Article 1544

Severino Baricuatro, Jr., vs. Court of Appeals, Tenth Division, Mariano B. Nemenio and Felisa V. Nemenio, Constantino M. Galeos and Eugenio V. Amores

February 9, 2000 G.R. No. 105902 Buena, J.: FACTS:

Baricuatro bought two lots, part of the Victoria Village, on installments basis from Galeos on October 16, 1968.

Two months from the date of the previous sale, Galeos sold the entire subdivision, including the two lots, to Amores. Baricuatro was informed by Galeos about the sale and was advised to pay the balance of the purchase price of the two lots directly to Amores. Amores took possession of the subdivision and developed the same for residential purposes. He secured the transfer of the title to the same in his name. Afterwards, he sold the two lots of the spouses Mariano and Felisa Nemenio. Prior to the sale, Baricuatro was informed through a letter by Amores about the impending sale of the two lots but the former failed to respond. Nemenio spouses demanded from Baricuatro to vacate the said lots but the latter refused to do so. Trial court rendered a decision, declaring Nemenio spouses as the owners of the disputed lot. Court of Appeals affirmed in toto the judgment of the trial court. ISSUE: 1. Whether the sale made to Amores by Galeos is valid? 2. Whether the Nemenio spouses are purchasers in good faith? RULING: Issue 1 Amores was in good faith when he bought the subdivision; however, when he registered his title he already had knowledge of the previous sale. Such knowledge tainted his registration with bad faith. In addition, the agreement to collect the balance of the purchase price of the disputed lots from Baricuatro which presupposes knowledge of the previous sale by Amores.

Under Art. 1544, the ownership of an immovable property shall belong to the purchaser who in good faith registers it first in the registry of property. (Uraca vs Ca) “The second buyer must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior registration as provided by law.” This means that the good faith of the purchaser should be from the time of the perfection of the sale until up to the time that he be declared the sole and true owner of the property. Issue 2 Nemenio spouses only visited the lots ten months after the sale which was evidenced during the trial of the case. And so, they cannot claim to be purchasers in good faith when they registered the title. The registration made by the spouses were done in bad faith, hence, it amounted to no inscription at all. Decision of CA is REVERSED.

Article 1589 GREGORIO FULE, vs COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO [G.R. No. 112212 March 2, 1998; Third Division] ROMERO, J.: FACTS Gregorio Fule (petitioner), a banker by profession and a jeweler at the same time, acquired a 10-hectare property in Tanay, Rizal (Tanay property). Petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva Mendoza to look for a buyer who might be interested in the Tanay property. The two found Dr. Ninevetch Cruz (private respondent). It so happens that at that time petitioner had shown interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz which he had seen when his mother examined and appraised them as genuine. Petitioner then made a bid to buy them but Dr. Cruz declined the offer. At that point former inspected said jewelry at the lobby of the Prudential Bank branch in San Pablo City and then made a sketch thereof. Having sketched the jewelry then gave them back to Dr. Cruz. Subsequently, negotiations for the barter of the jewelry and the Tanay property ensued. When Dr. Cruz had later agreed to the proposal, petitioner went to Prudential Bank once again to take a look at the jewelry. In the afternoon of October 23, 1984, petitioner met Atty. Belarmino (Dr. Cruz’s lawyer) at the latter's residence to prepare the documents of sale. The Attorney accordingly caused the preparation of a deed of absolute sale while petitioner and Dr. Cruz attended to the safekeeping of the jewelry. The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally execute a deed of absolute sale. Petitioner signed the deed. Since the jewelry was appraised only at P160,000.00, the parties agreed that the balance of P40,000.00 would just be paid later in cash. Thereafter the petitioner headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz (who arrived later) and the cashier then opened the safety deposit box, the former retrieving a cellophane bag with the jewelry inside and handing over the same to petitioner. The latter took the jewelry from the bag, went near the electric light at the bank's lobby, held the jewelry against the light and examined it for ten to fifteen minutes. After a while, Dr. Cruz asked, "Okay na ba iyan?" Petitioner expressed his satisfaction by nodding his head. Later, at about 8:00 o'clock in the evening of the same day, petitioner arrived at the

