Jr. never made any formal appearance. On this

score, it is not amiss to state that "A spring cannot rise higher than its

source:.

Now, what about that statement in the aforementioned joint affidavit of the

spouses KATRINA HENSON and ROMARICO HENSON, to the effect that

our first lawyer in said case was Atty. Gregorio Albino, Jr., and sometime

later Atty. Expedito B. Yumul took over ...

That statement which plaintiff ROMARICO HENSON was made to sign by

Atty. Yumul on August 25,1977, after the filing of this case, allegedly for

the purpose of dissolving the writ of execution, as claimed in paragraph

XIV of the complaint herein, and is satisfactorily explained by both plaintiff

herein and his wife, while on cross-examination by Atty. Baltazar, Sr., and

We quote:

Q So, the summons directed your filing of your Answer for

both of you, your wife and your good self?

A Yes, sir but may I add, I received the summons but I did

not file an answer because my wife took a lawyer and that

lawyer I think will protect her interest and my interest being

so I did not have nothing to do in the transaction which is

attached to the complaint.' (TSN, Jan. 14, 1980, pp. 52-53).

That plaintiff never appeared in Civil Case No. 2224, nor was

he therein represented by counsel was impliedly admitted by

defendants' counsel of records thru a question he

propounded on cross, and the answer given by Katrina

Pineda, to wit:

Q How about your husband, do you remember if he

physically appeared in that Civil Case No. 2224, will you tell

us if he was represented by counsel as a party defendant?

A No, sir, he did not appear.

Q You are husband and wife, please tell us the reason why

you have your own counsel in that case whereas Romarico

Henson did not appear nor a counsel did not appear in that

proceedings (TSN, Feb. 25,1980, pp. 6-7).

xxx xxx xxx

A Because that case is my exclusive and personal case, he

has nothing to do with that, sir. (TSN, Feb. 25, 1980, p. 9).

(Rollo, pp. 17-20)

Hence, laches may not be charged against Romarico because, aside from the fact that

he had no knowledge of the transactions of his estranged wife, he was also not afforded

an opportunity to defend himself in Civil Case No. 2224. 21 There is no laches or even

finality of decision to speak of with respect to Romarico since the decision in Civil Case

No. 2224 is null and void for having been rendered without jurisdiction for failure to

observe the notice requirements prescribed by law. 22 Failure to notify Romarico may

not be attributed to the fact that the plaintiffs in Civil Case No. 2224 acted on the

presumption that the Hensons were still happily married because the complaint itself

shows that they did not consider Romarico as a party to the transaction which Katrina

undertook with Anita Wong. In all likelihood, the plaintiffs merely impleaded Romarico

as a nominal party in the case pursuant to the provisions of Rule 3, Section 4 of the

Rules of Court.

Consequently, the writ of execution cannot be issued against Romarico as he has not

yet had his day in court 23and, necessarily, the public auction sale is null and

void. 24 Moreover, the power of the court in the execution of judgments extends only

over properties unquestionably belonging to the judgment debtor. 25

On the matter of ownership of the properties involved, however, the Court disagrees

with the appellate court that the said properties are exclusively owned by Romarico.

Having been acquired during the marriage, they are still presumed to belong to the

conjugal partnership 26 even though Romarico and Katrina had been living 

separately. 27

The presumption of the conjugal nature of the properties subsists in the absence of

clear, satisfactory and convincing evidence to overcome said presumption or to prove

that the properties are exclusively owned by Romarico. 28 While there is proof that

Romarico acquired the properties with money he had borrowed from an officemate, it is

unclear where he obtained the money to repay the loan. If he paid it out of his salaries,

then the money is part of the conjugal assets 29 and not exclusively his. Proof on this

matter is of paramount importance considering that in the determination of the nature of

a property acquired by a person during covertrue, the controlling factor is the source of

the money utilized in the purchase.

The conjugal nature of the properties notwithstanding, Katrina's indebtedness may not

be paid for with them her obligation not having been shown by the petitioners to be one

of the charges against the conjugal partnership. 30In addition to the fact that her rights

over the properties are merely inchoate prior to the liquidation of the conjugal

partnership, the consent of her husband and her authority to incur such indebtedness

had not been alleged in the complaint and proven at the trial. 31

Furthermore, under the Civil Code (before the effectivity of the Family Code on August

3, 1988), a wife may bind the conjugal partnership only when she purchases things

necessary for the support of the family or when she borrows money for the purpose of

purchasing things necessary for the support of the family if the husband fails to deliver

the proper sum; 32 when the administration of the conjugal partnership is transferred to

the wife by the courts 33 or by the husband 34 and when the wife gives moderate

donations for charity. 35 Having failed to establish that any of these circumstances

occurred, the Wongs may not bind the conjugal assets to answer for Katrina's personal

obligation to them.

Petitioners' contention that the rights of Santos and Joson as innocent buyers at the

public auction sale may not be prejudiced, is, to a certain extent, valid. After all, in the

absence of proof that irregularities attended the sale, the same must be presumed to

have been conducted in accordance with law. There is, however, a peculiar factual

circumstance that goes against the grain of that general presumption the properties

levied upon and sold at the public auction do not exclusively belong to the judgment

debtor. Thus, the guiding jurisprudence is as follows:

The rule in execution sales is that an execution creditor acquires no higher

or better right than what the execution debtor has in the property levied

upon. The purchaser of property on sale under execution and levy takes

as assignee, only as the judicial seller possesses no title other than that

which would pass by an assignment by the owner. "An execution

purchaser generally acquires such estate or interest as was vested in the

execution debtor at the time of the seizure on execution, and only such

interest, taking merely a quit-claim of the execution debtor's title, without

warranty on the part of either the execution officer or of the parties,

whether the property is realty or personalty. This rule prevails even if a

larger interest in the property was intended to be sold. Accordingly, if the

judgment debtor had no interest in the property, the execution purchaser

acquires no interest therein." (Pacheco vs. Court of Appeals, L-48689,

August 31, 1987, 153 SCRA 382, 388-389 quoting Laureano vs.

Stevenson, 45 Phil. 252; Cabuhat vs. Ansery, 42 Phil. 170; Fore v.

Manove, 18 Cal. 436 and 21 Am. Jur., 140-141. Emphasis supplied.)

Applying this jurisprudence, execution purchasers Santos and Joson possess no rights

which may rise above judgment debtor Katrina's inchoate proprietary rights over the

properties sold at public auction. After all, a person can sell only what he owns or is

authorized to sell and the buyer can, as a consequence, acquire no more that what the

seller can legally transfer. 36 But, inasmuch as the decision in Civil Case No. 2224 is

void only as far as Romarico and the conjugal properties are concerned, the same may

still be executed by the Spouses Wong against Katrina Henson personally and

exclusively. The Spouses Wong must return to Juanito Santos and Leonardo Joson the

purchase prices of P145,000 and P119,000 respectively, received by said spouse from

the public auction sale.

The redemption made by Santos in the foreclosure proceeding against Romarico and

Katrina Henson filed by the Rural Bank of Porac, should, however, be respected unless

Romarico exercises his right of redemption over the property covered by Transfer

Certificate of Title No. 30951 in accordance with law.

WHEREFORE, the decisions of the appellate court and the lower court in Civil Case No.

28-09 are hereby AFFIRMED subject to the modifications above stated. No costs.

SO ORDERED.

G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner,

vs.

HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG,

respondents.

VITUG, J.:

The parties pose this question: May the vendor demand the rescission of a contract for

the sale of a parcel of land for a cause traceable to his own failure to have the squatters

on the subject property evicted within the contractually-stipulated period?

Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of

production, manufacture and exportation of perlite filter aids, permalite insulation and

processed perlite ore. In 1988, petitioner and his foreign partners decided to put up a

central warehouse in Metro Manila on a land area of approximately 2,000 square

meters. The project was made known to several freelance real estate brokers.

A day or so after the announcement, Alfonso Flores and his wife, accompanied by a

broker, offered a parcel of land measuring 1,952 square meters. Located in Barangay

San Dionisio, Parañaque, Metro Manila, the lot was covered by TCT No. 361402 in the

name of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the

property and, except for the presence of squatters in the area, he found the place

suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he advance

the amount of P50,000.00 which could be used in taking up an ejectment case against

the squatters, private respondent would agree to sell the property for only P800.00 per

square meter. Petitioner expressed his concurrence. On 09 June 1988, a contract,

denominated "Deed of Conditional Sale," was executed between petitioner and private

respondent. The simply-drawn contract read:

DEED OF CONDITIONAL SALE

KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the Municipality of Makati, Philippines this 9th day

of June, 1988 by and between:

ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at

105 Simoun St., Quezon City, Metro Manila, hereinafter referred to as the VENDOR;

-and-

VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and residing

at 110 San Miguel St., Plainview Subd., Mandaluyong Metro Manila, hereinafter referred

to as the VENDEE:

W I T N E S S E T H : That

WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of

ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or

less, located in Barrio San Dionisio, Municipality of Parañaque, Province of Rizal,

covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and more

particularly described as follows:

xxx xxx xxx

WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR

has accepted the offer, subject to the terms and conditions hereinafter stipulated:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE

HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY,

Philippine Currency, payable by VENDEE to in to (sic) manner set forth, the VENDOR

agrees to sell to the VENDEE, their heirs, successors, administrators, executors,

assign, all her rights, titles and interest in and to the property mentioned in the FIRST

WHEREAS CLAUSE, subject to the following terms and conditions:

1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine

Currency, is to be paid upon signing and execution of this instrument.

2. The balance of the purchase price in the amount of ONE MILLION FIVE

HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY shall

be paid 45 days after the removal of all squatters from the above described property.

3. Upon full payment of the overall purchase price as aforesaid, VENDOR without

necessity of demand shall immediately sign, execute, acknowledged (sic) and deliver

the corresponding deed of absolute sale in favor of the VENDEE free from all liens and

encumbrances and all Real Estate taxes are all paid and updated.

It is hereby agreed, covenanted and stipulated by and between the parties hereto that if

after 60 days from the date of the signing of this contract the VENDOR shall not be able

to remove the squatters from the property being purchased, the downpayment made by

the buyer shall be returned/reimbursed by the VENDOR to the VENDEE.

That in the event that the VENDEE shall not be able to pay the VENDOR the balance of

the purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX

HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to the

VENDEE of the removal of the squatters from the property being purchased, the FIFTY

THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be forfeited in

favor of the VENDOR.

Expenses for the registration such as registration fees, documentary stamp, transfer

fee, assurances and such other fees and expenses as may be necessary to transfer the

title to the name of the VENDEE shall be for the account of the VENDEE while capital

gains tax shall be paid by the VENDOR.

IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of

Makati MM, Philippines on this 9th day of June, 1988.

(Sgd.) (Sgd.)

VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.

DE ONGSIONG

Vendee Vendor

SIGNED IN THE PRESENCE OF:

(Sgd.) (Sgd.)

Rowena C. Ongsiong Jack M. Cruz 1

Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a

check for P50,000.00 2 from petitioner. 3

Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil

Case No. 7579) against Melchor Musa and 29 other squatter families with the

Metropolitan Trial Court of Parañaque. A few months later, or on 21 February 1989,

judgment was rendered ordering the defendants to vacate the premises. The decision

was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the

contract. The writ of execution of the judgment was issued, still later, on 30 March 1989.

In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she

received from petitioner since, she said, she could not "get rid of the squatters" on the

lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April 1989, refused

the tender and stated:.

Our client believes that with the exercise of reasonable diligence considering the

favorable decision rendered by the Court and the writ of execution issued pursuant

thereto, it is now possible to eject the squatters from the premises of the subject

property, for which reason, he proposes that he shall take it upon himself to eject the

squatters, provided, that expenses which shall be incurred by reason thereof shall be

chargeable to the purchase price of the land. 4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its

Regional Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of

Parañaque for a grace period of 45 days from 21 April 1989 within which to relocate and

transfer the squatter families. Acting favorably on the request, the court suspended the

enforcement of the writ of execution accordingly.

On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day

grace period and his client's willingness to "underwrite the expenses for the execution of

the judgment and ejectment of the occupants." 5

In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent,

advised Atty. Apostol that the Deed of Conditional Sale had been rendered null and void

by virtue of his client's failure to evict the squatters from the premises within the agreed

60-day period. He added that private respondent had "decided to retain the property." 6

On 23 June 1989, Atty. Apostol wrote back to explain:

The contract of sale between the parties was perfected from the very moment that there

was a meeting of the minds of the parties upon the subject lot and the price in the

amount of P1,561,600.00. Moreover, the contract had already been partially fulfilled and

executed upon receipt of the downpayment of your client. Ms. Ongsiong is precluded

from rejecting its binding effects relying upon her inability to eject the squatters from the

premises of subject property during the agreed period. Suffice it to state that, the

provision of the Deed of Conditional Sale do not grant her the option or prerogative to

rescind the contract and to retain the property should she fail to comply with the

obligation she has assumed under the contract. In fact, a perusal of the terms and

conditions of the contract clearly shows that the right to rescind the contract and to

demand the return/reimbursement of the downpayment is granted to our client for his

protection.

Instead, however, of availing himself of the power to rescind the contract and demand

the return, reimbursement of the downpayment, our client had opted to take it upon

himself to eject the squatters from the premises. Precisely, we refer you to our letters

addressed to your client dated April 17, 1989 and June 8, 1989.

Moreover, it is basic under the law on contracts that the power to rescind is given to the

injured party. Undoubtedly, under the circumstances, our client is the injured party.

Furthermore, your client has not complied with her obligation under their contract in

good faith. It is undeniable that Ms. Ongsiong deliberately refused to exert efforts to

eject the squatters from the premises of the subject property and her decision to retain

the property was brought about by the sudden increase in the value of realties in the

surrounding areas.

Please consider this letter as a tender of payment to your client and a demand to

execute the absolute Deed of Sale. 7

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's

continued refusal to accept the return of the P50,000.00 advance payment, filed with the

Regional Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the

deed of "conditional" sale, plus damages, and for the consignation of P50,000.00 cash.

Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of

execution in Civil Case No. 7579 on motion of private respondent but the squatters

apparently still stayed on.

Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8

rendered decision holding that private respondent had no right to rescind the contract

since it was she who "violated her obligation to eject the squatters from the subject

property" and that petitioner, being the injured party, was the party who could, under

Article 1191 of the Civil Code, rescind the agreement. The court ruled that the

provisions in the contract relating to (a) the return/reimbursement of the P50,000.00 if

the vendor were to fail in her obligation to free the property from squatters within the

stipulated period or (b), upon the other hand, the sum's forfeiture by the vendor if the

vendee were to fail in paying the agreed purchase price, amounted to "penalty clauses".

The court added:

This Court is not convinced of the ground relied upon by the plaintiff in seeking the

rescission, namely: (1) he (sic) is afraid of the squatters; and (2) she has spent so much

to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against her

profession of good faith is plaintiffs conduct which is not in accord with the rules of fair

play and justice. Notably, she caused the issuance of an alias writ of execution on

August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after she

filed the complaint before this Court on June 27, 1989. If she were really afraid of the

squatters, then she should not have pursued the issuance of an alias writ of execution.

Besides, she did not even report to the police the alleged phone threats from the

squatters. To the mind of the Court, the so-called squatter factor is simply factuitous

(sic). 9

The lower court, accordingly, dismissed the complaint and ordered, instead, private

respondent to eject or cause the ejectment of the squatters from the property and to

execute the absolute deed of conveyance upon payment of the full purchase price by

petitioner.

Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate

court rendered its decision. 10 It opined that the contract entered into by the parties was

subject to a resolutory condition, i.e., the ejectment of the squatters from the land, the

non-occurrence of which resulted in the failure of the object of the contract; that private

respondent substantially complied with her obligation to evict the squatters; that it was

petitioner who was not ready to pay the purchase price and fulfill his part of the contract,

and that the provision requiring a mandatory return/reimbursement of the P50,000.00 in

case private respondent would fail to eject the squatters within the 60-day period was

not a penal clause. Thus, it concluded.

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

one entered declaring the contract of conditional sale dated June 9, 1988 cancelled and

ordering the defendant-appellee to accept the return of the downpayment in the amount

of P50,000.00 which was deposited in the court below. No pronouncement as to costs.

11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari

raising issues that, in fine, center on the nature of the contract adverted to and the

P50,000.00 remittance made by petitioner.

A perfected contract of sale may either be absolute or conditional 12 depending on

whether the agreement is devoid of, or subject to, any condition imposed on the passing

of title of the thing to be conveyed or on the obligation of a party thereto. When

ownership is retained until the fulfillment of a positive condition the breach of the

condition will simply prevent the duty to convey title from acquiring an obligatory force. If

the condition is imposed on an obligation of a party which is not complied with, the other

party may either refuse to proceed or waive said condition (Art. 1545, Civil Code).

Where, of course, the condition is imposed upon the perfection of the contract itself, the

failure of such condition would prevent the juridical relation itself from coming into

existence. 13

In determining the real character of the contract, the title given to it by the parties is not

as much significant as its substance. For example, a deed of sale, although

denominated as a deed of conditional sale, may be treated as absolute in nature, if title

to the property sold is not reserved in the vendor or if the vendor is not granted the right

to unilaterally rescind the contract predicated

on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14

The term "condition" in the context of a perfected contract of sale pertains, in reality, to

the compliance by one party of an undertaking the fulfillment of which would beckon, in

turn, the demandability of the reciprocal prestation of the other party. The reciprocal

obligations referred to would normally be, in the case of vendee, the payment of the

agreed purchase price and, in the case of the vendor, the fulfillment of certain express

warranties (which, in the case at bench is the timely eviction of the squatters on the

property).

It would be futile to challenge the agreement here in question as not being a duly

perfected contract. A sale is at once perfected when a person (the seller) obligates

himself, for a price certain, to deliver and to transfer ownership of a specified thing or

right to another (the buyer) over which the latter agrees. 15

The object of the sale, in the case before us, was specifically identified to be a 1,952-

square meter lot in San Dionisio, Parañaque, Rizal, covered by Transfer Certificate of

Title No. 361402 of the Registry of Deeds for Pasig and therein technically described.

The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid

upon the execution of the document of sale and the balance of P1,511,600.00 payable

"45 days after the removal of all squatters from the above described property."

From the moment the contract is perfected, the parties are bound not only to the

fulfillment of what has been expressly stipulated but also to all the consequences which,

according to their nature, may be in keeping with good faith, usage and law. Under the

agreement, private respondent is obligated to evict the squatters on the property. The

ejectment of the squatters is a condition the operative act of which sets into motion the

period of compliance by petitioner of his own obligation, i.e., to pay the balance of the

purchase price. Private respondent's failure "to remove the squatters from the property"

within the stipulated period gives petitioner the right to either refuse to proceed with the

agreement or waive that condition in consonance with Article 1545 of the Civil Code. 16

This option clearly belongs to petitioner and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private

respondent does not constitute a "potestative condition dependent solely on his will"

that might, otherwise, be void in accordance with Article 1182 of the Civil Code 17 but a

"mixed" condition "dependent not on the will of the vendor alone but also of third

persons like the squatters and government agencies and personnel concerned." 18 We

must hasten to add, however, that where the so-called "potestative condition" is

imposed not on the birth of the obligation but on its fulfillment, only the obligation is

avoided, leaving unaffected the obligation itself. 19

In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows

the obligee to choose between proceeding with the agreement or waiving the

performance of the condition. It is this provision which is the pertinent rule in the case at

bench. Here, evidently, petitioner has waived the performance of the condition imposed

on private respondent to free the property from squatters. 20

In any case, private respondent's action for rescission is not warranted. She is not the

injured party. 21 The right of resolution of a party to an obligation under Article 1191 of

the Civil Code is predicated on a breach of faith by the other party that violates the

reciprocity between them. 22 It is private respondent who has failed in her obligation

under the contract. Petitioner did not breach the agreement. He has agreed, in fact, to

shoulder the expenses of the execution of the judgment in the ejectment case and to

make arrangements with the sheriff to effect such execution. In his letter of 23 June

1989, counsel for petitioner has tendered payment and demanded forthwith the

execution of the deed of absolute sale. Parenthetically, this offer to pay, having been

made prior to the demand for rescission, assuming for the sake of argument that such a

demand is proper under Article 1592 23 of the Civil Code, would likewise suffice to

defeat private respondent's prerogative to rescind thereunder.

There is no need to still belabor the question of whether the P50,000.00 advance

payment is reimbursable to petitioner or forfeitable by private respondent, since, on the

basis of our foregoing conclusions, the matter has ceased to be an issue. Suffice it to

say that petitioner having opted to proceed with the sale, neither may petitioner demand

its reimbursement from private respondent nor may private respondent subject it to

forfeiture.

WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED

AND SET ASIDE, and another is entered ordering petitioner to pay private respondent

the balance of the purchase price and the latter to execute the deed of absolute sale in

favor of petitioner. No costs.

SO ORDERED.

[G.R. No. 138018. July 26, 2002]

RIDO MONTECILLO, petitioner, vs. IGNACIA REYNES and SPOUSES

REDEMPTOR and ELISA ABUCAY, respondents.

CONTRACT OF SALE; LACK OF CONSENTLACK OF CONSIDERATION, DISTINGUISHED. — One of the three essential requisites of a validcontract is consent of the parties on the object and cause of the contract. In a contract of sale, theparties must agree not only on the price, but also on the manner of payment of the price. Anagreement on the price but a disagreement on the manner of its payment will not result in consent,thus preventing the existence of a valid contract for lack of consent. This lack of consent is separateand distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid.

D E C I S I O N

CARPIO, J.:

The Case

On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18, rendered a

Decision[1] declaring the deed of sale of a parcel of land in favor of petitioner null and

void ab initio. The Court of Appeals,[2] in its July 16, 1998 Decision[3] as well as its

February 11, 1999 Order[4] denying petitioner’s Motion for Reconsideration, affirmed

the trial court’s decision in toto. Before this Court now is a Petition for Review on

Certiorari[5] assailing the Court of Appeals’ decision and order.

The Facts

Respondents Ignacia Reynes (“Reynes” for brevity) and Spouses Abucay (“Abucay

Spouses” for brevity) filed on June 20, 1984 a complaint for Declaration of Nullity and

Quieting of Title against petitioner Rido Montecillo (“Montecillo” for brevity). Reynes

asserted that she is the owner of a lot situated in Mabolo, Cebu City, covered by

Transfer Certificate of Title No. 74196 and containing an area of 448 square meters

(“Mabolo Lot” for brevity). In 1981, Reynes sold 185 square meters of the Mabolo Lot to

the Abucay Spouses who built a residential house on the lot they bought.

Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo

Lot in favor of Montecillo (“Montecillo’s Deed of Sale” for brevity). Reynes, being

illiterate,[6] signed by affixing her thumb-mark[7] on the document. Montecillo promised

to pay the agreed P47,000.00 purchase price within one month from the signing of the

Deed of Sale. Montecillo’s Deed of Sale states as follows:

“That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal

address at Mabolo, Cebu City, Philippines, for and in consideration of FORTY SEVEN

THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO

MONTECILLO, of legal age, Filipino, married, with residence and postal address at

Mabolo, Cebu City, Philippines, the receipt hereof is hereby acknowledged, have sold,

transferred, and conveyed, unto RIDO MONTECILLO, his heirs, executors,

administrators, and assigns, forever, a parcel of land together with the improvements

thereon, situated at Mabolo, Cebu City, Philippines, free from all liens and

encumbrances, and more particularly described as follows:

A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being a

portion of Lot 203-B-2, described on plan (LRC) Psd-76821, L.R.C. (GLRO) Record No.

5988), situated in the Barrio of Mabolo, City of Cebu. Bounded on the SE., along line 1-

2 by Lot 206; on the SW., along line 2-3, by Lot 202, both of Banilad Estate; on the NW.,

along line 4-5, by Lot 203-B-2-A of the subdivision of Four Hundred Forty Eight (448)

square meters, more or less.

of which I am the absolute owner in accordance with the provisions of the Land

Registration Act, my title being evidenced by Transfer Certificate of Title No. 74196 of

the Registry of Deeds of the City of Cebu, Philippines. That This Land Is Not Tenanted

and Does Not Fall Under the Purview of P.D. 27.”[8] (Emphasis supplied)

Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of

the one-month period, prompting Reynes to demand from Montecillo the return of the

Deed of Sale. Since Montecillo refused to return the Deed of Sale,[9] Reynes executed

a document unilaterally revoking the sale and gave a copy of the document to

Montecillo.

Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the

Abucay Spouses the entire Mabolo Lot, at the same time confirming the previous sale in

1981 of a 185-square meter portion of the lot. This Deed of Sale states:

“I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu

City, do hereby confirm the sale of a portion of Lot No. 74196 to an extent of 185 square

meters to Spouses Redemptor Abucay and Elisa Abucay covered by Deed per Doc. No.

47, Page No. 9, Book No. V, Series of 1981 of notarial register of Benedicto Alo, of

which spouses is now in occupation;

That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS,

Philippine Currency, received in full and receipt whereof is herein acknowledged from

SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY, do hereby in these presents,

SELL, TRANSFER and CONVEY absolutely unto said Spouses Redemptor Abucay and

Elisa Abucay, their heirs, assigns and successors-in-interest the whole parcel of land

together with improvements thereon and more particularly described as follows:

TCT No. 74196

A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being a

portion of Lot 203-B-2, described on plan (LRC) Psd 76821, LRC (GLRO) Record No.

5988) situated in Mabolo, Cebu City, along Arcilla Street, containing an area of total

FOUR HUNDRED FORTY EIGHT (448) Square meters.

of which I am the absolute owner thereof free from all liens and encumbrances and

warrant the same against claim of third persons and other deeds affecting said parcel of

land other than that to the said spouses and inconsistent hereto is declared without any

effect.

In witness whereof, I hereunto signed this 23rd day of May, 1984 in Cebu City,

Philippines.” [10]

Reynes and the Abucay Spouses alleged that on June 18, 1984 they received

information that the Register of Deeds of Cebu City issued Certificate of Title No. 90805

in the name of Montecillo for the Mabolo Lot.

Reynes and the Abucay Spouses argued that “for lack of consideration there (was) no

meeting of the minds”[11] between Reynes and Montecillo. Thus, the trial court should

declare null and void ab initio Montecillo’s Deed of Sale, and order the cancellation of

Certificate of Title No. 90805 in the name of Montecillo.

In his Answer, Montecillo, a bank executive with a B.S. Commerce degree,[12] claimed

he was a buyer in good faith and had actually paid the P47,000.00 consideration stated

in his Deed of Sale. Montecillo, however, admitted he still owed Reynes a balance of

P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel

mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that

he paid for the real property tax as well as the capital gains tax on the sale of the

Mabolo Lot.