residence of Atty. Belarmino complaining that the jewelry given to him was fake. He then used a tester to prove the alleged fakery. On October 26, 1984, petitioner filed a complaint before the Regional Trial Court (RTC) against private respondents praying, among other things, that the contract of sale over the Tanay property be declared null and void on the ground of fraud and deceit. RTC, as affirmed by the Court of Appeals, held the earrings uses as consideration for the sale was delivered by Dr. Cruz to the petitioner as genuine. Hence this petition. ISSUE Whether or not the deed of sale of the Tanay property is null and void. RULING PETITION DENIED. The contract of barter or sale is valid. The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience, and registration of the instrument only adversely affects third parties. Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract and the contractual rights and obligations of the parties there under. It is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr. Cruz. As such, they are bound by the contract unless there are reasons or circumstances that warrant its nullification. Hence, the problem that should be addressed in this case is whether or not under the facts duly established herein, the contract can be voided in accordance with law so as to compel the parties to restore to each other the things that have been the subject of the contract with their fruits, and the price with interest.

Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. Accordingly, petitioner now stresses before this Court that he entered into the contract in the belief that the pair of emerald cut diamond earrings was genuine. On the pretext that those pieces of jewelry turned out to be counterfeit, however, petitioner subsequently sought the nullification of said contract on the ground that it was, in fact, "tainted with fraud" such that his consent was vitiated. There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. The records, however, are bare of any evidence manifesting that private respondents employed such insidious words or machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially accede to petitioner's proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry which was valued only at P160,000.00. If indeed petitioner's property was truly worth that much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the Tanay property. Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of sale. Even assuming that he did, petitioner cannot successfully invoke the same. To invalidate a contract, mistake must "refer to the substance of the thing that is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract." An example of mistake as to the object of the contract is the substitution of a specific thing contemplated by the parties with another. In his allegations in the complaint, petitioner insinuated that an inferior one or one that had only Russian diamonds was substituted for the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to prove the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution. Likewise, the facts as proven do not support the allegation that petitioner himself could be excused for the "mistake." On account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the intellectual capacity and the business acumen as a banker to take precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. The fact that he had seen the jewelry before October 24, 1984 should not have precluded him from having its genuineness tested in the presence of Dr. Cruz. Had he done so, he could have avoided the present situation that he himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry for a fake inevitably points to him. Such a mistake caused by manifest negligence cannot invalidate a

juridical act. As the Civil Code provides, "(t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract." Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil Code within which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he was satisfied with the same. 29 By taking the jewelry outside the bank, petitioner executed an act which was more consistent with his exercise of ownership over it. This gains credence when it is borne in mind that he himself had earlier delivered the Tanay property to Dr. Cruz by affixing his signature to the contract of sale. That after two hours he later claimed that the jewelry was not the one he intended in exchange for his Tanay property, could not sever the juridical tie that now bound him and Dr. Cruz. The nature and value of the thing he had taken preclude its return after that supervening period within which anything could have happened, not excluding the alteration of the jewelry or its being switched with an inferior kind. Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the nullification of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz and petitioner, respectively, upon the actual and constructive delivery thereof. Said contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing sold since there was no stipulation in the contract that title to the property sold has been reserved in the seller until full payment of the price or that the vendor has the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Such stipulations are not manifest in the contract of sale. While it is true that the amount of P40, 000.00 forming part of the consideration was still payable to petitioner, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of ownership and possession of the things exchanged considering the fact that their contract is silent as to when it becomes due and demandable. Neither may such failure to pay the balance of the purchase price result in the payment of\interest thereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee "for the period between the delivery of the thing and the payment of the price" in the following cases:

Should it have been so stipulated;

Should the thing sold and delivered produce fruits or income;

Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.

Not one of these cases obtains here. There is no stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither did petitioner demand payment of the price as in fact he filed an action to nullify the contract of sale.