In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have

authority to discharge the chattel mortgage, especially after Reynes revoked

Montecillo’s Deed of Sale and gave the mortgagee a copy of the document of

revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the

release of the chattel mortgage through machination. They further asserted that

Montecillo took advantage of the real property taxes paid by the Abucay Spouses and

surreptitiously caused the transfer of the title to the Mabolo Lot in his name.

During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot

was the amount he paid to Cebu Ice and Cold Storage Corporation (“Cebu Ice Storage”

for brevity) for the mortgage debt of Bienvenido Jayag (“Jayag” for brevity). Montecillo

argued that the release of the mortgage was necessary since the mortgage constituted

a lien on the Mabolo Lot.

Reynes, however, stated that she had nothing to do with Jayag’s mortgage debt except

that the house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes

further stated that the payment by Montecillo to release the mortgage on Jayag’s house

is a matter between Montecillo and Jayag. The mortgage on the house, being a chattel

mortgage, could not be interpreted in any way as an encumbrance on the Mabolo Lot.

Reynes further claimed that the mortgage debt had long prescribed since the

P47,000.00 mortgage debt was due for payment on January 30, 1967.

The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to

Montecillo null and void. The trial court ordered the cancellation of Montecillo’s Transfer

Certificate of Title No. 90805 and the issuance of a new certificate of title in favor of the

Abucay Spouses. The trial court found that Montecillo’s Deed of Sale had no cause or

consideration because Montecillo never paid Reynes the P47,000.00 purchase price,

contrary to what is stated in the Deed of Sale that Reynes received the purchase price.

The trial court ruled that Montecillo’s Deed of Sale produced no effect whatsoever for

want of consideration. The dispositive portion of the trial court’s decision reads as

follows:

“WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered

declaring the deed of sale in favor of defendant null and void and of no force and effect

thereby ordering the cancellation of Transfer Certificate of Title No. 90805 of the

Register of Deeds of Cebu City and to declare plaintiff Spouses Redemptor and Elisa

Abucay as rightful vendees and Transfer Certificate of Title to the property subject

matter of the suit issued in their names. The defendants are further directed to pay

moral damages in the sum of P20,000.00 and attorney’s fees in the sum of P2,000.00

plus cost of the suit.

xxx”

Not satisfied with the trial court’s Decision, Montecillo appealed the same to the Court of

Appeals.

Ruling of the Court of Appeals

The appellate court affirmed the Decision of the trial court in toto and dismissed the

appeal[13] on the ground that Montecillo’s Deed of Sale is void for lack of consideration.

The appellate court also denied Montecillo’s Motion for Reconsideration[14] on the

ground that it raised no new arguments.

Still dissatisfied, Montecillo filed the present petition for review on certiorari.

The Issues

Montecillo raises the following issues:

1. “Was there an agreement between Reynes and Montecillo that the stated

consideration of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage

to secure the release of the Transfer Certificate of Title?”

2. “If there was none, is the Deed of Sale void from the beginning or simply

rescissible?”[15]

The Ruling of the Court

The petition is devoid of merit.

First issue: manner of payment of the P47,000.00 purchase price.

Montecillo’s Deed of Sale does not state that the P47,000.00 purchase price should be

paid by Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence

before the trial court showing that Reynes had agreed, verbally or in writing, that the

P47,000.00 purchase price should be paid to Cebu Ice Storage. Absent any evidence

showing that Reynes had agreed to the payment of the purchase price to any other

party, the payment to be effective must be made to Reynes, the vendor in the sale.

Article 1240 of the Civil Code provides as follows:

“Payment shall be made to the person in whose favor the obligation has been

constituted, or his successor in interest, or any person authorized to receive it.”

Thus, Montecillo’s payment to Cebu Ice Storage is not the payment that would

extinguish[16] Montecillo’s obligation to Reynes under the Deed of Sale.

It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if

this entire amount would only go to Cebu Ice Storage, leaving not a single centavo to

her for giving up ownership of a valuable property. This incredible allegation of

Montecillo becomes even more absurd when one considers that Reynes did not benefit,

directly or indirectly, from the payment of the P47,000.00 to Cebu Ice Storage.

The trial court found that Reynes had nothing to do with Jayag’s mortgage debt with

Cebu Ice Storage. The trial court made the following findings of fact:

“x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of

the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of

Bienvenido Jayag and wife who mortgaged their residential house constructed on the

land subject matter of the complaint. The payment by the defendant to release the

residential house from the mortgage is a matter between him and Jayag and cannot by

implication or deception be made to appear as an encumbrance upon the land.”[17]

Thus, Montecillo’s payment to Jayag’s creditor could not possibly redound to the

benefit[18] of Reynes. We find no reason to disturb the factual findings of the trial court.

In petitions for review on certiorari as a mode of appeal under Rule 45, as in the instant

case, a petitioner can raise only questions of law.[19] This Court is not the proper venue

to consider a factual issue as it is not a trier of facts.

Second issue: whether the Deed of Sale is void ab initio or only rescissible.

Under Article 1318 of the Civil Code, “[T]here is no contract unless the following

requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the

subject matter of the contract; (3) Cause of the obligation which is established.” Article

1352 of the Civil Code also provides that “[C]ontracts without cause x x x produce no

effect whatsoever.”

Montecillo argues that his Deed of Sale has all the requisites of a valid contract.

Montecillo points out that he agreed to purchase, and Reynes agreed to sell, the

Mabolo Lot at the price of P47,000.00. Thus, the three requisites for a valid contract

concur: consent, object certain and consideration. Montecillo asserts there is no lack of

consideration that would prevent the existence of a valid contract. Rather, there is only

non-payment of the consideration within the period agreed upon for payment.

Montecillo argues there is only a breach of his obligation to pay the full purchase price

on time. Such breach merely gives Reynes a right to ask for specific performance, or

for annulment of the obligation to sell the Mabolo Lot. Montecillo maintains that in

reciprocal obligations, the injured party can choose between fulfillment and rescission,

[20] or more properly cancellation, of the obligation under Article 1191[21] of the Civil

Code. This Article also provides that the “court shall decree the rescission claimed,

unless there be just cause authorizing the fixing of the period.” Montecillo claims that

because Reynes failed to make a demand for payment, and instead unilaterally revoked

Montecillo’s Deed of Sale, the court has a just cause to fix the period for payment of the

balance of the purchase price.

These arguments are not persuasive.

Montecillo’s Deed of Sale states that Montecillo paid, and Reynes received, the

P47,000.00 purchase price on March 1, 1984, the date of signing of the Deed of Sale.

This is clear from the following provision of the Deed of Sale:

“That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY SEVEN

THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO

MONTECILLO xxx, receipt of which is hereby acknowledged, have sold, transferred,

and conveyed, unto RIDO MONTECILLO, x x x a parcel of land x x x.”

On its face, Montecillo’s Deed of Absolute Sale[22] appears supported by a valuable

consideration. However, based on the evidence presented by both Reynes and

Montecillo, the trial court found that Montecillo never paid to Reynes, and Reynes never

received from Montecillo, the P47,000.00 purchase price. There was indisputably a

total absence of consideration contrary to what is stated in Montecillo’s Deed of Sale.

As pointed out by the trial court –

“From the allegations in the pleadings of both parties and the oral and documentary

evidence adduced during the trial, the court is convinced that the Deed of Sale (Exhibits

“1” and “1-A”) executed by plaintiff Ignacia Reynes acknowledged before Notary Public

Ponciano Alvinio is devoid of any consideration. Plaintiff Ignacia Reynes through the

representation of Baudillo Baladjay had executed a Deed of Sale in favor of defendant

on the promise that the consideration should be paid within one (1) month from the

execution of the Deed of Sale. However, after the lapse of said period, defendant failed

to pay even a single centavo of the consideration. The answer of the defendant did not

allege clearly why no consideration was paid by him except for the allegation that he

had a balance of only P10,000.00. It turned out during the pre-trial that what the

defendant considered as the consideration was the amount which he paid for the

obligation of Bienvenido Jayag with the Cebu Ice and Cold Storage Corporation over

which plaintiff Ignacia Reynes did not have a part except that the subject of the

mortgage was constructed on the parcel of land in question. Plaintiff Ignacia Reynes

was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage

Corporation, the obligation being exclusively of Bienvenido Jayag and wife who

mortgaged their residential house constructed on the land subject matter of the

complaint. The payment by the defendant to release the residential house from the

mortgage is a matter between him and Jayag and cannot by implication or deception be

made to appear as an encumbrance upon the land. “[23]

Factual findings of the trial court are binding on us, especially if the Court of Appeals

affirms such findings.[24] We do not disturb such findings unless the evidence on record

clearly does not support such findings or such findings are based on a patent

misunderstanding of facts,[25] which is not the case here. Thus, we find no reason to

deviate from the findings of both the trial and appellate courts that no valid consideration

supported Montecillo’s Deed of Sale.

This is not merely a case of failure to pay the purchase price, as Montecillo claims,

which can only amount to a breach of obligation with rescission as the proper remedy.

What we have here is a purported contract that lacks a cause - one of the three

essential requisites of a valid contract. Failure to pay the consideration is different from

lack of consideration. The former results in a right to demand the fulfillment or

cancellation of the obligation under an existing valid contract[26] while the latter

prevents the existence of a valid contract

Where the deed of sale states that the purchase price has been paid but in fact has

never been paid, the deed of sale is null and void ab initio for lack of consideration.

This has been the well-settled rule as early as Ocejo Perez & Co. v. Flores,[27] a 1920

case. As subsequently explained in Mapalo v. Mapalo[28]–

“In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil.

921, is squarely applicable herein. In that case we ruled that a contract of purchase and

sale is null and void and produces no effect whatsoever where the same is without

cause or consideration in that the purchase price which appears thereon as paid has in

fact never been paid by the purchaser to the vendor.”

The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque,[29] to wit –

“The Appellate Court’s finding that the price was not paid or that the statement in the

supposed contracts of sale (Exh. 6 to 26) as to the payment of the price was simulated

fortifies the view that the alleged sales were void. “If the price is simulated, the sale is

void . . .” (Art. 1471, Civil Code)

A contract of sale is void and produces no effect whatsoever where the price, which

appears thereon as paid, has in fact never been paid by the purchaser to the vendor

(Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921; Mapalo vs. Mapalo, L-21489, May

19, 1966, 64 O.G. 331, 17 SCRA 114, 122). Such a sale is non-existent (Borromeo vs.

Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado vs. Bustos

and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA

229).”

Applying this well-entrenched doctrine to the instant case, we rule that Montecillo’s

Deed of Sale is null and void ab initio for lack of consideration.

Montecillo asserts that the only issue in controversy is “the mode and/or manner of

payment and/or whether or not payment has been made.”[30] Montecillo implies that the

mode or manner of payment is separate from the consideration and does not affect the

validity of the contract. In the recent case of San Miguel Properties Philippines, Inc. v.

Huang,[31] we ruled that –

“In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181

[1961]), we laid down the rule that the manner of payment of the purchase price is an

essential element before a valid and binding contract of sale can exist. Although the

Civil Code does not expressly state that the minds of the parties must also meet on the

terms or manner of payment of the price, the same is needed, otherwise there is no

sale. As held in Toyota Shaw, Inc. v. Court of Appeals (244 SCRA 320 [1995]),

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.” (Emphasis

supplied)

One of the three essential requisites of a valid contract is consent of the parties on the

object and cause of the contract. In a contract of sale, the parties must agree not only

on the price, but also on the manner of payment of the price. An agreement on the

price but a disagreement on the manner of its payment will not result in consent, thus

preventing the existence of a valid contract for lack of consent. This lack of consent is

separate and distinct from lack of consideration where the contract states that the price

has been paid when in fact it has never been paid.

Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within

one month after the signing of the Deed of Sale. On the other hand, Montecillo thought

that his agreement with Reynes required him to pay the P47,000.00 purchase price to

Cebu Ice Storage to settle Jayag’s mortgage debt. Montecillo also acknowledged a

balance of P10,000.00 in favor of Reynes although this amount is not stated in

Montecillo’s Deed of Sale. Thus, there was no consent, or meeting of the minds,

between Reynes and Montecillo on the manner of payment. This prevented the

existence of a valid contract because of lack of consent.

In summary, Montecillo’s Deed of Sale is null and void ab initio not only for lack of

consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the

name of Montecillo is in order as there was no valid contract transferring ownership of

the Mabolo Lot from Reynes to Montecillo.

WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of

the Court of Appeals in CA-G.R. CV No. 41349 is AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 114950 December 19, 1995

RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR.,

APOLINARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA

LOURDES, all surnamed SUNTAY, petitioners,

vs.

THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents.

HERMOSISIMA, JR., J.:

Grave danger of destitution and ruin or irretrievable loss of property awaits those who

practise or condone accommodation in order to circumvent the law or to hide from it.

This case involving Federico Suntay, a wealthy landowner from Bulacan, is in point. He

is here pitted against his own lawyer, unfortunately his own nephew, Rafael Suntay, in

whose favor he signed and executed a deed of sale of a parcel of valuable and

productive real property for a measly P20,000.00. Federico claims that the sale was

merely simulated and has been executed only for purposes of accommodation. Rafael

Suntay, to the consternation or Federico, insists that the transaction was a veritable

sale. Under what showing may the sale be deemed susceptible of nullification for being

simulated? Do we thereby abandon every reverence we have hitherto reposed on

instruments notarized before notaries public?