Article 1602 DIONISIA DORADO VDA. DE DELFIN, petitioner vs. SALVADOR DELLOTA, respondent. January 28, 2008 G.R. No.143697 FIRST DIVISION Ponente: SANDOVAL-GUTIERREZ FACTS: Dionisia Dorado Delfin is the registered owner of Lot in Capiz with an area of 143,935 square meters. Dionisia executed an Escritura De Venta Con Pacto de Retro over 50,000 square meters in favor of Ildefonso Dellota and Patricia Delfin. Dionisia sold another portion to Gumersinda Deleña as evidenced by a notarized “Deed of Sale with Right of Redemption” thus, leaving an unsold area of more than 43,000 square meters. Dionisia never redeemed this 50,000 square meter portion from Gumersindo. On October 12, 1956, Dionisia executed a “Deed of Mortgage and Promise To Sell” in favor of Salvador over a 90,000-square meter portion of Lot No. 1213, without specifying whether it included the 50,000-square portion sold (with right of redemption) to Gumersindo. On June 8, 1964, Dionisia filed with the then Court of First Instance, Branch 2, Roxas City, a complaint for recovery of possession and damages with an application for a writ of preliminary mandatory injuction. For his part, Gumersindo filed a motion for intervention. On April 30, 1991, after the hearing/proceedings lasting for almost three decades, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered:

1. Ordering defendant Genoveva D. Dellota to allow the plaintiffs to redeem the 40,000-

square meter portion of subject Lot 1213, Panitan Cadastre, after plaintiffs shall have

paid the defendant the amount of P2,000;

2. Declaring the ownership over the 50,000-square meter portion of the subject lot as

consolidated by operation of law to and in the name of the Interventors and heirs of

Gumersindo Delena; and

3. Ordering the plaintiffs to pay the costs of this suit.

SO ORDERED. On appeal by Dionisia, the Court of Appeals rendered a Decision affirming in toto the judgment of the trial court. Hence, the present petition. Dionesia’s heirs now contend that the Deed of Sale with Right of redemption entered into by Dionisia and Gumersindo is an equitable mortgage. They insist that the price of P5, 300.00 for 5 hectare portion is grossly inadequate. ISSUE: Whether the transaction entered into by Dionisia is an equitable mortgage. RULING: An EQUITABLE MORTGAGE is one that although lacking in some formality, form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to change a real property as security for a debt and contain nothing impossible or contrary to law. The decisive factor is the intention of the parties. There is gross inadequacy in price if a reasonable man will not agree to dispose of his property. The court finds no cogent reason to conclude that the 1949 price of P5,300.00 as agreed upon by the parties was unreasonable. There is no evidence herein whatsoever to show that Dionisia did not understand the ramifications of her signing the Deed of Sale with Right of Redemption. Nor is there any showing that she was threatened, forced or defrauded into affixing her signature on the said contract. If the terms of the pacto de retro sale were unfavorable to Dionisia, this Court has no business extricating her from that bad bargain. Courts are not guardians of persons who are not legally incompetent.