Before us is a Petition for Review on Certiorari of the Amended Decision 1 of

respondent Court of Appeals 2 and of its Resolution 3 denying petitioner's motion for

reconsideration.

These are the pertinent facts:

Respondent Federico Suntay was the registered 4 owner of a parcel of land with an

area of 5,118 square meters, more or less, situated in Sto. Niño, Hagonoy, Bulacan. On

the land may be found: a rice mill, a warehouse, and other improvements. A rice miller,

Federico, in a letter, dated September 30, 1960, applied as a miller-contractor of the

then National Rice and Corn Corporation (NARIC). He informed the NARIC that he had

a daily rice mill output of 400 cavans of palay and warehouse storage capacity of

150,000 cavans of palay. 5 His application, although prepared by his nephew-lawyer,

petitioner Rafael Suntay, 6 was disapproved, 7 obviously because at that time he was

tied up with several unpaid loans. For purposes of circumvention, he had thought of

allowing Rafael to make the application for him. Rafael prepared 8 an absolute deed of

sale 9 whereby Federico, for and in consideration of P20,000.00 conveyed to Rafael

said parcel of land with all its existing structures. Said deed was notarized as Document

No. 57 and recorded on Page 13 of Book 1, Series of 1962, of the Notarial Register of

Atty. Herminio V. Flores. 10 Less than three months after this conveyance, a counter

sale 11 was prepared 12 and signed 13 by Rafael who also caused its delivery 14 to

Federico. Through this counter conveyance, the same parcel of land with all its existing

structures was sold by Rafael back to Federico for the same consideration of

P20,000.00. 15 Although on its face, this second deed appears to have been notarized

as Document No. 56 and recorded on Page 15 of Book 1, Series of 1962, 16 of the

notarial register of Atty. Herminio V. Flores, an examination thereof will show that,

recorded as Document No. 56 on Page 13, is not the said deed of sale but a certain

"real estate mortgage on a parcel of land with TCT No. 16157 to secure a loan of

P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on page 13 of the same

notarial register could be found any entry pertaining to Rafael's deed of sale. 17

Testifying on this irregularity, Atty. Flores admitted that he failed to submit to the Clerk

of Court a copy of the second deed. Neither was he able to enter the same in his

notarial register. 18 Even Federico himself alleged in his Complaint that, when Rafael

delivered the second deed to him, it was neither dated nor notarized. 19

Upon the execution and registration of the first deed, Certificate of Title No. 0-2015 in

the name of Federico was cancelled and in lieu thereof, TCT No. T-36714 was issued in

the name of Rafael. Even after the execution of the deed, Federico remained in

possession of the property sold in concept of owner. Significantly, notwithstanding the

fact that Rafael became the titled owner of said land and rice mill, he never made any

attempt to take possession thereof at any time, 20 while Federico continued to exercise

rights of absolute ownership over the property. 21

In a letter, 22 dated August 14, 1969, Federico, through his new counsel, Agrava &

Agrava, requested that Rafael deliver his copy of TCT No. T-36714 so that Federico

could have the counter deed of sale in his favor registered in his name. The request

having been obviously turned down, Agrava & Agrava filed a petition 23 with the Court

of First Instance of Bulacan 24 asking Rafael to surrender his owner's duplicate

certificate of TCT No. T-36714. In opposition thereto, Rafael chronicled the discrepancy

in the notarization of the second deed of sale upon which said petition was premised

and ultimately concluded that said deed was a counterfeit or "at least not a public

document which is sufficient to transfer real rights according to law." 25 On September

8, 1969, Agrava & Agrava filed a motion 26 to withdraw said petition, and, on

September 13, 1969, the Court granted the same. 27

On July 8, 1970, Federico filed a complaint 28 for reconveyance and damages against

Rafael. He alleged, among others, that:

xxx xxx xxx

2.2 Sometime around May, 1962, defendant approached plaintiff and asked plaintiff,

purely as an accommodation and in order only to help defendant in an application that

defendant had then filed or intended to file with the Rice and Corn Administration to be

licensed as a rice dealer, to clause the title over the land and improvement described

above to be placed in defendant's name, but with the clear and express understanding

that ownership, possession, use, enjoyment and all other incidents of title would remain

vested in plaintiff; and that, at any time that plaintiff needed or desired that the title be

restored to plaintiff's name, defendant would execute whatever deed and take whatever

steps would be necessary to do so; to which request, in view of their relationship as

uncle and nephew, plaintiff acceded.

2.3 Accordingly, defendant prepared a deed entitled "Deed of Absolute Sale" over

the land and improvements . . . which purported to be a sale thereof by plaintiff to

defendant in consideration of P20,000.00; which document plaintiff signed on or about

May 19, 1962. . . .

2.4 Defendant never paid or delivered, and plaintiff never demanded or received, the

sum of P20,000.00 or any other valuable consideration for executing the aforesaid

"Deed of Absolute Sale", since the same was and is an absolutely simulated or fictitious

transaction, intended solely to accommodate and assist defendant . . .

2.5 Defendant registered the "Deed of Absolute Sale" . . . with the Register of Deeds

of Bulacan, and as a result, O.C.T. No. 0-2015 in plaintiff's name was cancelled and

T.C.T. No. 36714 was issued in defendant's name.

2.6 After the Deed of Absolute Sale . . . had been registered, defendant prepared

and delivered to plaintiff a counter-deed likewise entitled "Deed of Absolute Sale", duly

signed by him, in which he purported to sell back to plaintiff the same land and

improvements . . . for the same consideration of P20,000.00. . . .

2.7 At the time defendant delivered the counter-deed . . . to plaintiff it was signed by

defendant, but not dated or notarized, as defendant told plaintiff that he was delivering

the signed counter-deed as a recognition of the fictitious character of the Deed . . . and

authorized plaintiff to date the deed and cause it to be notarized at any time that plaintiff

deemed it necessary or convenient to do so . . .

2.8 From the time plaintiff acquired the land and improvements

. . . from his parents, continuously until the present, plaintiff has been in open, public

possession, use and enjoyment of the land, rice mill, warehouse and other

improvements . . . for his sole and exclusive benefit, and has paid all taxes thereon;

and, in fact, from May 19, 1962, the date of the simulated "Deed of Absolute Sale" . . .

until the present, defendant has not exercise a single act of ownership, possession, use

or enjoyment of the said land and improvements.

2.9 During the months of June to August, 1969, desiring to expand his rice mill and

warehouse business located on the land in question, because of government efforts to

stimulate rice production, plaintiff requested defendant to deliver to him the owner's

duplicate of the transfer certificate of title over the properties in question, in order that

plaintiff might register the counter-deed . . . and use the property as collateral in

securing a bank loan to finance the expansion of the rice mill and warehouse facilities;

but defendant failed and refused, and continues to fail and refuse to do so, without just

cause or legal reason. 29

In his answer, Rafael scoffed at the attack against the validity and genuineness of the

sale to him of Federico's land and rice mill. Rafael insisted that said property was

"absolutely sold and conveyed . . . for a consideration of P20,000.00, Philippine

currency, and for other valuable consideration". 30 Accordingly, he raised the following

affirmative and/or special defenses:

xxx xxx xxx

2.2 Plaintiff is now estopped from questioning the validity, genuineness, valuable

consideration and due execution of the Deed of Absolute Sale, Annex "A" of the

Complaint, since he admitted the same in his Petition in L.R. Case No. 1356 . . . .

pertinent portions of which are quoted hereunder:

. . . On August 12, 1962, Rafael G. Suntay sold the property above-described to

petitioner through a Deed of Absolute Sale . . . .

and likewise, plaintiff admitted the validity, genuineness, valuable consideration and due

execution of aforesaid Deed of Absolute Sale . . . as evidenced by the letter of plaintiff's

counsel, Attorneys Agrava and

Agrava . . .

3. . . . Sometime in 1962, plaintiff informed defendant that he would repurchase

aforesaid property and requested the defendant to prepare the necessary document.

Considering the trust and confidence that defendant had in plaintiff and pursuant to said

request, defendant prepared the proposed Deed of Sale . . . signed the same and

delivered it to the plaintiff with the clear and express understanding that the owner's

duplicate Transfer Certificate of Title would be delivered to the plaintiff only upon full

payment of the agreed repurchase price of P20,000.00 after which said proposed Deed

of Sale would be duly notarized. The amount of P20,000.00 was stated in said proposed

Deed of Sale upon request of plaintiff in view of the fact that was the same amount

appearing in the Deed of Absolute Sale, Annex "A" of the Complaint. The plaintiff; not

only failed to pay to defendant the agreed repurchase price of (sic) any portion thereof

but even caused the falsification of the proposed Deed of Sale by making it appear, in

connivance with Attorney Herminio Flores, that defendant acknowledged said document

before said Attorney Flores, when in truth and in fact as plaintiff and Attorney Flores

very well knew at the time that defendant never appeared, much less acknowledged,

before Attorney Flores said document . . . 31

At the initial hearing on April 7, 1971, Federico took the stand and, when asked why title

to the property was no longer in his name, Rafael's counsel objected thereto upon the

ground that Federico, in the petition wherein he asked Rafael to surrender his owner's

duplicate of TCT No. T-36714, had alleged that he sold the land to Rafael, which

allegation, Rafael contends, constitutes as a judicial admission which may not be

subject to contradiction, unless previously shown to have been made through palpable

mistake. 32 Rafael's counsel, in effect, was assailing the admissibility of Federico's

anticipated answer which would most likely tend to establish the simulated nature of the

sale executed by Federico in favor of Rafael. Judge Emmanuel Muñoz overruled the

objection and reset the case for hearing on June 9, 1971.

On June 7, 1971, Rafael, obviously for the purpose of delay on account of its pettiness,

instituted certiorari proceedings in the Court of Appeals in order to have the aforecited

ruling nullified and set aside. Rafael was naturally rebuffed by the Appellate Court.

Considering that the petition for Rafael to surrender his owner's duplicate of TCT No. T-

36714 had been withdrawn upon motion of Federico, the alleged admission of Federico

as to the questioned deed's validity in effect disappeared from the record and had

ceased to have any standing as a judicial admission. 33 Dissatisfied with the ruling,

Rafael elevated the matter to the Supreme Court via a petition for review on certiorari.

This was summarily denied by us for lack of merit. 34

Whereupon, Rafael's counsel moved, as he often did previously, for continuation of trial

of the main case. 35 After a thirteen-year trial — with no less than six different Presiding

Judges; 36 numerous changes of lawyers; countless incidents; and a mountain-pile or

pleadings — a decision in the case was finally rendered on April 30, 1984. Resolving

the sole issue of whether or not the deed of sale executed by Federico in favor of Rafael

was simulated and without consideration, the trial court ruled:

The following documents undisputedly show the admission of the plaintiff that the deed

of absolute sale (Exh. A) is not a simulated or fictitious document but is a genuine deed

of absolute sale he executed in favor of the defendant, to wit:

(a) . . . a demand letter of Attys. Agrava & Agrava, counsel of the plaintiff, the

pertinent portion of which is quoted as follows:

"On May 19, 1972, our client, Federico C. Suntay sold to your goodself for P20,000.00 a

parcel of land situated at Hagonoy, Bulacan . . ."

(b) . . . a Petition for the Surrender of Owner's Duplicate Certificate of Title an/or

Cancellation and Issuance of Substitute Owner's Copy of Transfer Certificate of Title

filed in Court on August 19, 1969 by the plaintiff against the defendant docketed as LRC

Case No. 1356 . . . hereby quoted as follows:

"2. Petitioner is the vendee of a parcel of land, together with the improvements

existing thereon situated in the Barrio of Sto. Niño, Hagonoy, Bulacan . . . title to which

is still . . . issued in the name of the vendor Rafael G. Suntay . . . .

3. On August 12, 1962, Rafael G. Suntay sold the property . . . to petitioner . . . ."

(c) . . . a notice of adverse claim filed by the plaintiff in the Registry of Decision of

Bulacan on the land in question . . . admitting the ownership of the defendant of said

land, which is quoted as follows:

"That the property has been sold to me by Rafael G. Suntay through an Absolute Deed

of Sale . . . ."

These documents alone are more than sufficient evidence to conclude that Exhibit A is

not a simulated Deed of Absolute Sale but a genuine Deed of Absolute Sale which

transferred the ownership of the property in question from the plaintiff to the defendant.

The mere allegation of the plaintiff that the Deed of Sale (Exh. A) is simulated and

without consideration cannot prevail over his aforesaid admissions.

. . . In addition thereto is the fact that this Deed of Absolute Sale (Exh. A) was duly

recorded in the Notarial Registry of Notary Public Herminio V. Flores . . . thus showing

the regularity and due execution of the aforesaid document . . . .

The mere fact that plaintiff is in continuous possession of the property in question, pays

realty taxes thereon and have introduced several improvements despite the execution

of Deed of Absolute Sale (Exh. A) is not sufficient basis to conclude that Exh. A is just a

simulated sale in the light of the admissions of fire plaintiff in the aforementioned

documentary evidences and furthermore it was explained by the defendant that plaintiff

has been in possession of the property in question and paid taxes thereon because it

was their express understanding that plaintiff would subsequently repurchase the

property in question and all the fruits thus enjoyed by plaintiff and taxes thus paid by

him would be accounted for . . . This is borne out by the receipts of payment of realty

taxes which expressly show that plaintiff paid the taxes for and in the name of defendant

Rafael Suntay. 37

While the trial court upheld the validity and genuineness of the deed of sale executed by

Federico in favor of Rafael, which deed is referred to above as Exhibit A, it ruled that the

counter-deed, referred to as Exhibit B, executed by Rafael in favor of Federico, was

simulated and without consideration, hence, null and void ab initio.