ERLINDA SAN PEDRO vs. RUBEN LEE and LILIAN SISON G.R. No. 156522 May 28, 2004 FIRST DIVISION YNARES-SANTIAGO, J.: Facts: The parties in this case executed the "Kasulatan ng Ganap na Bilihan ng Lupa", which states that the petitioner is the true owner of a parcel of land located in Bulacan, which is selling to the respondents for the amount of P150,000. The document bears two signatures above the typewritten words "ERLINDA SAN PEDRO, Nagbibili". It contains the signatures of two witnesses. Petitioner claims that she approached one Philip dela Torre, who introduced her to respondent. From Lee and his wife Lilian Sison, Petitioner was able to secure a loan in the amount of P105, 000.00, with interest of P45, 000.00, or a total indebtedness of P150,000.00. As security for this loan, she agreed to mortgage a parcel of agricultural land located in Bulacan. Petitioner claims that Atty. Roxas and Lee coerced her to sign the "Kasulatan" and that the document was executed merely as written evidence of the loan and mortgage. Respondents, on the other hand claim that the sale of the property in question was brokered by their mutual acquaintance and broker, Philip dela Torre. They thus negotiated for the purchase of the property, which had an initial asking price of P200, 000.00, and offered to pay P150, 000.00 thereof. San Pedro accepted their offer and agreed to sell the land. The trial court rendered a decision in favor of petitioner. On appeal, the Court of Appeals reversed the trial court, and rendered a decision in favor of respondents. Issue: Whether the contract in question is an equitable mortgage or a deed of absolute sale. Ruling: The document appears on its face to be a contract of sale, and contains the following clause: “Na dahil at alang-alang sa halagang ISANG DAAN AT LIMAMPUNG LIBONG PISO (P150,000.00), Salaping Pilipino, na ngayong araw na ito ay ibinayad sa akin at tinanggap ko naman ng buong kasiyahang-loob bilang husto at ganap na kabayaran ni RUBIN T. LEE, may sapat na gulang, Pilipino, kasal kay Lilian Sison at naninirahan sa 230 MacArthur Highway, Karuhatan, Valenzuela, Metro Manila, aking IPINAGBIBILI, ISINASALIN at INILILIPAT ng ganap at patuluyan at walang anumang pasusubali o pananagutan, ang lahat at boo [sic] kong karapatan at pagmamay-ari at pamumusesyon sa nabanggit na lagay ng lupa at mga kaunlaran o mejoras na

dito ay makikita o nakatirik o matatagpuan sa nasabing RUBIN T. LEE at sa kanyang mga tagapamana o kahalili.” It is well-settled that the presence of even one of the foregoing circumstances is sufficient to declare a contract as an equitable mortgage, in consonance with the rule that the law favors the least transmission of property rights.For the presumption of an equitable mortgage to arise under Article 1602, two requisites must concur: (1) that the parties entered into a contract denominated as a sale; and (2) that their intention was to secure an existing debt by way of a mortgage. WHEREFORE, premises considered, the decision of the Court of Appeals dated November 20, 2002, which dismissed the complaint filed by petitioner for lack of merit, is AFFIRMED.

Article 1603 SPOUSES OCTAVIO and EPIFANIA LORBES, petitioners, vs. COURT OF APPEALS, RICARDO DELOS REYES and JOSEFINA CRUZ, respondents. G.R. No. 139884 February 15, 2001 GONZAGA-REYES, J.: Facts: Petitioners were the registered owners of a 225-square meter parcel of land located in Antipolo, Rizal covered by Transfer Certificate of Title No. 165009. Sometime in August 1991, petitioners mortgaged this property to Florencio and Nestor Carlos in the amount of P150,000.00. About a year later, the mortgage obligation had increased to P500,000.00 and fearing foreclosure of the property, petitioners asked their son-in-law, herein private respondent Ricardo delos Reyes, for help in redeeming their property. Private respondent delos Reyes agreed to redeem the property but because he allegedly had no money then for the purpose he solicited the assistance of private respondent Josefina Cruz, a family friend of the delos Reyeses and an employee of the Land Bank of the Philippines. It was agreed that petitioners will sign a deed of sale conveying the mortgaged property in favor of private respondent Cruz and thereafter, Cruz will apply for a housing loan with Land Bank, using the subject property as collateral. It was further agreed that out of the proceeds of the loan, P500,000.00 will be paid to the Carloses as mortgagees, and an such balance will be applied by petitioners for capital gains tax, expenses for the cancellation of the mortgage to the Carloses, transfer of title to Josefina Cruz, and registration of a mortgage in favor of Land Bank. Moreover, the monthly amortization on the housing loan which was supposed to be deducted from the salary of private respondent Cruz will be reimbursed by private respondent delos Reyes. On September 29, 1992, the Land Bank issued a letter of guarantee in favor of the Carloses, informing them that Cruz’s loan had been approved. On October 22, 1992, Transfer Certificate of Title No. 165009 was cancelled and Transfer Certificate of Title No. 229891 in the name of Josefina Cruz was issued in lieu thereof. On November 25, 1992, the mortgage was discharged. Sometime in 1993, petitioners notified private respondent delos Reyes that they were ready to redeem the property but the offer was refused. Aggrieved, petitioners filed on July 22, 1994 a complaint for reformation of instrument and damages with the RTC of Antipolo, Rizal, docketed as Civil Case No. 94 3296.