The trial court ratiocinated that:

The Deed of Absolute Sale (Exh. B) which is a resale of the property in question

executed by the defendant in favor of the plaintiff was signed by the defendant but at

the time it was handed to the plaintiff it was not dated, not notarized and above all it has

no consideration because plaintiff did not pay defendant the consideration of the sale in

the sum of P20,000.00. . . .

Although Exh. B was subsequently notarized, the fact remained that defendant did not

appear and acknowledge the same before the Notary Public . . . and did not receive the

consideration of the aforesaid Exh. B . . . Consequently (sic), this Exh B for want of

consideration and not having been acknowledged by defendant before the Notary

Public is therefore null and void and hence did not transfer ownership of the property in

question to the defendant.

A contract of purchase and sale is void and produces no effect whatsoever where the

same is without cause or consideration in that the purchase price, which appears

thereon as paid, has in fact never been paid by the purchaser to the vendor (Mapalo vs.

Mapalo . . . 17 SCRA 114). 38

While the trial court adjudged Rafael as the owner of the property in dispute, it did not

go to the extent of ordering Federico to pay back rentals for the use of the property as

the court made the evidential finding that Rafael simply allowed his uncle to have

continuous possession of the property because or their understanding that Federico

would subsequently repurchase the same. The decretal portion of the decision of the

trial court reads:

WHEREFORE, a decision is hereby rendered:

1. Dismissing this complaint filed by plaintiff against herein defendant;

2. Declaring the Deed absolute Sale (Exh. A) executed by the plaintiff in favor of the

defendant of a parcel of land covered by OCT No. 0-2015-Bulacan Registry as a

genuine and valid document;

3. Ordering the defendant to pay the Government of the Republic of the Philippines

thru the Office of the Register of Deeds of Bulacan the true and correct registration fees

for the Deed of Absolute Sale (Exh. A) on the basis of the true consideration of the sale

as admitted by the defendant which is P20,000.00 as staled in the document plus his

unpaid attorney's fees in the sum of P114,000.00 within fifteen (15) days from the

finality of this decision;

4. Declaring the Deed of Sale (Exh. B) executed by the defendant in favor of the

plaintiff of a parcel of land covered by TCT No. T-36714-Bulacan Registry as null and

void ab initio;

5. The prayer for P500.00/month rental from May, 1962 is hereby denied for lack of

merit;

6. With costs against the plaintiff. 39

From the aforecited decision of the trial court, both Federico and Rafael appealed.

Before the Court of Appeals both pleaded invariably the same arguments which they

had raised before the trial court. On January 27, 1993, the Court of Appeals rendered

judgment in affirmance of the trial court's decision, with a modification. Federico was

ordered to surrender the possession of the disputed property to Rafael. 40

The Court of Appeals ruled:

After a careful examination of the evidence on record, we are inclined to agree with the

lower court that Exhibit "A" is indeed a genuine deed of absolute sale which transferred

to Rafael the full ownership of the litigated property, including the improvements found

thereon.

For one, it immediately strikes us as rather unusual for Federico to wait until 1969, or

after a period of more than seven (7) years from May 19, 1962 when he executed

Exhibit "A", to seek the restoration of his title over the same property. Were Federico to

be believed, he executed Exhibit "A" simply to accommodate his nephew in connection

with the latter's alleged application as rice dealer of RCA. There is nothing in the record,

however, that Rafael ever became a licensed rice dealer of RCA from 1962 to 1969. . . .

. . . Prudence if not common sense should have cautioned Federico of the dangers

attendant to his inaction to assert immediately his alleged unaffected ownership over

the same property. It is simply unthinkable that Federico could not have considered the

possibility that an innocent purchaser for value may acquire the property from Rafael.

Such a thought alone is enough reason for Federico to be wary of the situation which he

allowed to continue for seven (7) years.

Nor can Federico draw comfort from his continued physical possession of the property

even after the same was sold to Rafael. As plausibly explained by Rafael, he allowed

Federico to remain in the premises and enjoy the fruits thereof because of their express

understanding that Federico may subsequently repurchase the property and all the

fruits thus enjoyed by the plaintiff and the taxes paid by him would be accounted for at

the time of the repurchase . . . Indeed, the receipts of payment of realty taxes clearly

show on their face that Federico paid the taxes for and in behalf of Rafael . . . .

Independent of the foregoing, documents are on record which are replete with

Federico's admissions showing that Exhibit "A" could not have been a simulated or

fictitious deed of sale. . . .

Finally, it is not disputed that Exhibit "A" was duly recorded in the Notarial Register of

Notary Public Herminio V. Flores . . . who testified on the due execution of the

same . . .; Against this overwhelming evidence, Federico's self-serving declaration that

Exhibit "A" is a fictitious and simulated contract must certainly fall.

This brings us to the Deed of Absolute Sale (Exh. "B") executed by Rafael in favor of

Federico over the same property.

We cannot add more to what the court a quo has said in declaring that Exhibit "B" is null

and void, for which reason it could not have transferred the ownership of the same

property to Federico. . . . 41

Counsel of Federico filed a motion for reconsideration of the aforecited decision. While

the motion was pending resolution, Atty. Ricardo M. Fojas entered his appearance in

behalf of the heirs of Rafael who had passed away on November 23, 1988. Atty. Fojas

prayed that said heirs be substituted as defendants-appellants in the case. The prayer

for substitution was duly noted by the court in a resolution dated April 6, 1993.

Thereafter, Atty. Fojas filed in behalf of the heirs an opposition to the motion for

reconsideration. The parties to the case were heard on oral argument on October 12,

1993.

On December 15, 1993, the Court of Appeals reversed itself and rendered an amended

judgment, pertinent portions of which read:

. . . this Court is convinced that the desired reconsideration is impressed with

compelling merit. For truly, certain premises stand out in the chain of evidence, the

interplay of which supports the conclusion that the parties meant Exhibit "A" to be a

mere accommodation arrangement executed without any consideration and therefore

simulated contract of sale. Consider the following:

1. Two (2) instruments were executed closely one after the other involving transfer

and re-transfer of the same property at exactly the same price;

2. The existing close relationship between the parties; and

3. The value and location of the property purportedly sold, which project in bold

relief the gross inadequacy of the stated contractual consideration therefor.

xxx xxx xxx

There is more. Similarly looming large to attest to the simulated character of Exhibit "A"

which, in hindsight, was unjudiciously brushed aside is the undisputed fact that the

physical possession, enjoyment and use of the property in question remained through

the years and up to the present in the hands of Federico. Rafael, as records show,

never assumed the benefits, let alone the burden, of ownership. He did not even include

the property in his statement of assets and liabilities . . . nor paid the taxes therefor. This

factor, juxtaposed with Rafael's execution of the counter deed of sale (Exh. "B"), cannot

but unmistakably indicate that the parties never meant to regard Exhibit "A" as

producing actual transfer of ownership and/or rights attached to ownership. Doubtless,

Exhibit "B" manifested, and is an affirmation of, such intention.

We are thus inclined to agree with Federico's main submission that Exhibit "A" is merely

a fragment of the intended transaction, that is, an accommodation loan of title to Rafael

and its subsequent return to Federico. The counter deed of sale executed by Rafael

(Exh. "B"), completed it. Stated differently, the first instrument merely recited a portion of

the entire accommodation transaction; the second, as a complementary part, and, in

addition to the first, integrated and made clear the simulated character of the entire

agreement.

It is true that in the Decision under consideration, this Court took stock, as Rafael urges,

of Federico's admission in the letter dated August 14, 1969 of the Agrava and Agrava

Law office . . . in Federico's petition for registration . . . and in his affidavit/notice of

adverse claim. Viewed in its proper perspective, however, we are now inclined to

consider such admission as no more than a recognition on the part of Federico of the

factual existence of Exhibit "A", by virtue of which his OCT No. 0-2015 was cancelled

and a new title (TCT No. T-36714) issued in the name of Rafael. . . .

In fine, this Court rules and so holds that the Deed of Absolute Sale executed on May

19, 1962 by plaintiff-appellant Federico Suntay in favor of his nephew Rafael G. Suntay

(Exh. "A"), is absolutely simulated and fictitious. As such, it is void and is not susceptible

of ratification (Art. 1409, Civil Code), produces no legal effects (Cariño vs. Court of

Appeals, 152 SCRA 529), and does not convey property rights nor in any way alter the

juridical situation of the parties (Tongay vs. Court of Appeals, 100 SCRA 99). Along the

same vein, the counter deed of sale (Exh. "B"), executed by Rafael in favor of his uncle

Federico, purportedly re-selling to the latter the very same property earlier fictitiously

conveyed by Federico is likewise infected with the same infirmity that vitiates Exhibit

"A". Like the latter document Exhibit "B" is also simulated and therefore it, too, is

incapable of producing legal effects. In short, if was as if no contract of sale was ever

executed by Federico in favor of Rafael, on the one hand, and by Rafael in favor of

Federico, on the other hand, although the sad reality must be acknowledged that on

account of Exhibit "A", Federico's title to the property was cancelled and replaced by a

new one in the name of Rafael whose change of heart brought about Federico's travails.

42

We cannot but uphold the foregoing findings and conclusions of the Court of Appeals.

While the rule is that factual findings of the Court of Appeals are binding on us, we

endeavored, however, to scrutinize the case records and read and examined the

pleadings and transcripts submitted before the trial court 43 because the factual findings

of the Court of Appeals and that of the trial court are contrary to each other. 44

The sole issue in this case concerns the validity and integrity of the afore-described

deed of sale in favor of Rafael Suntay. We necessarily begin with two veritable legal

presumptions: first, that there was sufficient consideration for the contract 45 and,

second, that it was the result of a fair and regular private transaction. 46 These

presumptions if shown to hold, infer prima facie the transaction's validity, except that it

must yield to the evidence adduced. 47

In the aggregate, the evidence on record demonstrate a combination of circumstances

from which may be reasonably inferred certain badges of simulation that attach

themselves to the deed of sale in question.

I

The late Rafael Suntay and private respondent Federico Suntay were relatives,

undisputedly, whose blood relation was the foundation of their professional and

business relationship. The late Rafael testified that he had completely trusted Federico

and so he signed and delivered the counter-deed of sale even without prior payment of

the alleged repurchase price of P20,000.00. Federico had such faith and confidence in

the late Rafael, as nephew and counsel, that he blindly signed and executed the sale in

question. He had recommended Rafael as legal counsel and corporate secretary of the

Hagonoy Rural Bank of which he was founder and once President. He had entrusted to

Rafael many of his business documents and personal papers, the return of which he did

not demand even upon termination of their professional relationship. It was precisely

because of this relationship that Federico consented to what he alleged as a loan of title

over his land and rice mill in favor of the late Rafael. We are all too familiar with the

practice in the typical Filipino family where the patriarch with the capital and business

standing takes into his fold the young, upcoming, inexperienced but brilliant and brashly

ambitious son, nephew or godchild who, in turn, becomes to his father, uncle, or

godparent, the jack of all trades, trouble shooter and most trusted liaison officer cum

adviser. He wittingly serves his patron without the security of a formal contract and

without clarifying the matter of compensation.

The record is replete with circumstances that establish the closeness, mutual trust and

business and professional interdependence between the late Rafael and private

respondent. When their relationship turned sour, the late Rafael, in all probability knew

where to hit Federico where it really hurt because he had been privy to most of

Federico's business and personal dealings and transactions. The documentary

evidence alone proffered by the late Rafael showed the extent of Rafael's knowledge

and involvement in both the business and private affairs of Federico, his wife, his son,

and even his wife's relatives. Rafael admitted in open court that he had come into the

possession thereof in the course of rendering legal services to his uncle. These

documents on record and the testimonies of the late Rafael and private respondent

establish the existence of, not only the facts therein stated, but also the circumstance

pertaining to the nature of the relationship between private respondent and the late

Rafael. The Court of Appeals simply took a second look at the evidence on record as

was its bounden duty upon the filing of a motion for reconsideration and could no longer

ignore that the close relationship between the late Rafael and private respondent was

indeed a badge of simulation.

There are at least three distinguishable classes of so-called circumstances in evidence

which, however, cannot safely be interpreted in the same way. One class of

circumstances, often referred to in trials at law, includes all outside and related

incidents, conditions and happenings which are described by witnesses and necessarily

are subject to all of the dangers and defects of oral and memory testimony. There are

also circumstances which are admitted, or which arise from the nature of the case itself,

which cannot be denied, and lastly there are tangible and visible facts before

court . . . . which are the basis for a judgment . . . .

. . . The law, as well as logic, makes a distinction between surroundings, conditions, and

"circumstances" as compared with real and tangible facts. . . . A bungling, overwritten,

traced signature, as well as a coat with a bullet-hole in the breast are both . . . "silent

circumstances" that do not commit perjury. Though silent they often are eloquent. . . .

All these quite distinct classes of evidence form the basis of legal verdicts and

judgments. The great mass of legal evidence consists of testimony of oral witnesses

which has force in proportion as it is believed, but in many important cases a verdict

must be based mainly upon the second or the third class of evidence . . . Circumstances

and facts must be interpreted and illustrated in order to show whether a definite

conclusion can be based on them. In many cases a particular conclusion is

irresistible. 48

The history and relationship of trust, interdependence and intimacy between the late

Rafael and Federico is an unmistakable token of simulation. It has been observed that

fraud is generally accompanied by trust. 49 Hardly is it inconsistent with practical

experience, especially in the context of the Filipino family's way of life, that Federico, the

uncle, would almost naively lend his land title to his nephew and agree to its

cancellation in his nephew's favor because Federico, in the first place, trusted his

nephew; was well aware of his power over him as uncle, client, and patron; and was

actually in possession of the land and rice mill. No one could even conceive of the

possibility of ejecting Federico therefrom on the basis of the sham transaction. The late

Rafael never attempted to physically dispossess his uncle or actually take over the rice

mill during his lifetime.

II

The late Rafael insisted that the sale to him of his uncle's property was in fact a "dacion

en pago" in satisfaction of Federico's unpaid attorney's fees, 50 What prominently

stands out from the mass of records, however, is the fact that this claim of the late

Rafael was only raised in 1976 when he testified on direct examination. The answer that

he filed in 1970 in response to Federico's complaint never mentioned nor even alluded

to any standing liability on the part of Federico as regards unpaid attorney's fees.

Neither did the late Rafael deny or refute Federico's testimony that they did not have a

clear-cut compensation scheme and that Federico gave him money at times, which

compensation enabled the late Rafael to purchase his first car. The late Rafael even

affirmed Federico's testimony respecting his appointment as the legal counsel and

corporate secretary of the Hagonoy Rural Bank for which he received compensation as

well.

Equally significant is the admission of the late Rafael that he did not inform Federico

that he considered the transfer to be in consideration of his alleged unpaid attorney's

fees. 51 Apparently, it is true, as Federico claimed, that no accounting was undertaken

between uncle-client and nephew-lawyer in order to arrive at the definite amount of the

alleged unpaid attorney's fees. Strange and irregular as this matter seems to be, the

same may only become comprehensible when considered as or grave symptom of

simulation.

III

Indeed the most protuberant index of simulation is the complete absence of an attempt

in any manner on the part of the late Rafael to assert his rights of ownership over the

land and rice mill in question. After the sale, he should have entered the land and

occupied the premises thereof. He did not even attempt to. If he stood as owner, he

would have collected rentals from Federico for the use and occupation of the land and

its improvements. All that the late Rafael had was a title in his name.

If is to be emphasized that the private respondents never parted with the ownership and

possession of that portion of Lot No 785 . . . nor did the petitioners ever enter into

possession thereof. As earlier stated, the issuance of TCT No. T-1346 did not operate

to vest upon the latter ownership over the private respondents' property. That act has

never been recognized as a mode of acquiring ownership. As a matter of fact, even the

original registration of immovable property does not vest title thereto; it is merely

evidence of such title over a particular property. The Torrens system of land registration

should not be used as a means to perpetrate fraud against the rightful owner of real

property. 52

The failure of the late Rafael to take exclusive possession of the property allegedly sold

to him is a clear badge of fraud. 53 The fact that, notwithstanding the title transfer,

Federico remained in actual possession, cultivation and occupation of the disputed lot

from the time the deed of sale was executed until the present, is a circumstance which

is unmistakably added proof of the fictitiousness of the said transfer, 54 the same being

contrary to the principle of ownership. 55

Of course, according to the late Rafael, he allowed Federico to remain in the premises

and enjoy the fruits thereof because of their understanding that Federico may

subsequently repurchase the property. Contrary to what Rafael thought, this in fact is

added reason for simulation. The idea of allowing a repurchase goes along the same

lines posed by the theory of Federico.

If it were true that the first sale transaction was actually a "dacion en pago" in

satisfaction of Federico's alleged unpaid attorney's fees, it does strain the logical mind

that Rafael had agreed to allow the repurchase of the property three months thereafter.

Federico was obviously financially liquid. Had he intended to pay attorney's fees, he

would have paid Rafael in cash and not part with valuable income-producing real

property.

IV

The late Rafael, at the very outset, made much of an uproar over the alleged

admissions made by Federico in several documents executed by him or in his behalf.

On the whole, it was the late Rafael's inflexible stand that Federico admitted in various

documents that he bad absolutely sold his land and rice mill to him and could not, thus,

subsequently deny or attack that sale. Upon our examination of such documents,

however, we find that neither the letter of Agrava & Agrava, nor the petition to compel

delivery of the owner's duplicate of title and the notice of adverse claim, supports the

late Rafael's posture. Nowhere is it stated in the aforesaid petition and notice of adverse

claim that Federico sold the subject properly to the late Rafael. What was alleged was

that Rafael resold to Federico the said property, and not the other way around, precisely

because both documents were assertions of remedies resorted to by Federico upon the

refusal by the late Rafael to tender his owner's duplicate title.

V

Neither does the undisputed fact that the deed of sale executed by Federico in favor of

the late Rafael, is a notarized document, justify the conclusion that said sale is

undoubtedly a true conveyance to which the parties thereto are irrevocably and

undeniably bound.

Conduct, to be given jural effects, must be jural in its subject . . . i.e. must concern jural

relations, not relations of friendship or other non-jural relations. The father who

promises to bring home a box of tools for his boy is not bound in contract, though the

same promise to his neighbor may be binding. The friend who invites one with an offer

of a dinner is not legally liable, though he who agrees with a restaurant-keeper for a

banquet to be spread there is under a contract of liability. . . . In all such cases,

therefore, the conduct is jurally ineffective, or void. In the traditional phraseology of the

parole evidence rule, then, it may always be shown that the transaction was understood

by the parties not to have jural effect.

(1) Ordinarily, the bearing of this principle is plain enough on the circumstances. It

has been judicially applied to household services rendered by a member of the family,

and to a writing representing merely a family understanding. . . .

When the document is to serve the purpose of a mere sham, this principle in strictness

exonerates the makers. . . . 56

The cumulative effect of the evidence on record as chronicled aforesaid identified

badges of simulation proving that the sale by Federico to his deceased nephew of his

land and rice mill, was not intended to have any legal effect between them. Though the

notarization of the deed of sale in question vests in its favor the presumption of

regularity, it is not the intention nor the function of the notary public to validate and make

binding an instrument never, in the first place, intended to have any binding legal effect

upon the parties thereto. The intention of the parties still and always is the primary

consideration in determining the true nature of a contract.

VI

While the late Rafael vehemently upholds the validity and effectiveness of the deed of

sale in question, this posture is eroded by his admission, on cross-examination during

trial that he never declared his ownership of the subject property in his annual

Statement Of Assets And Liabilities. The fact that the late Rafael denied both intention

and knowledge involving the sham sale and firmly maintained the validity and

genuineness thereof has become incongruous because it is irreconcilable with the

circumstance that he apparently never considered the disputed property as one of his

assets over which he had rights of absolute ownership.

The allegation of Rafael that the lapse of seven (7) years before Federico sought the

issuance of a new title in his name necessarily makes Federico's claim stale and

unenforceable does not hold water. Federico's title was not in the hands of a stranger or

mere acquaintance; it was in the possession of his nephew who, being his lawyer, had

served him faithfully for many years. Federico had been all the while in possession of

the land covered by his title and so there was no pressing reason for Federico to have a

title in his name issued. Even when the relationship between the late Rafael and

Federico deteriorated, and eventually ended, it is not at all strange for Federico to have

been complacent and unconcerned about the status of his title over the disputed

property since he has been possessing the same actually, openly, and adversely, to the

exclusion of Rafael. It was only when Federico needed the title in order to obtain a

collaterized loan 57 that Federico began to attend to the task of obtaining a title in his

name over the subject land and rice mill.

We, therefore, hold that the deed of sale executed by Federico in favor of his now

deceased nephew, Rafael, is absolutely simulated and fictitious and, hence, null and

void, said parties having entered into a sale transaction to which they did not intend to

be legally bound. As no property was validly conveyed under the deed, the second deed

of sale executed by the late Rafael in favor of his uncle, should be considered

ineffective and unavailing.

WHEREFORE, the Amended Decision promulgated by the Court of Appeals on

December 15, 1993 in CA-G.R CV No. 08179 is hereby AFFIRMED IN TOTO.

Petitioners, the heirs of Rafael G. Suntay, are hereby ordered to reconvey to private

respondent Federico G. Suntay the property described in paragraph 2.1 of the

complaint, within ten (10) days from the finality of this Decision, and to surrender to him

within the same period the owner's duplicate copy of Transfer Certificate of Title No. T-

36714 of the Registry of Deeds of the Province of Bulacan. In the event that the

petitioners fail or refuse to execute the necessary deed of reconveyance as herein

directed, the Clerk of Court of the Regional Trial Court of Bulacan is hereby ordered to

execute the same at the expense of the aforesaid heirs.

Costs against petitioners.

SO ORDERED.

[G.R. No. 102313*. July 12, 2001]

R. F. NAVARRO & CO., INC., HEIRS OF LAURA ADEA NAVARRO, and HEIRS OF

R.F. NAVARRO, SR., petitioners, vs. HON. FORTUNATO A. VAILOCES, HON.

NATHANAEL P. DE PANO, JR., HON. BONIFACIO A. CACDAC, JR., HEIRS OF

EULOGIO RODRIGUEZ, SR., THRU CONSTANCIO S. RODRIGUEZ and LUZON

SURETY CO., INC., respondents.

D E C I S I O N

KAPUNAN, J.:

In this petition for review on certiorari, petitioners seek a reversal of the decision dated

July 24, 1991 of the Court of Appeals in C.A.-G.R. CV No. 16068, the dispositive portion

of which reads:

WHEREFORE, the judgment appealed from is hereby REVERSED, and plaintiffs’

complaint, as a consequence, is hereby DISMISSED.

SO ORDERED.[1]

The antecedents of this case are as follows:

On June 17, 1975, petitioners R.F. Navarro and Co., Inc., Laura Adea Navarro and the

heirs of R.F. Navarro, Sr. instituted an action for annulment of documents, titles and/or

reconveyance with damages against the heirs of Eulogio Rodriquez, Sr. and Luzon

Surety Co., Inc.[2] The subject properties of the case are two (2) adjacent lots and the

building and improvements thereon, situated at David Street, Binondo, Manila, covered

by Transfer Certificate of Title No. T-63345 in the Registry of Deeds of the City of

Manila, in the name of private respondent Luzon Surety Co., Inc.

In their complaint, petitioners alleged that they are the owners of said lots by virtue of

TCT No. 61619 registered in the name of Raymundo F. Navarro, married to Laura Adea

Navarro and R.F. Navarro & Company. They further alleged that Raymundo Navarro

entrusted subject property to Eulogio Rodriguez, Sr. In 1970, some time after the death

of Raymundo Navarro, petitioners discovered that Rodriguez was able to transfer the

property in his name and thereafter to his family corporation the Luzon Surety Co., Inc.

Petitioners claimed that the transfer of the property in the name of Rodriguez was

fraudulent as the same was done without any consideration and without the knowledge

of the petitioners. Upon learning of the fraudulent transfers, petitioners demanded from

the private respondents the return of the property, which demands the latter have

refused.[3]

In their answer, private respondents alleged that the transfer of the property was done

by virtue of a Deed of Sale with Assumption of Mortgage executed on August 12, 1941

by Raymundo F. Navarro, Sr. in his personal capacity and as president of R.F. Navarro

& Co. in favor of Eulogio Rodriguez, Sr. As a consequence of said sale, TCT No. 61619

was cancelled and TCT No. 62411 of the Register of Deeds of Manila was issued in the

name of Eulogio Rodriguez, Sr. on August 15, 1941. On December 16, 1941,

Rodriguez executed a Deed of Assignment with Transfer of Mortgage in favor of Luzon

Surety Co., Inc. and TCT No. T-63345 was issued in the name of the latter. Private

respondents, likewise, raised as defense the fact that during his lifetime, Raymundo F.

Navarro never questioned the validity of the transfer and that the petitioners’ cause of

action had already prescribed and is barred by laches.

In its decision dated January 20, 1987, the trial court ruled in favor of petitioners. The

trial court found that no deed of sale with assumption of mortgage was executed by and

between Navarro and Rodriguez and that the document presented to be said Deed did

not merit recognition as the same was not corroborated by any other evidence.[4] The

dispositive portion of the trial court’s decision reads:

WHEREFORE, judgment is hereby rendered declaring as null and void TCT No. 63345

of the Register of Deeds for the City of Manila, signed by Mariano Villanueva as the

same was proven by plaintiffs’ evidence as fictitious and tainted with doubt in the

acquisition of said Transfer Certifcate. It is hereby ordered further that defendants

convey and transfer the ownership thereof to R.F. Navarro and Co. Inc., or the plaintiffs

themselves and the latter to receive said parcels of land including the building thereon.

On appeal, the Court of Appeals reversed the trial court's decision and ruled in favor of

the private respondents. It held:

The Supreme Court decisions that we will have to take judicial notice of, quieted the title

of Luzon Surety Co., Inc. to the property in question.