In the complaint, petitioners claimed that the deed was merely a formality to meet the requirements of the bank for the housing loan, and that the real intention of the parties in securing the loan was to apply the proceeds thereof for the payment of the mortgage obligation. They alleged that the deed of sale did not reflect the true intention of the parties, and that the transaction was not an absolute sale but an equitable mortgage, considering that the price of the sale was inadequate considering the market value of the subject property and because they continued paying the real estate taxes thereto even after the execution of the said deed of sale. On June 20, 1995, the trial court rendered judgment in favor of petitioners, upon finding that: (1) the Deed of Absolute Sale dated October 21, 1992 did not reflect the true intention of the parties, and (2) the transaction entered into between petitioners and Cruz was not an absolute sale but an equitable mortgage, considering that the price stated in the Deed of Absolute Sale was insufficient compared to the value of the property, petitioners are still in possession of the property, and petitioners had continued to pay the real estate taxes thereon after the execution of the said deed of sale. The Court of Appeals reversed the above decision, finding that the transaction between petitioners and Cruz was one of absolute sale, not of equitable mortgage. To the Court of Appeals, the transaction was unmistakably a contract of sale, as evidenced by the numerous supporting documents thereto, such as the Contract to Sell dated June 1992, Affidavit of Waiver/Assignment dated August 14, 1992, Receipt of Partial Advance Payment dated September 9, 1992, and Transfer Certificate of Title No. 229891 issued in the name of private respondent Cruz. ISSUE: Whether or not the alleged sale was an equitable mortgage HELD: YES, the sale was indeed an equitable mortgage. The Supreme Court held that the conditions which give way to a presumption of equitable mortgage, as set out in Article 1602 of the Civil Code, apply with equal force to a contract purporting to be one of absolute sale. Moreover, the presence of even one of the circumstances laid out in Article 1602, and not a concurrence of the circumstances therein enumerated, suffices to construe a contract of sale to be one of equitable mortgage. This is simply in consonance with the rule that the law favors the least transmission of property rights. Thus, under Article 1602 of the Civil Code, a contract shall be presumed to be an equitable mortgage when --- (a) the price of a sale with right to repurchase is unusually inadequate; (b) the vendor remains in possession as lessee or otherwise; (c) upon or after the expiration of the right of repurchase another instrument extending the period of redemption or granting a new period is executed; (d) the purchaser retains for himself a part of the purchase price; (e) the vendor binds himself to pay the taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

Applying the foregoing considerations to the instant case, the Court found that the true intention between the parties for executing the Deed of Absolute Sale was not to convey ownership of the property in question but merely to secure the housing loan of Cruz, in which petitioners had a direct interest since the proceeds thereof were to be immediately applied to their outstanding mortgage obligation to the Carloses. Understandably, the Deed of Absolute Sale and its supporting documents do not reflect the true arrangement between the parties as to how the loan proceeds are to be actually applied because it was not the intention of the parties for these documents to do so. The sole purpose for preparing these documents was to satisfy Land Bank that the requirement of collateral relative to Cruz’s application for a housing loan was met. The facts further bear out that petitioners remained in possession of the disputed property after the execution of the Deed of Absolute Sale and the transfer of registered title to Cruz in October 1992. Cruz made no demand on petitioners to vacate the subject premises until March 19, 1994; interestingly, this was two days after petitioners signified their intention to redeem the property by paying the full amount of P600,000.00. On this basis, the finding of respondent court that petitioners remained in possession of the property only because they refused to vacate on Cruz’s demand is not accurate because the records reflect that no such demand was made until more than a year since the purported sale of the property. From the above, the Court is satisfied that enough of the circumstances set out in Article 1602 of the Civil Code are attendant in the instant case, as to show that the true arrangement between petitioners and private respondent Cruz was an equitable mortgage.