Plaintiffs-appellees contend that the Supreme Court decisions did not affect them as

they did not intervene in said cases. Luzon Surety's title, according to them is derived

from the sale to it by the late Eulogio Rodriguez, Sr., whose acquisition of the property

from Raymundo F. Navarro and R.F. Navarro & Co. Inc, under a deed of sale notarized

by Notary Public Rodolfo Medina they impugn as fraudulent and fictitious, as, according

to their Exh. “C-2” (a certification dated June 1983 by the Chief of the Archives Division

of the Bureau of Records Management), there is no record on file in the Bureau of

Records Management of a notary public by the name of Rodolfo Medina, practicing his

profession in Manila in 1941.

Oddly enough, the original sale of the Gibbs property (the property in question) to

Raymundo F. Navarro and R.F. Navarro & Co., Inc. on April 18, 1941 was notarized by

Notary Public Rodolfo M. Medina, and entered by said notary as Document No. 377 in

Book II, page 79 of his notarial registry, series of 1941 (Exh. 13-A).

Section 49 of Rule 39 of the Revised Rules of Court, on the effect of a judgment by a

court or judge of the Philippines having jurisdiction to pronounce the judgment, states in

no uncertain terms that in case of a judgment against a specific thing, the judgment is

conclusive upon the title to the thing

A decision by the Supreme Court, by the very nature thereof is a public document.

Under our rules on evidence, public documents are evidence, even against a third

person, of the fact which gave rise to their execution. One fact, among others, that

gave rise to the decision in G.R. No. L-1494 and G.R. No. L-2003 of the Supreme Court

in 1949 was the fact that it had been proved that the property in question (the very

property involved in this case), covered by TCT No. 63345 in the name of Luzon Surety

Co., Inc. (defendant-appellant herein) had been cleared in 1943 by said defendant and

Eulogio Rodriguez, Sr. of the subsisting mortgage indebtedness to Gibbs, consisting of

the balance of the purchase price that said defendants had assumed after the sale by

Raymundo F. Navarro and R.F. Navarro and Co., Inc. to Eulogio Rodriguez in the

month of August 1941.

There is merit, therefore, in appellant's thesis that the title of Luzon Surety Co., Inc. over

the property is now indefeasible.

Plaintiffs anchor their claim upon TCT No. 61619 dated April 30, 41941. Said certificate

of title appears to have been cancelled by TCT No. 62411 issued to Eulogio Rodriguez,

Sr. on August 15, 1941 (Exh. L), and which is the root of TCT No. 63345 of Luzon

Surety Co., Inc. dated December 17, 1941.

Plaintiffs’ claim that these transfers were done behind the back of Raymundo F. Navarro

is incredible.

If Raymundo F. Navarro had not sold the property in question to Eulogio Rodriguez, Sr.,

and did not know of the subsequent transfer to Luzon Surety Co., Inc., why is it that

after liberation from Japanese occupation, the suit for collection of the balance of the

purchase price was filed by Allison J. Gibbs and Finley Gibbs against Eulogio

Rodriguez, Sr. and Luzon Surety Co., Inc., and not against Navarro.

And why should they demand reconveyance when by their own evidence they have

shown that they have not paid for the property in full?

It even appears also from appellants' Exhibits 14 and 14-A that as far back as May 26,

1943 Raymundo F. Navarro and R.F. Navarro & Company, in a notarial instrument

conceded and recognized the ownership of the appellant Luzon Surety Co., Inc. of the

property in question under TCT No. 63345 and relinquished all claims on the building

standing thereon.

That Raymundo F. Navarro had indeed transferred the property in question to Eulogio

Rodriguez is borne out by the narration of facts by the Supreme Court in the two cases

above-mentioned. It is even stated in the decision in G.R. No. L-2003, George Littton

and Rosa Tulod de Litton vs. Luzon Surety Co., Inc. and Eulogio Rodriguez, Sr. that

Raymundo F. Navarro was the one who squealed to the Japanese Military

Administration the fact of 80% of the purchase price of the sale of the property in

question was still owned by the Americans: Allison D. Gibbs and his sons, and was due

from Eulogio Rodriguez, Sr. who was then the President of the Board of Directors of

Luzon Surety Co., Inc. He (Raymundo F. Navarro) precipitated thereby the

sequestration by the Japanese invaders of the credit due to Gibbs, as enemy property.

Even if the Navarro cause of action, if any they still had, may be considered to have

accrued only in 1952 when the Litton case was decided by the Supreme Court, the

commencement by the plaintiffs of this suit only 23 years later (1975) was much too

late. Not only has prescription set in; plaintiffs are also already barred by laches. The

law serves those who are vigilant, not those who sleep on their rights.

The registered owner of property, according to the Supreme Court, whose property has

been wrongfully registered in another's name may bring an action for reconveyance but

he must do so within ten (10) years reckoned from the date of the issuance of the

certificate of title (Melquiades vs. IAC, G.R. 68291, March 6, 1991).

"A period of twenty-three years is definitely a long time to wait for one to finally claim his

due. Considerable delay in asserting one's right before a court of justice is strongly

persuasive of the lack of merit of his claim, since it is human nature for a person to

enforce his right when the same is threatened or invaded. Thus, he is estopped by

laches from questioning the ownership of the questioned land.[5] (Quinsay, et.al. vs.

IAC, G.R. 67935, March 18, 1991)

The motion for reconsideration of the foregoing decision having been denied for lack of

merit in the October 14, 1991 Resolution[6] of the Court of Appeals, petitioners now

seek recourse to this Court and raise the following issues:

I

WHETHER OR NOT THE MANIFESTATION AND MOTION FILED BY THE PRIVATE

RESPONDENTS AS DEFENDANTS BELOW DURING THE PENDENCY OF APPEAL

WHICH PRAYED THAT THE TRIAL COURT'S DECISION BE SET ASIDE AND A NEW

ONE BE RENDERED IN THEIR FAVOR IS CONSIDERED A WITHDRAWAL OR AN

ABANDONMENT OF THE APPEAL, SUCH THAT THERE IS NOTHING FOR THE

COURT OF APPEALS TO CONSIDER AND DECIDE IN THE APPEALED CASE

BEFORE IT.

II

WHETHER OR NOT THE SALE, TRANSFER OR CONVEYANCE OF THE

PROPERTY IN QUESTION BY RAYMUNDO F. BAVARRO IN FAVOR OF EULOGIO

RODRIGUEZ SR. AND SUBSEQUENTLY TO THE SALE, TRANSFER OR

CONVEYANCE OF SAID PROPERTY BY EULOGIO RODRIGUEZ SR. IN FAVOR OF

HIS COMPANY, THE LUZON SURETY CO., INC. ARE SPURIOUS, FRAUDULENT,

FICTITIOUS, FALSE, INEXISTENT AND NULL AND VOID.

III

WHETHER OR NOT THE PRIVATE RESONDENTS SHOULD BE ASSESSED

ACTUAL DAMAGES AND SUCH OTHER DAMAGES FOR HAVING BEEN

RECEIVING AND HAVING BEEN ILLEGALLY AND UNLAWFULLY APPROPRIATING

TO THEMSELVES THE RENTALS ON THE PROPERTY IN QUESTION DESPITE

THE FACT THAT THEY ARE NOT THE REAL OWNERS OF THE PROPERTY IN

QUESTION.[7]

The petition is without merit.

As regards the first issue, petitioners allege that the filing before the Regional Trial

Court of their Manifestation and Motion on June 27, 1987 after they had filed their

Notice of Appeal on June 9, 1987, private respondents are deemed to have withdrawn

or abandoned their appeal. Petitioners argue that the filing of the Manifestation and

Motion is an act inconsistent with their appeal, hence, may constitute an abandonment

thereof.

We are not persuaded.

A reading of the manifestation and motion will reveal that the private respondents

sought to have the decision of the Regional Trial Court set aside on the ground that the

trial court failed to appreciate relevant evidence submitted as the same was nowhere to

be found. It turned out that said evidence was with the Clerk of Court of Branch 54.

Based on the contents of said pleading, the same may very well be treated as a motion

for new trial.

As such, the appellate court correctly ruled in their resolution of May 16, 1988 that

private respondent’s filing of said pleading did not have the effect of withdrawing their

appeal. The court a quo relied on our ruling in the case of St. Peter Memorial Park, Inc.

vs. Hon. Jose Campos, Jr., et. al.[8] where we held that:

Under American Law, a motion for new trial does not work as a waiver of the appeal,

unless there is a rule to the contrary (U.S. v. Hodge, 12 L ed 437). Thus, both the

motion for new trial and the appeal may be pursued at the same time (McCandless v.

Kramer, 76 Idaho 516, 286 P2d 334; Labbe v. Cyr 111 A2d 330). This ruling is of

persuasive effect on Us considering the source of our rules on appeal and new trial.

The appellate court concluded that:

A perusal of the defendants’ “Manifestation and Motion” shows that it can easily be

treated as a motion for new trial or motion for reconsideration considering that the deed

of sale mentioned in the decision as missing was later on found in the custody of the

clerk of court of Branch 54 where the case was formerly assigned. For the sake of

substantial justice and applying the aforecited authority by analogy, We cannot say

there was abandonment of the appeal.[9]

Hence, the Court of Appeals had jurisdiction to entertain the appeal of the private

respondents as there was no abandonment thereof.

Anent the second and third issues raised, this Court shall not, at great lengths, deal

with them as we find that the conclusion of the appellate court that the land in question

rightfully belongs to respondent Luzon Surety Company to be ably supported by both

fact and law.

A careful examination of the records reveals no irregularity in the transfer of the property

subject of this case from Raymundo F. Navarro, Sr. to Eulogio Rodriguez, Sr.

The annotation at the back of TCT No. 61619, by which deed petitioners claim title over

the lots state:

This certificate of Title is TOTALLY CANCELLED by virtue of a deed of sale (E-75807

T-62411) dated August 12, 1941; executed by Raymundo F. Navarro in favor of

Eulogio Rodriguez Sr. for the sum of P242,500.00 and in lieu thereof Transfer

Certificate of Title No. T-62411 has been entered on Page 151 of the Reg. Book T-208

(Doc. No. 203, Page No. 45, Book III of the Notary Public, Rodolfo Medina.

Manila, August 15, 1941.

Petitioners, however, posit that the alleged sale was null and void because of the

absence of consideration. Petitioners argue that private respondents failed to produce

any receipts for the payments issued by the seller. Considering that such transaction

involved a substantial amount, it would be highly improbable that Eulogio Rodriguez

would part with such money without asking for an official receipt. Petitioners further

buttress their claim with the statement of Laura Navarro and the other heirs of Navarro

that they did not receive any consideration for the sale of said lot.

Such arguments are specious. The Deed of Sale with Assumption of Mortgage is the

evidence itself of the receipt by Raymundo F. Navarro of the consideration of said sale.

The pertinent portion of the deed states:

That I, Raymundo F. Navarro, of legal age, Filipino, married to Laura A. Navarro, and a

resident of 2836 Taft Avenue, Pasay, Rizal, Philippines, for myself and in my capacity

as President of the R.F. Navarro & Company, for and in consideration of the sum of

FORTY THOUSAND PESOS (P40,000) Philippine currency, in hand to me paid by

Eulogio Rodriguez, Sr., of legal age, Filipino, married to Juana Santiago, and a resident

of 533 Legarda, Sampaloc, Manila, Philippines, receipt whereof is hereby

acknowledged, do hereby forever sell, cede and convey unto the said Eulogio

Rodriguez, Sr., his heirs, executors, administrators and assigns, all our rights, title,

interest and participation in the following parcels of land including the concrete building

and other improvements thereon existing, situated in Calle Dasmarinas, District of

Binondo, City of Manila xxx

Petitioners, however, claim that the above deed of sale is spurious as the same was not

signed by Raymundo F. Navarro. Petitioners' attempts to show that the Deeds of Sale

with Assumption of Mortgage executed by Navarro and Rodriguez are false do not

impress us. The bare assertions on the part of Laura Adea Navarro that the signature

appearing on the Deeds of Sale is not that of her husband is not enough. Forgery is not

presumed; it must be proven by clear, positive and convincing evidence. Those who

make the allegation of forgery have the burden of proving it since a mere allegation is

not evidence.[10] In the case at bar, where the alleged forged signature was that of a

President of a Corporation, petitioners could have easily presented other documents

bearing the true signature of R.F. Navarro Sr., to substantiate their claim. Not having

done so, Laura Navarro's uncorroborated claim cannot be given much weight. This is

so especially in light of the fact that Laura Navarro was one of the plaintiffs and stood to

gain by having the deeds of sale and the transfer certificate of title in the name of Luzon

Surety Company declared void.

Petitioners' assertion that Rodolfo Medina, whose name appears on the questioned

Deeds of Sale as the Notary Public was not a Notary Public in the City of Manila in 1941

deserves scant consideration. As pointed out by the Court of Appeals, if the same were

true, then, petitioners cannot even claim ownership over said lots as the deed of sale of

the property by Alisson Gibbs to Raymundo F. Navarro was, likewise, notarized by

Rodolfo M. Medina in 1941.

Even if it were true that the Deeds of Sale were notarized by one who was not a real

notary public, the same does not affect the validity thereof. Said documents were

merely converted into private documents, which remained to be valid contracts of sale

between the parties, since sale is a consensual contract and is perfected by mere

consent.[11]

Moreover, the records reveal (Exhibit 14) that on May 26, 1943 Raymundo F. Navarro

and R.F. Navarro & Company, executed a notarial instrument whereby they conceded

and recognized the ownership of the Luzon Surety Co., Inc. of the property in question

under TCT No. 63345 and relinquished all claims on the building standing thereon.

Petitioners have not questioned nor even cast a doubt as to the authenticity of said

document.

In any case, assuming, ex gratia argumenti, that the Deeds of Sale with Assumption of

Mortgage were spurious, we agree with the appellate court that petitioners are already

barred by laches. Laches has been defined as the failure or neglect, for an

unreasonable and unexplained length of time, to do that which by exercising due

diligence could or should have been done earlier, it is negligence or omission to assert

a right within a reasonable time, warranting a presumption that the party entitled to

assert it has either abandoned it or declined to assert it.[12]

We cannot subscribe to the claim of petitioners that they are not guilty of laches as they

immediately filed their complaint in court after having discovered the alleged fraudulent

transfer and after demands for said properties were refused by the private respondents.

It must be remembered that the Luzon Surety Company's transfer certificate of title was

issued way back in 1941. Registration of said real property in the name of private

respondent is considered as constructive notice to all persons including herein

petitioners.[13] Moreover, private respondent had been in continuous possession and

receiving all the fruits of said property since 1941. Yet, petitioners never questioned

such exercise of the rights of ownership by private respondent Luzon Surety until 1970.

Petitioners cannot use as an excuse their inaction by claiming that the property was

held in trust by Eulogio Rodriguez, Sr. for Raymundo F. Navarro. Petitioners have failed

to present an iota of evidence that indeed, such trust existed. Petitioner's unexplained

inaction for a period of 29 years cannot be countenanced and undoubtedly amounts to

laches.[14]

Private respondents, having waited for 36 long years before filing an action to annul the

sale to Felipa in the trial court we hold that this constitutes laches.[15]

Having slept on whatever rights they may have had, petitioners must now suffer the

consequences of their inaction. Vigilentibus non dormientibus equitas.[16]

WHEREFORE, the petition is DENIED. The assailed decision of the respondent Court

of Appeals is AFFIRMED. SO ORDERED.

G.R. No. L-20871 April 30, 1971

KER & CO., LTD., petitioner,

vs.

JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.

Ross, Selph and Carrascoso for petitioner.

Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and

Special Atty. Balbino Gatdula, Jr. for respondent.

FERNANDO, J.:

Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals,

holding it liable as a commercial broker under Section 194 (t) of the National Internal

Revenue Code. Its plea, notwithstanding the vigorous effort of its counsel, is not

sufficiently persuasive. An obstacle, well-nigh insuperable stands in the way. The

decision under review conforms to and is in accordance with the controlling doctrine

announced in the recent case of Commissioner of Internal Revenue v. Constantino. 1

The decisive test, as therein set forth, is the retention of the ownership of the goods

delivered to the possession of the dealer, like herein petitioner, for resale to customers,

the price and terms remaining subject to the control of the firm consigning such goods.

The facts, as found by respondent Court, to which we defer, unmistakably indicate that

such a situation does exist. The juridical consequences must inevitably follow. We

affirm.

It was shown that petitioner was assessed by the then Commissioner of Internal

Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial broker's

percentage tax, surcharge, and compromise penalty for the period from July 1, 1949 to

December 31, 1953. There was a request on the part of petitioner for the cancellation of

such assessment, which request was turned down. As a result, it filed a petition for

review with the Court of Tax Appeals. In its answer, the then Commissioner Domingo

maintained his stand that petitioner should be taxed in such amount as a commercial

broker. In the decision now under review, promulgated on October 19, 1962, the Court

of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00,

the amount due from it being fixed at P19,772.33.

Such liability arose from a contract of petitioner with the United States Rubber

International, the former being referred to as the Distributor and the latter specifically

designated as the Company. The contract was to apply to transactions between the

former and petitioner, as Distributor, from July 1, 1948 to continue in force until

terminated by either party giving to the other sixty days' notice. 2 The shipments would

cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental,

and Mindanao except [the] province of Davao", petitioner, as Distributor, being

precluded from disposing such products elsewhere than in the above places unless

written consent would first be obtained from the Company. 3 Petitioner, as Distributor, is

required to exert every effort to have the shipment of the products in the maximum

quantity and to promote in every way the sale thereof. 4 The prices, discounts, terms of

payment, terms of delivery and other conditions of sale were subject to change in the

discretion of the Company. 5

Then came this crucial stipulation: "The Company shall from time to time consign to the

Distributor and the Distributor will receive, accept and/or hold upon consignment the

products specified under the terms of this agreement in such quantities as in the

judgment of the Company may be necessary for the successful solicitation and

maintenance of business in the territory, and the Distributor agrees that responsibility for

the final sole of all goods delivered shall rest with him. All goods on consignment shall

remain the property of the Company until sold by the Distributor to the purchaser or

purchasers, but all sales made by the Distributor shall be in his name, in which the sale

price of all goods sold less the discount given to the Distributor by the Company in

accordance with the provision of paragraph 13 of this agreement, whether or not such

sale price shall have been collected by the Distributor from the purchaser or purchasers,

shall immediately be paid and remitted by the Distributor to the Company. It is further

agreed that this agreement does not constitute Distributor the agent or legal

representative 4 of the Company for any purpose whatsoever. Distributor is not granted

any right or authority to assume or to create any obligation or responsibility, express or

implied, in behalf of or in the name of the Company, or to bind the Company in any

manner or thing whatsoever." 6

All specifications for the goods ordered were subject to acceptance by the Company

with petitioner, as Distributor, required to accept such goods shipped as well as to clear

the same through customs and to arrange for delivery in its warehouse in Cebu City.

Moreover, orders are to be filled in whole or in part from the stocks carried by the

Company's neighboring branches, subsidiaries or other sources of Company's brands.

7 Shipments were to be invoiced at prices to be agreed upon, with the customs duties

being paid by petitioner, as Distributor, for account of the Company. 8 Moreover, all

resale prices, lists, discounts and general terms and conditions of local resale were to

be subject to the approval of the Company and to change from time to time in its

discretion. 9 The dealer, as Distributor, is allowed a discount of ten percent on the net

amount of sales of merchandise made under such agreement. 10 On a date to be

determined by the Company, the petitioner, as Distributor, was required to report to it

data showing in detail all sales during the month immediately preceding, specifying

therein the quantities, sizes and types together with such information as may be

required for accounting purposes, with the Company rendering an invoice on sales as

described to be dated as of the date of inventory and sales report. As Distributor,

petitioner had to make payment on such invoice or invoices on due date with the

Company being privileged at its option to terminate and cancel the agreement forthwith

upon the failure to comply with this obligation. 11 The Company, at its own expense,

was to keep the consigned stock fully insured against loss or damage by fire or as a

result of fire, the policy of such insurance to be payable to it in the event of loss.

Petitioner, as Distributor, assumed full responsibility with reference to the stock and its

safety at all times; and upon request of the Company at any time, it was to render

inventory of the existing stock which could be subject to change. 12 There was

furthermore this equally tell-tale covenant: "Upon the termination or any cancellation of

this agreement all goods held on consignment shall be held by the Distributor for the

account of the Company, without expense to the Company, until such time as provision

can be made by the Company for disposition." 13

The issue with the Court of Tax Appeals, as with us now, is whether the relationship

thus created is one of vendor and vendee or of broker and principal. Not that there

would have been the slightest doubt were it not for the categorical denial in the contract

that petitioner was not constituted as "the agent or legal representative of the Company

for any purpose whatsoever." It would be, however, to impart to such an express

disclaimer a meaning it should not possess to ignore what is manifestly the role

assigned to petitioner considering the instrument as a whole. That would be to lose

sight altogether of what has been agreed upon. The Court of Tax Appeals was not

misled in the language of the decision now on appeal: "That the petitioner Ker & Co.,

Ltd. is, by contractual stipulation, an agent of U.S. Rubber International is borne out by

the facts that petitioner can dispose of the products of the Company only to certain

persons or entities and within stipulated limits, unless excepted by the contract or by the

Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon

consignment the products, which remain properties of the latter company (Par. 8); that

every effort shall be made by petitioner to promote in every way the sale of the products

(Par. 3); that sales made by petitioner are subject to approval by the company (Par. 12);

that on dates determined by the rubber company, petitioner shall render a detailed

report showing sales during the month (Par. 14); that the rubber company shall invoice

the sales as of the dates of inventory and sales report (Par. 14); that the rubber

company agrees to keep the consigned goods fully insured under insurance policies

payable to it in case of loss (Par. 15); that upon request of the rubber company at any

time, petitioner shall render an inventory of the existing stock which may be checked by

an authorized representative of the former (Par. 15); and that upon termination or

cancellation of the Agreement, all goods held on consignment shall be held by petitioner

for the account of the rubber company until their disposition is provided for by the latter

(Par. 19). All these circumstances are irreconcilably antagonistic to the idea of an

independent merchant." 14 Hence its conclusion: "However, upon analysis of the

contract, as a whole, together with the actual conduct of the parties in respect thereto,

we have arrived at the conclusion that the relationship between them is one of

brokerage or agency." 15 We find ourselves in agreement, notwithstanding the able

brief filed on behalf of petitioner by its counsel. As noted at the outset, we cannot heed

petitioner's plea for reversal.

1. According to the National Internal Revenue Code, a commercial broker "includes

all persons, other than importers, manufacturers, producers, or bona fide employees,

who, for compensation or profit, sell or bring about sales or purchases of merchandise

for other persons or bring proposed buyers and sellers together, or negotiate freights or

other business for owners of vessels or other means of transportation, or for the

shippers, or consignors or consignees of freight carried by vessels or other means of

transportation. The term includes commission merchants." 16 The controlling decision

as to the test to be followed as to who falls within the above definition of a commercial

broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the language

of Justice J. B. L. Reyes, who penned the opinion: "Since the company retained

ownership of the goods, even as it delivered possession unto the dealer for resale to

customers, the price and terms of which were subject to the company's control, the

relationship between the company and the dealer is one of agency, ... ." 18 An excerpt

from Salisbury v. Brooks 19 cited in support of such a view follows: " 'The difficulty in

distinguishing between contracts of sale and the creation of an agency to sell has led to

the establishment of rules by the application of which this difficulty may be solved. The

decisions say the transfer of title or agreement to transfer it for a price paid or promised

is the essence of sale. If such transfer puts the transferee in the attitude or position of

an owner and makes him liable to the transferor as a debtor for the agreed price, and

not merely as an agent who must account for the proceeds of a resale, the transaction

is a sale; while the essence of an agency to sell is the delivery to an agent, not as his

property, but as the property of the principal, who remains the owner and has the right

to control sales, fix the price, and terms, demand and receive the proceeds less the

agent's commission upon sales made.' " 20 The opinion relied on the work of Mechem

on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote

treatises on Sales, were likewise referred to.

Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or

appreciate the necessity or presence of these mutual requirements and obligations on

any theory other than that of a contract of agency. Salisbury was to furnish the mill and

put the timber owned by him into a marketable condition in the form of lumber; Brooks

was to furnish the funds necessary for that purpose, sell the manufactured product, and

account therefor to Salisbury upon the specific terms of the agreement, less the

compensation fixed by the parties in lieu of interest on the money advanced and for

services as agent. These requirements and stipulations are in tent with any other

conception of the contract. If it constitutes an agreement to sell, they are meaningless.

But they cannot be ignored. They were placed there for some purpose, doubtless as the

result of definite antecedent negotiations therefore, consummated by the final written

expression of the agreement." 21 Hence the Constantino opinion could categorically

affirm that the mere disclaimer in a contract that an entity like petitioner is not "the agent

or legal representative for any purpose whatsoever" does not suffice to yield the

conclusion that it is an independent merchant if the control over the goods for resale of

the goods consigned is pervasive in character. The Court of Tax Appeals decision now

under review pays fealty to such an applicable doctrine.

2. No merit therefore attaches to the first error imputed by petitioner to the Court of

Tax Appeals. Neither did such Court fail to appreciate in its true significance the act and

conduct pursued in the implementation of the contract by both the United States Rubber

International and petitioner, as was contended in the second assignment of error.

Petitioner ought to have been aware that there was no need for such an inquiry. The

terms of the contract, as noted, speak quite clearly. There is lacking that degree of

ambiguity sufficient to give rise to serious doubt as to what was contemplated by the

parties. A reading thereof discloses that the relationship arising therefrom was not one

of seller and purchaser. If it were thus intended, then it would not have included

covenants which in their totality would negate the concept of a firm acquiring as vendee

goods from another. Instead, the stipulations were so worded as to lead to no other

conclusion than that the control by the United States Rubber International over the

goods in question is, in the language of the Constantino opinion, "pervasive". The

insistence on a relationship opposed to that apparent from the language employed

might even yield the impression that such a mode of construction was resorted to in

order that the applicability of a taxing statute might be rendered nugatory. Certainly,

such a result is to be avoided.

Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax

Appeals which has developed an expertise in view of its function being limited solely to

the interpretation of revenue laws, this Court is not prepared to substitute its own

judgment unless a grave abuse of discretion is manifest. It would be to frustrate the

objective for which administrative tribunals are created if the judiciary, absent such a

showing, is to ignore their appraisal on a matter that forms the staple of their specialized

competence. While it is to be admitted that counsel for petitioner did scrutinize with care

the decision under review with a view to exposing what was considered its flaws, it

cannot be said that there was such a failure to apply what the law commands as to call

for its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached

a result to which the Court in the recent Constantino decision gave the imprimatur of its

approval.

WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With

costs against petitioner.